Not long ago I read a newspaper article about Discovery’s decision to add a new clause to its contracts. The clause says that if an independent producer licenses a program to Discovery, he or she cannot license it to National Geographic for at least five years from the start of the Discovery license period.
In the article, NBC’s former head negotiator commented that, compared to Bethesda, U.S.-based Discovery, ‘we were pussycats.’ This remark did not surprise me, having spent nearly a decade in Discovery’s senior ranks, including three years as head of business affairs for its U.S. net- works. Cable programmers have always focused on the bottom line and know how to cut efficient deals.
While many producers may find the new clause irritating, it will have little impact on their income. Its real significance is as an indicator of the heightened sense of competitiveness in the television industry – in this case, between well-established Discovery and fast-growing Nat Geo. The good news for producers is that this increased competitiveness could give them more leverage in their business dealings with cable networks.
Historically, because non-fiction producers had few other places to take their program ideas, cablecasters were able to negotiate deals offering producers only modest fees and few residual rights. In recent years, some cablenets also adopted a practice in which producers pay them a share of net profits. Equity investors, who put up risk money, often get this kind of net participation. But, since the dollars invested by the networks usually equal the known value of the TV rights they are acquiring, the net participation allows them, in effect, to share in the program’s equity without assuming any financial risk.
Producers have not yet felt the impact of this policy, but it’s a time bomb for anyone who hopes to build long-term profitability by retaining copyrights. If those producers ever want to sell their libraries, a prospective buyer will certainly reduce the price to reflect the dollars that will go to the network.
However, the enduring profitability of the cable network business model has not gone unnoticed, and new competitors are entering the marketplace. Each of these newcomers needs programming and is a potential customer for producers.
More importantly, the established networks are forced to wrestle with the challenge of programming to an increasingly fragmented and fickle viewing base. The bigger ones are increasing their budgets and aggressively seeking programs that will ‘cut through the clutter’ and help them hold their audiences – witness the recent decision by A&E to revamp its schedule with more original documentary programming, to complement a reinvigorated ‘Biography’ strand, and more high-quality original films.
The current favorite solution is reality programming, but the popularity of these formats will inevitably fade, and other innovative concepts will be needed. Producers who can meet these needs will have a strong bargaining hand.
Finally, there’s that all-important bottom line. As broadcast and cable networks spend freely on blockbuster shows to build audiences, they will need more low-cost non-fiction programs to round out their schedules and stay within their overall budgets. This increasing demand for affordable programming will give producers extra leverage to negotiate better deals.
Yes, the cable networks are tough negotiators. But, their industry is in a state of unprecedented change, and heightened competition is a fact of life for all programmers. Independent producers who can supply the programming these networks need, whether it is blockbusters or low-budget shows, are likely to see rising demand – and budgets – for their work. And since the balance between supply and demand is the law of this jungle, the shifts we’re witnessing should translate into better deals for producers.
Robert Wise, an entertainment attorney, is a partner with Mitchell Silberberg & Knupp LLP in Washington, D.C.