Back in the days of Duran Duran and new wave hairdos, things were a lot simpler for television distributors. During the ’80s, filmmakers would approach them with a program, they’d see if it fit their catalog and – if it did – they’d take it and sell, sell, sell.
Today, business isn’t as cut and dry. Take Devillier Donegan Enterprises and its recent business model revamp. Considered by many to be the template for distributors, the Washington, D.C.-based company has made considerable changes over the past few months.
DDE VP of worldwide sales and marketing Linda Ekizian admits the company ‘hit a financial wall’ last fall, and made the decision to suspend financing in original productions. ‘We realized we were spending more than we were earning, and that cash flow wasn’t strong,’ says Ekizian. ‘[The move] was dramatic, but we had to do it.’ Internal restructuring also saw five people lose their jobs; the company now has eight employees.
Gone is the era when, in the early ’90s, DDE was able to offer up to 50% of the budget to producers who had a broadcaster like PBS onboard. At that time, the company was partly owned by Capital Cities/ABC, which was bought by the Walt Disney Company in 1996. In 2002, DDE became a stand-alone company when its founders, Ron Devillier and Brian Donegan, bought back the ownership of the company from Disney. Lacking a corporate benefactor, Ekizian says the ability to contribute large investments upfront became impossible. In fact, she says, up to 80% of a budget had to be covered internationally for dde not to lose money on projects.
Today, Buena Vista still represents DDE, which has about 250 hours in its international catalog. But reminiscing over her 20 years in TV distribution, Ekizian confesses, ‘I’ve witnessed many companies come and go. It’s hard to sustain.’
Fiona Crago, general manager at Sydney-based Beyond Distribution, agrees. She has noticed a decline in the economics of TV distribution over the last decade. ‘They’ve gotten significantly worse because of limited slots, saucy broadcasters, reality, cheap local programming, reduced license fees and ever-increasing costs,’ she says.
Connecticut-based Cableready CEO Gary Lico can relate to the issue of rising expenses. ‘No one’s charging me less to fly to a market, put up a booth at mipcom, or put a program on videotape, so the overhead’s not going down – it’s increasing.’ Lico says it costs nearly a third of Cableready’s yearly net revenue to exhibit at four conventions, travel to visit clients, and hold social events.
Even while overheads climb, some distributors charge as low as a 20% commission, though 25% to 30% is the average range. As for those accepting low commissions, Amsterdam-based Off the Fence managing director Ellen Windemuth suspects they ‘simply want to bulk up to go public or want to sell the company.’ Windemuth calls anything under 25% ‘business suicide.’
No matter what cut a distributor takes, it’s clear that broadcasters are looking to improve their terms. ‘You see it all the time,’ says Crago. ‘They’ve got more bargaining power than distributors, so they’re increasingly asking for more rights and runs.’ Crago believes broadcasters are giving as much as 50% less than they were 10 years ago for the international license fees to finished programs.
Part of this trend stems from the fact that broadcasters are now operating more platforms, like digital channels, says Louise Rosen, managing director of Boston-based Louise Rosen Ltd. ‘On one level, they’ve got more mouths to feed, but they don’t necessarily have more of a budget, or more advertising revenue to immediately support these new channels,’ says Rosen.
However, Peter Worsley, managing director of TV at London-based Eagle Rock Entertainment, sees opportunity in the number of nets looking to expand internationally, and recently did a major package with aetn’s History International that allowed Eagle to sell programs for a high six-figure sum. He says it wouldn’t have fetched that if History had just been buying for a single market.
But Worsley has also detected a shortage of programming that works internationally, and believes the trend for terrestrial broadcasters to use more domestic programming is problematic for distributors.
What distrib’s libraries lack in international appeal, they make up for with quantity. Over the past couple of years, Rosen has seen small- and medium-sized distribs scrambling for a higher volume of programming. At Brussels’ CDC United Network, international acquisitions manager Adam Weiner says his business model has shifted to use producers who regularly turn out large amounts of high-end productions, and finds these filmmakers have a greater understanding of pricing than smaller producers do.
Working with producers who aren’t price savvy can be an exercise in patience, says Olivier Brémond, CEO of Paris-based Marathon. ‘We have to talk with them for an hour to explain that in Poland, even though it’s 30 million people, [broadcasters] are paying E1,200 (US$1,600) per hour, and there is nothing we can do about it,’ says Brémond. ‘These producers believe their program is totally unique, which is good – but it’s not true.’
Brémond noticed 10 years ago that new stations would pop up, then disappear without paying for a program, but says he doesn’t encounter this problem anymore. Beyond’s Crago, however, has become much more aggressive about managing cash flow, and uses dedicated debt collectors when necessary. As well, Beyond now often asks for payment upfront when dealing with new channels.
