After over two years as managing director of Channel 4 International, and a decade in the factual industry – including three as the owner of his own prodco (Cahoots) – Bernard Macleod recently called it quits. Neither production nor distribution interests him right now, but his experience won’t go to waste; he plans to stay in the business as a consultant.
Over the years, Macleod witnessed the development of the multi-channel era and the opportunities it offered. However, for all the increase in demand, he saw factual remain the poor relation to other genres, partly as a result of the favored financing model – using up rights to fund projects.
As the multi-platform era gains momentum, Macleod advises doc-makers to assume a business-oriented stance, and fast. The potential alternative – as several doc-makers and distribs learned last year – is bankruptcy.
What frustrated you about the factual industry?
What frustrated me most about the factual industry was that people would not recognize what the market wanted and cater to it. In many cases it was, ‘If I make it, they will come,’ rather than, ‘What do they want and then I’ll make that according to what sells’. The commercial realities of the marketplace were often ignored by producers and sometimes by broadcasters. Even we [C4] were guilty of it, if you look at things in the cold light of day. Should you make something if you can’t make a profit on it? It’s not that simple, but sometimes it should be.
Channel 4 was created to encourage the independent production community, which it did. But what it spawned is a very protected sector that in my mind is not plugged into the real economics of the business. In the U.K., producers want the broadcaster or [the distributor] to pay for the entire budget and then feel they should control the rights to that program, even though they aren’t taking any risk. That’s why I spent most of my time hitting my head against a brick wall.
What are the roots of the current approach to factual?
The last time there was great hope on the horizon was at the beginning of the multi-channel era over a decade ago. At that time, the opportunities were seemingly unlimited for anyone who could create content to fill the vast amounts of air time being spawned by satellite and cable roll-out and de-regulation. Although non-fiction programs were compelling and popular as content, people were not prepared to pay extra to see them. Rather like the Internet today, factual programming was recognized as a much needed staple of the multi-channel universe – so long as it was free. As a result, the funding model that emerged in the ’90s was not based on a subscription model, but more of a coproduction, multi-window model. Financing was pieced together from a number of sources, with the primary objective being securing enough to make the program budget. However, by using up rights to finance the making of the program, chances for longer term profits were limited.
What are the implications?
I think we’re seeing it with companies like [London-based] Café Productions. People really can’t hang around any longer waiting for this multi-channel thing to happen. I think the implications of that are that people have to rethink the model. The multi-channel universe outside of America is never going to be a great provider of programming, because the economics are never going to be able to afford it, based on the current model of production that says you need to spend X thousands of dollars to make a program. The general expectation is ‘this is how much it costs to make a program, so the cable channel attracting 10 people an hour should pay me that kind of money’. That simply doesn’t work. The multi-channel universe is purely this: a recycler of programming produced for the primary tier. Sure, in America that’s not quite true, as Discovery and A&E [et al] are more like primary tier, but there are the digital networks below that. There’s not a vast boom in production that people expected because there is not a vast boom in people watching television.
What do you think producers should do instead?
It’s very difficult. Perhaps raise their own money, not personally, but as a business. There is a very thin line between whether this is a personal activity or a business activity, and that is the problem. It’s either one or the other, let’s have no illusions about it. A well-financed
producer with good debt backing, or venture capital backing, or some risk capital attached to him can hang on for more. They’ll be at risk as directors of a company, but no more at risk than any other business.
In your opinion, what led to the demise of companies like Jane Balfour’s?
They were not acting under sensible business models. With Jane Balfour, she probably kept going for two or three years because of people’s attachment to her and what she stood for, as opposed to the business. [Jane Balfour Films went under in June 2000.]
Where is factual heading in the U.K.?
I think we’re going to see consolidation. Some big people will get bigger, some middle people will get swallowed up, and some small people will get smaller. There’s not a lot in the middle. You’ve either got Granada or Carlton, or you’ve got little guys who don’t have any money. Without money in the distribution game, there’s no point in being in it. I think where we’re at is halfway through a situation in which 90% of the output will be controlled by 10% of the companies.
Why is it moving this way?
