Everyone knew the launch of new media legislation would make this a year of transition for British broadcasting. But the machinations at the top end of the industry have begun to make the Roman Empire look like a masterclass in stable management.
Not only did new broadcast regulator OFCOM launch (see sidebar, pg. 28), but a high-profile clash between the BBC and the government resulted in the departure of the pubcaster’s popular director general Greg Dyke. The vacuum created by Dyke was filled by Channel 4 CEO Mark Thompson. His C4 post, in turn, was filled by Andy Duncan, former bbc director of marketing, communications and audiences, and the architect of dtt platform Freeview.
Things have not been any smoother at commercial broadcaster ITV, where the merger of the network’s two dominant companies, Granada and Carlton, was quickly followed by the unceremonious dumping of itv chairman Michael Green. CEO Charles Allen is under pressure to find a way to appease shareholders by stemming the long-term decline of itv’s audience share. Should he go, Dyke is favored to replace him.
All this activity is of immense import to indie producers and distributors because the competitive pressures on broadcasters will have repercussions at the commissioning and financing coalface. In the meantime, indies are grappling with a seismic shift in the way they run their own commercial operations. Following the machinations of Parliament and the broadcaster’s game of musical chairs, there was a spate of mergers and acquisitions as prodcos and distribs tried to find their place in a radically different broadcast landscape – one that aims to put more money in the hands of indies.
A clearer picture
The 2003 Communications Act was designed to give indies a greater share of the secondary rights that flow out of their productions for U.K. broadcasters. In simple terms, U.K. broadcasters are now blocked from bundling deals for international and ancillary rights with the award of a commission. From now on, networks pay a set fee in return for a U.K. domestic license. Producers are then free to exploit secondary rights any way they see fit.
This move towards transparent trading is still in its early days, but there’s no question it is already having a redistributive effect in the market. In June, indie producer trade body pact negotiated a deal with broadcasters, under the supervision of OFCOM, which will see the BBC, Channel 4 and Five take a major cut in the share of secondary rights revenue they receive for shows they commission. pact notes that this shifts the balance from a 70 to 30 presumption in favor of the networks to 85 to 15 in favor of indies.
Couple that with the freedom indies now have to choose their own distributors and you have a significant shift of power, observes RDF International MD Matthew Frank. ‘As a producer of hit formats like Wife Swap,’ says Frank, ‘RDF will keep more of the money generated by its ideas. We would have added US$1.2 to $1.4 million to our bottom line if these terms of trade had been in operation last year.’
More importantly, says Frank, ‘our distribution business is now able to pitch for indies’ rights on a level playing field with broadcaster-distributors BBC Worldwide, C4I and Granada International. We used to survive on shows they passed over, now we’re securing product they also want.’ RDFI recently out-bid other distributors to represent Ricochet shows such as Risking it All (5 x 60-minutes, Channel 4) and Who Rules the Roost? (18 x 60-minutes).
For producers, the prospect of more money is having a number of repercussions. In London, FremantleMedia International Distribution (FID) acquisitions chief Mark Gray has, like Frank, prioritized factual programming. ‘There’s a different atmosphere among producers,’ notes Gray. ‘They are more aware of the potential value of rights internationally and in ancillary areas like DVD. They’re more willing to have a dialog about what will sell a show abroad.’
Savvy producers are also playing the field to see who can offer the best service and price. Pioneer Productions, for example, partnered with C4I on a two-part series about Krakatoa for C4, but is also in bed with FID on a raft of factual programs for the U.S. market. These include Naked Science and Tycoon’s Toys, both for National Geographic Channel U.S., and Million$Machines for Discovery Travel U.S.
Getting to know you…
With more opportunities available to them, many indies are choosing to forge partnerships to build expertise. Others see the current climate as the right time to expand – either through mergers with other indies or by using money sourced from city and private equity funds. In 2003, venture capital company 3i bought into Shine, investment bank Beringea backed the takeover of Zenith, Bridgepoint supported all3media’s £40m (us$73m) takeover of Chrysalis TV, Kleinwort Capital led a £23m ($42m) investment in Hat Trick, and Lloyds Development Capital took a stake in Mersey Television.
