Giant media companies love to hold forth on the glories of synergy, and surely there is no better poster boy for their belief than Harry Potter. AOL Time Warner hierarchs go on at length about how the myriad tentacles of their vertically integrated empire all contributed to the spectacular success of Warner Bros. “Harry Potter & the Sorcerer’s Stone.”
But when it came time to hawk the TV rights, Warners did not sell it to sister networks TBS, TNT and the WB, but rather to ABC and its partners the Disney Channel and ABC Family.
Similarly, Paramount Pictures bypassed Viacom kin CBS, UPN and TNN as potential buyers of “Rat Race,” “Domestic Disturbance,” “Zoolander” and “Hardball.” Who purchased the Paramount titles? TBS, TNT and the WB, which paid $26 million for a five-year deal.
These exercises in anti-synergy reflect the maneuverings of an elite circle of corporate apparatchiks who run an arcane sector of the entertainment business — one that accounts for some $1.2 billion a year.
They wheel and deal in TV rights to movies; their customers are the nation’s broadcast and cable networks. And the key to their sector of the business: These guys make up their own rules.
Theatrical-movie salespeople have become licensed renegades within the rah-rah boosterism of corporate culture.
They all prefer to operate far outside the spotlight, as elusive as Vice President Dick Cheney hunkering down in an undisclosed location. But their ranks include Eric Frankel, president of domestic cable distribution for Warner Bros.; Bob Sheehan, executive VP of business affairs and finance for the Paramount TV Group; Tom Wertheimer, exec in charge of movie sales for Universal; and Jim Packer, exec VP domestic TV sales for MGM.
They’re secretive because their companies are pulling them in two directions, and any decision they make violates the philosophy of at least one of their bosses. While the companies are touting the importance of all the divisions working together, they’re also imposing lofty annual-revenue goals.
To meet these objectives, the sales folk set huge license fees on the studio’s movies; meanwhile, their sister network tries to lowball the price to keep expenses down, especially in the recent down market.
And that’s why networks owned by competitors will get a shot at buying movies that would otherwise seem to be earmarked for internal consumption.
Six weeks after the “Potter” deal closed, TBS, TNT and the WB made damn sure that they were not going to similarly lose “The Lord of the Rings: The Fellowship of the Ring.”
Though New Line was angling to close a deal with the Fox net, the three AOL TW webs ponied up a license fee for “Rings” and its two sequels that could soar into the $160 million stratosphere.
Which only goes to prove that, when buying theatricals, the most foolproof way to make synergy work is to pay more money than everybody else.
That’s how the Fox network and its FX sibling get their hands on all the theatricals distributed by 20th Century Fox.
Fox and FX have bought movies in shared windows ever since FX started laying out big bucks in 1996. (The most notable exceptions were ABC’s buys of 20th’s 1998 “Dr. Dolittle” and 2000 “Cast Away.” On the latter, ABC had some extra clout because its output partner, DreamWorks, co-financed the movie and owns foreign rights.)
But even though the flow of movies from 20th to its siblings has become almost predictable, the studio hasn’t formalized the relationship in a theatrical-output contract.
The main reason to avoid such an explicit acknowledgement is that it might alarm profit participants of the movies.
Lawsuits by profit participants have become a cottage industry in Hollywood, so 20th salespeople pitch the movies to competing networks to try to gauge fair-market value before they make a deal with Fox and FX.
A similar process takes place when Warner Bros. and Touchstone go into the marketplace. Except for “Potter,” most WB theatricals end up on TBS and TNT. And ABC gets first dibs on the movies released by Touchstone.
The network window usually begins 33 months after a movie opens in the multiplex and lasts for an average of five years. Exceptions are box office leviathans, since networks have to pay through both nostrils to get them.
The Disney group, for example, paid $140 million or so for “Potter” and its first sequel, “The Chamber of Secrets,” for 10 years starting in fall 2004.
Further complication the lives of sales people these days is the economy.
The imposing $1.2 billion figure is somewhat lower than the annual tallies harvested by movie companies during the late 1990s. That boom period was a classic sellers’ market, in which the Big Four broadcast networks and cablers such as the TBS/TNT combo and Barry Diller’s USA displayed a ravenous appetite for movies.
The bull market began to slow down as too many high-priced movies engineered a disappearing act in the primetime Nielsen ratings, causing networks to refocus on other genres: drama series, sitcoms, magazine shows, reality hours and even gameshows.
Then came the really bad news for movie sales. The ad market started to collapse in 2000-01, smashing the industry with a series of dire events. The dot-com debacle led the way to a severe downswing in the national economy, a decline aggravated by the nightmare of Sept. 11.
Network movie buyers who had previously wielded open checkbooks stopped returning the phone calls of the studio salespeople.
The marketplace is still soft, but MGM recently sold TV rights to the first 15 James Bond movies to three Viacom-owned networks (CBS, UPN and TNN). American Movie Classics could’ve exercised a claim on the pictures because it has an umbilical connection to MGM: Last April, the studio forked over $825 million to buy a 20% stake in Chuck Dolan’s Rainbow Media Group collection of cable networks, led by AMC.
What cinched the deal? Viacom was willing to pay MGM $30 million to get the Bond titles for the next two years — and AMC was not.