The economies of scale are such that you can only start performing as a proper business if you’re big enough. Or you can go tiny and realize the fact that you’re not running a business, which is fine. No one is saying that you have to run a business. It’s the people who try to maintain a business profile with a non-viable business plan that are boom-bust – no fixed assets, no guaranteed cash flow. It’s a nightmare. I would never be an independent producer.
What’s the big lesson of the last ten years?
Don’t overestimate the future in the same way the multi-channel universe was overestimated. Look at market realities. At the moment, the market dictates price, but nothing’s happening to the cost. With a pure economic model, price is created by the market and someone makes the product to fit the price. It’s just economics. Admittedly, in TV it’s very difficult because there are certain fixed assets, fixed costs that are hard to reduce, but people need to create product that’s economically suited to that market. The fact is that outside of the U.K. and the U.S. marketplaces, if you want a distributor to invest money, the distributor will not put in more than £50,000, and that often is only 20% of the cost of the program. So they’re saying ‘I’ll take 80% of the world market for 20% of the cost’. It’s always going to be a marginal gain.
Do broadcasters need a new approach?
I don’t think broadcasters should change terribly. They have a business plan and they pursue it. Someone like Discovery drives one of the hardest deals in the business. I still contend that that deal does not help producers grow, and Discovery has to be careful they don’t screw up their own supply line by driving such a hard deal. But, they have business objectives and shareholder responsibilities, whereas a broadcaster such as Channel 4 doesn’t, but Channel 4 still has a duty to be economically sensible.
Are broadcasters going the way of the dinosaur?
This is a U.K. perspective: ‘I can get rid of broadcasters and dump the gatekeeper. Everyone will come to my server and pay me directly for watching my program.’ I’ve had some very intelligent people tell me that this is going to be good news for everybody, and it’s farcical. The technology for that is a very long way away, and you still need the broadcaster for the mass audience. You still need the person who is prepared to take the risk, to put up the money to make the program before anyone’s watched it. That’s what broadcasters do.
How should the cost base change in the multi-platform era?
If we are going into a multi-platform market where everything is pull – the customer ‘pulls’ down programming from servers, rather than having it ‘pushed’ at him via broadcasters – what is the rational risk you can take in that environment? It’s going to be very different from the rational risk you can take now in the multi-channel market. It’s going to be much less. Therefore, can you go out and make a million-dollar documentary about wildlife if in 15 years’ time you have no mass market to put it into? You probably can, because things of excellence and uniqueness will still attract lots of people, but on the other end of the spectrum you have a Channel 4 that’s spending on average US$250,000 an hour for programming that very few people watch. Put that into a multi-platform market and it’s ridiculous. We should be looking at how to make those programs that certainly have a market, but not a big one, for a fraction of the cost. Whether it involves teaching cameramen how to be sound people, directors to be cameramen, cameramen to be directors, I don’t know. In the news field they created one-person operations; maybe in TV, for a certain type of program that has an estimated small market, you have got to get rid of the five people in the field and put one. There’s still a need to serve them and there’s still certainly a purpose to serving them, but should you be serving them at the same price that you serve a much larger market? I’d say no.
What, if anything, would lure you back to the business?
Money, the lack of. [Laugh] At the moment, very little. I will remain involved on a consulting basis, not with Channel 4, but in the sector – if anyone will have me because I’ve been far too vocal about my feelings. There are a lot of challenges out there, I’m just not in a place right now where I want to pursue them. But, I think in time what would lure me back would be a major content play on a multi-platform model. Certainly not a distribution company. I think it’s a defunct business model in the long term. Maybe I’d like to re-invent distribution in the real sense of the word, in terms of multi-platform distribution.
I’d like to take some forward-thinking producers and really work out what the different cost bases are, and find out what the sensible, pragmatic approach to production is in the new era, because I think that will be a big opportunity. The people who are still saying, ‘I need $250,000 to make my one-hour program since that’s how much it cost five years ago,’ are the ones who are going to be in big trouble.
Any final suggestions?
Get out of it! Or get real and start running it as a business.
Bernard Macleod is a strategic consultant for the media business. He can be reached at firstname.lastname@example.org