That activity has continued into 2004, with factual production the focus of the land grab. All3media, for example, has added factual producer Lion to the stable it picked up during its purchase of Chrysalis, creating a business with an annual turnover of £120m ($219m) – third largest after hit and Fremantle-owned Talkback Thames. Elsewhere, leading Glasgow-based indies Ideal World and Wark Clements merged to form IWC – a £20 million-a-year company ($36m) with strengths in factual, drama and children’s TV. Bob Geldof-backed Ten Alps also continued to expand, acquiring 3BM TV and Blakeway to sit alongside existing companies Brook Lapping and Ten Alps TV. Those acquisitions took group turnover to £16.73m ($31m) and placed it in the top-flight in terms of scale. RDF, currently turning over around £45m ($82m) a year, is looking at a rapid two- to three-year growth plan with a view to an IPO.
Moves towards a beefed-up production sector have also led to speculation about whether indies might seek to launch their own fully-fledged distribution operations. But as the dust settles, it’s clear that only a handful – notably RDF and All3Media – are serious about taking on the might of the U.K. majors in this complex and expensive arena.
Last year’s turnover figures underline the point. With BBC Worldwide (£168m or $306m), Granada International (£105m or $191m), FID (£39m or $71m) and C4I (£30m or $50m) the only distribs generating in excess of £15 million ($27 million) a year, they have the scale and expertise to manage an indie’s international ambitions. Frank’s counter-argument is that RDF is growing its catalog by 200 hours a year through ‘better reporting, personalized service and a competitive commission.’ Even so, there’s only space for a handful of indies to promote such a proposition before the market is over-saturated.
BBC Worldwide director of indies Helen Jackson says all the main distribs are trying to prove they’re ‘small enough to care, but big enough to deliver. In our case,’ she notes, ‘we saw changes coming and worked on improving and explaining our proposition to indies.’
Worldwide’s key strengths flow out of its scale – notably its ability to negotiate copros, fund development, manage risk and promote shows overseas. More specifically, it created a dedicated business affairs operation designed to demonstrate a clear separation between itself and the BBC. In the case of factual producers, Jackson also appointed a dedicated exec, Aine Doherty, to work with the sector. ‘The overall effect of these changes is that we are getting involved with projects at an earlier stage,’ says Jackson. Genre targets include history, science and lifestyle.
C4I’s Richard Life takes a similar line to Jackson: ‘It’s good that producers are now in a position to exercise real choice. But most realize there is a huge amount of backroom effort that goes into running a successful distribution business. Ninety-nine percent of our customers are still working with us because they’d rather focus their energies on developing and producing programs.’
Current C4I activities in factual center on companies such as London-based Darlow Smithson, Diverse, Zig Zag and Hard Cash. The latter has just signed a four-project development deal with C4I. ‘What producers are looking for in a distributor is support during development,’ explains Life.
IWC managing director Sue Oriel recently sent a brief of her expectations to three distributors with a view to establishing an exclusive relationship with one of them for the prodco’s factual slate. Aside from the financial terms they offer, she’s looking for a partner with local knowledge of international markets and ‘the willingness to market iwc as a brand.’
Yet, she’s keen not to overplay the importance of secondary rights. A former C4 exec, she speaks with authority when she says: ‘Being able to retain rights is not revolutionary. The important thing to realize is that most rights have zero value internationally or on DVD. What the new environment requires more than anything is indies with business skills.’
This message is permeating through the sector. Rather than bolt on a distribution arm, companies like Wall to Wall have restructured their business affairs, bringing in experts and giving them input into decision making. Zig Zag has Anthony Kimble in-house as the contact for rights management, and RDF has appointed a client liaison exec.