While OTF’s Windemuth doesn’t find that broadcasters are currently taking more rights or territories, she says they’re definitely giving less funding to producers. ‘I think broadcasters are under great pressure in non-fiction to achieve high ratings, but they are given less money and far fewer slots to prove themselves,’ says Windemuth.
Another reason broadcasters may be dishing out less dough is related to the increase of rights recently awarded to producers in the U.K. In any environment where broadcasters see less of the back end, they are less likely to fully finance a project. As Tom Koch, director at Boston-based WGBH International, puts it: ‘It creates a negative incentive for the broadcaster to want to put in 100% of the funding. If they’re not going to be able to realize a significant return on that investment, there’s very little likelihood they’re going to put in 100%.’
But Koch reveals another aspect to consider in today’s funding environment: ‘Not many broadcasters have the money to fund programs at 100%. The question is: Why should they? Companies that are able to do international coproduction deals may be the victims of their own success because a broadcaster can say, ‘Wait a minute, I only have to put in 50% of the budget to get the same rights that I would normally give 100% to get? Then I’m only going to pay 50%.’ Koch says that in these tight times, broadcasters often feel the other 50% of funding will have to be raised elsewhere, especially since few broadcasters can even fund their own prize projects internally.
Windemuth agrees that broadcasters are less able to front cash flow for coproductions. ‘It used to be possible to finance $600,000 or $700,000 one-hour films. What happens now is you can raise about $450,000 for a production, and then you have to be lucky. Of that, broadcasters might be able to cash flow two-thirds, maximum,’ she says. For that reason, Windemuth believes distributors need to take a stronger role in the financing of coproductions.
One approach Rosen says is continuing is straight acquisition deals in which broadcasters (particularly the increasingly important cable and satellite services) try to extend payment terms. Rather than pay for a program when they get it or when the license period starts, some nets try to pay for it over a longer period. ‘That’s a very inappropriate business practice,’ says Rosen.
‘It allows the broadcaster to claim the product as a full asset, even though they haven’t paid for it in full, and start depreciating it for tax purposes right away.’ She adds, ‘When you buy something, you pay for it. I don’t have the arrangement with my grocery store that I can buy my groceries now, but pay for them over the next two years, even though I eat them next week. It’s bizarre.’
When it comes to distribs giving advances, things at Marathon have changed over the last couple of years. Brémond says while the company used to give as much as $20,000 per hour as an advance – and recoup those funds most of the time – he has almost no budget for advances today. Rather than fund a program for which he doesn’t hold the rights, Brémond would rather invest in a Marathon production and keep the rights.
If a non-fiction producer approaches Brémond looking for funding, he says Marathon will either coproduce or hunt for presales. For example, Marathon found E30,000 ($40,000) worth of presales in France for a new Finnish/British film called Snake, produced by Jan Wellmann and Anil Goel of GW Pictures. The film, which tells the story of reputed serial killer Charles Sobhraj, was pre-sold to Five in the U.K. ‘It is only distribution, not a production deal, but we don’t take any risk,’ says Brémond.
Retail DVD and home video are also part of Marathon’s business model, as is the case with most distributors. At OTF, Windemuth says she is actively working in dvd retail (it makes up about 5% of her revenues), and is also developing ties with book publishing companies.
At Off the Fence, more films are also being produced in HD to attract feature doc outfits as coproduction partners, and tap into theatrical subsidies.
Rosen notes that the success of MoveOn.org selling Robert Greenwald’s docs online shows that, ‘In many respects, we’re looking at the return to grassroots marketing.’ This gives political and social docs an outlet through which to access the public.
Getting closer to the consumer is key to the future of TV distribution, says Eagle’s Worsley. Looking forward, a World War II buff may be able to use an online search engine to get to the Eagle server, and then download a film on his TiVo or PVR. ‘Then maybe we’d charge him $10, keep $8.50, and pay $1.50 to the telco that’s actually supplying the wires.’
Cableready’s Lico believes the future will bring more TV distribution mergers. ‘I don’t see anything pulling in the direction of less consolidation, but I think more voices and more players keep the market healthy and honest.’
Some distributors have noticed a small improvement in the health of the market over the last year or so. ‘Our revenue improved by about 20% in 2004 on 2003,’ says Beyond’s Crago. And while the business plan at WGBH International didn’t see any major transformations over the last two years, Koch says revenues in 2004 were up 25% over 2003.
Even while adjusting to the substantial changes in DDE’s business model, Ekizian remains positive, concluding, ‘Distributors have always outnumbered broadcasters, and the inventory over time has obviously increased. So, yes, it’s gotten competitive, but you have to be optimistic and believe that the product you have will find a place.’