In other words, it wasn’t the promise of merchandising millions that triggered the merger between Ideal World and Wark Clements. So, what did? ‘Economies of scale,’ says Oriel. ‘You reach a size where you need business affairs expertise and enough opportunities within the company to retain talent. Ideal World and Wark Clements were in a similar position commercially, but had complementary program slates, which is why the new company makes sense.’
Oriel’s focus on hard-headed business considerations is important, since secondary rights exploitation is less of a priority for many U.K. indies than improving margins or surviving until the next commission.
The prevailing view, summed up by Mathew Horsman, a director at media analyst Mediatique, is that indies have a choice between staying small or growing fast. ‘Channel 4 and the BBC don’t want to deal with 850 indies in the long-term,’ he says. ‘There is room for small indies who have one or two commissions a year, but companies with a turnover between £3m ($5m) and £6m ($11m) need critical mass to compete.’ That’s an interesting price-band, as it includes leading factual indies like Windfall, Flashback, Diverse, Pioneer, Darlow Smithson, Tigress and Zig Zag.
Think global, but produce for local
Oriel contends that one of IWC’s competitive advantages is its regionality. ‘There’s a strong shift of emphasis towards production outside London,’ she explains. ‘We’re both big Scottish companies – so that’s a development we should benefit from.’ This emphasis on regionality (evident in both the new legislation and the BBC’s recent policy statements, such as BBC DG Mark Thompson’s new manifesto Building Public Value) is significant since talk of international expansion needs to be considered alongside domestic commissioning strategies.
Channel 4, for example, is a key commissioner of factual, but is currently favoring topics that are edgy, distinctive and tightly focused on domestic audiences. While this has created a run of highly promotable shows that rate well, such as The Boy who Gave Birth to His Twin, the result is that they have less currency internationally. The philosophy of C4 science chief Simon Andreae is that he would rather work with tighter budgets than risk compromising a show to secure copro money. C4I’s Life agrees: ‘Only about 25% of Channel 4′s output is genuinely saleable, because their priority is to target U.K. audiences. What that means is that we need to put even more emphasis on working with indies who are producing shows for itv, Five and the BBC.’
Life isn’t alone in broadening his horizons. BBC Worldwide’s Jackson also emphasizes the importance of wooing producers whose shows may appear on the BBC’s domestic rivals. But, where are those opps?
Commercial net Five is clearly fertile ground, since the combination of modest budgets and an editorial emphasis on factual means it needs to place significant emphasis on copros. In May, Five appointed former RDFI exec Lilla Hurst as its first ever head of coproduction.
Away from Five, the opportunities for distribs are less clear. In the case of ITV (which is now, de facto, owned by Granada), for example, Granada chief executive Simon Shaps has recently been extolling the virtues of vertical integration. While the ITV network is subject to minimum indie quotas, Shaps has been talking up the fact that ITV delivers the majority of significant audiences to the network. In factual, it delivered eight of the top 10 shows to itv last year. Further down the food chain, Granada International represents all of ITV’s top-rating shows with the exception of Fremantle’s Pop Idol.
The BBC may be a better bet. New DG Thompson plans to put serious factual programming back at the heart of BBC1 – partly in response to accusations of dumbing down and partly with an eye on 2007, when the corporation’s license fee comes up for renewal. Further good news for serious factual comes in the shape of Roly Keating’s appointment as BBC2 controller and Alan Hayling as head of documentaries, as both are regarded as champions of the doc form.
The problem for indie distributors is that many of the shows former newsman Thompson wants to promote are serious factual strands that don’t often travel well. As for the BBC’s landmark factual productions that do travel well (Pompeii, Colosseum, Nile, Supervolcano, Himalaya and Planet Earth), they are generally the result of copros between Discovery, the BBC, BBC Worldwide and partners in mainland Europe. This is such a well-oiled machine that the prospect of indie distributors ever getting their hands on such shows is extremely remote (even if they were able to afford them, which most aren’t).
Granada International’s Mark Reynolds recently returned from the U.S., where he was looking for partners on high-end natural history, wildlife and science. He says demand is still strong for such shows, though funding them is a challenge. ‘Commercial broadcasters in Europe are keen for events in their schedule. But they’re expensive to produce and subjects that travel have been covered pretty extensively.’
Granada currently has three high-end factual projects on its slate: Building the Titanic>, Planet Jungle and Innovations. There are also archive-based NH series like Raw Nature and Built for the Kill. A potential problem for indie distributors is the fact that all five are Granada shows. ‘We’d be foolish not to take advantage of the talent and resources we have in-house,’ says Reynolds, ‘but a lot of what Granada does is focused on ITV, so GI is committed to building relationships with the indie production sector.’
BBC’s Jackson also asserts that there isn’t a closed shop on event productions: ‘The market is becoming polarized between events that are in demand internationally and very domestic shows which aren’t. But indies like Impossible, Wall to Wall and Dangerous show that indies can manage these ambitious projects.’
Though the true potential for multi-territory distribution in the factual arena hasn’t yet been revealed, U.K. indie producers aren’t wanting for opportunities. Ten Alps chairman Brian Walden, for example, sees the market for U.K. commissions as healthy: ‘We believe there is money to be made in high-end, editorially sound production. There is evidence to support our view in the fact that the BBC is signaling a switch to quality TV.’
Tigress managing director Andrew Jackson sounds a similar note: ‘We’ve established a reputation in high quality, presenter-led factual programming in areas like natural history, science and adventure. That suits our tastes as a company and is in line with where we think factual is going. We think the market will come full-circle to high quality, well researched, authored documentary.’ A recent U.K. commission for Tigress was the 2 x 1-hour doc, The Truth About Killing for C4, which investigates the psychology of training soldiers to kill.
Ironically, Tigress’ real strength is in the U.S., where it is making approximately 30 hours of factual for Animal Planet. However, Jackson believes too much might be going across the pond, and has hired BBC doc exec Dick Colthurst and award-winning filmmaker Graham Booth to redress the balance.
To some extent, this is an unusual problem, since other indies are trying to do the reverse – i.e., build turnover in the U.S. to decrease reliance on the U.K. market. Ten Alps, for example, may look big by U.K. standards, but it still only generated a profit of £712,000 ($1.3m) last year. Its latest acquisitions, while big news in the U.K., cost around £1 million ($1.8m), which is less than the budget of a bbc show like Pyramid.
The U.S., however, offers U.K. indies 100 million TV homes and around 20 viable network and cable factual customers. To put that into context, last year the British Television Distributors Association put the copro and formats contribution from the U.S. at $140 million. While BBC Worldwide and GI rake in a lot of this revenue, indies that have made a major play in the U.S. include TV Corp. (Forever Eden for Fox), RDF (which is heading for a 50-50 U.K./U.S. turnover split) and Lion (with offices in N.Y. and L.A.). Wall to Wall CEO Alex Graham reckons that by the end of 2004, 37 hours of his 1900 House franchise will have aired on PBS and C4.
The question is, how big can these companies get? Current estimates put the overall value of the indie sector at £1 billion ($1.8 billion) – of which the top 10 companies already generate more than half. Within two years, it’s easy to imagine 10 super indies having broken through the £100m ($182m) mark.
Of course, scale presents a range of challenges. First, is there a point when indies get big enough to attract foreign buyers? Given that two of the U.K.’s top four indies are actually subsidiaries of multinational media corporations (Talkback Thames, owned by RTL; and Endemol, owned by Telefonica of Spain) the answer is a categorical yes – with hit remaining a tempting target.
Secondly, there’s the threat of over-supply. In recent years, kids and wildlife content flooded the market to the detriment of the companies involved. Too many outside financial institutions chasing too few slots could create the same bubble – with the most likely victims being mid-sized players.
Finally, there’s the politics of merger. While IWC’s link seems complementary, what exactly are prodcos buying when they team up with another indie? A catalog? Talent? Contacts? Cost reductions? Lack of clarity on this point could undermine more than a few deals in coming years.