Leaner and much meaner

Product glut plus budget-slashing equals frustrating biz

Hollywood Ouch is the operative word for the international TV biz.

Just about everything hurts right now when it comes to the business of buying and selling TV shows around the world. Buyers have less to spend and sellers more to peddle, making for what will likely be by turns a fiercely competitive and frustratingly inconclusive five days at the Riviera rendezvous Oct. 7-11.

For the Hollywood majors, jointly the biggest suppliers of programming to the world market, revenues are off for the first time in years, thanks to a variety of factors that coalesced at the same time.

“For the first time ever we have realized that the biz is no longer in growth mode,” says 20th Century Fox Intl. TV prexy Mark Kaner, who points out that there’s no region of the world where things are looking up.

In brief, he says, it’s daunting.

Not only is there no buoyancy anywhere, but there’s no risk-taking on the part of media players — something that is essential in a business based on creativity.

“It’s challenging,” admits Warner Bros. Intl. TV prexy Jeffrey Schlesinger, who points to the German market as being particularly tricky.

Just look at Teutonic pay TV. Along with four other Hollywood studios, Warners is trying to tie up a deal with the newly revamped Premiere paybox; and Fox, Universal and DreamWorks recently have sealed deals, although for 15% to 20% less than they might have hoped. Their current mantra: We have to do whatever it takes to make sure Premiere has a chance to succeed.

As in other major territories where former rival payboxes are merging, one or two Hollywood studios are likely to be left out in the German cold now that buyers have vowed not to gorge on unneeded product.

Like several of his colleagues at rivals, Kaner believes the Hollywood studios can no longer afford to be “high-risk banks” but that new partnerships, with, say, international broadcasters and with talent have to be forged to bring programming and marketing costs under control.

Since that won’t happen overnight, Kaner says that 2002 could be another down year for their divisions.

Thanks to consolidation, seven congloms represent 90% of the revenues accruing to Yank companies from the sales of movies and TV shows to free and pay TV outlets abroad.

The Hollywood seven jointly raked in $5.4 billion in 2001 from their sales abroad. The Brits, the next largest nation of sellers, collected $625 million.

The mood on the Croisette during this week’s 17th annual Mipcom TV market will no doubt be businesslike and, if the weather cooperates, even upbeat.

Kelsey Grammer, puppeteers of the penis and the Cirque du Soleil will be on hand to tub-thumb or perform, lightening the mood of those whose job it is to foist B-tier material onto finicky, tight-fisted buyers. (A-list product largely takes care of itself.)

Whatever fun is had at the various pours, parties and gabfests — Hallmark’s Robert Halmi Sr. is being feted as is 50-year-old Canuck pubcaster CBC — the fun only will serve to mask the general malaise that hangs over the market.

Here’s what’s turned the mood of Yank suppliers so dark:

  • Foreign stations are producing their own local product, relegating American shows to offpeak slots — or not buying them at all.

  • The U.S. nets are turning out fewer shows that appeal to foreign broadcasters.

  • Ad revs are off worldwide, further constricting budgets for acquisitions.

  • A number of Euro players have hit hard times, including the Kirch Group in Germany and ITV in the U.K.

  • Output deals are being renegotiated downwards with buyers around the world. On the pay TV front, previously rival platforms are attempting to merge — and rejig their deals with American suppliers.

Fox’s Kaner points out that the U.S. is no longer the only country that can create compelling dramas and sitcoms — a definite change from 10 or 15 years ago.

To make matters worse, Kaner adds, the cost of producing American dramas and sitcoms has skyrocketed over the last few years. “It’s getting harder and harder to sell in such volume. We’ll simply have to find better ways to serve our clients.”

“Sales of course haven’t dried up,” DreamWorks distribution supremo Hal Richardson adds. “but it’s a more difficult road for lesser product. You don’t want to be the seventh most popular cop show on the network. If so, you’ll never get sold abroad.”

Of course, every major is hopeful that one or two of its upcoming fall series will catch on in the U.S. — and translate into dollar signs abroad.

Already the cherry-picking by foreign buyers has begun.

“CSI Miami,” a spinoff of the successful Vegas-set crime drama, has notched deals with Channel Five in the U.K. and Warners’ Schlesinger says he’s getting all the right signals for the young-skewing “Fastlane” and the Anthony LaPaglia-toplined “Without a Trace.”

Similarly, Universal Intl. TV prexy Belinda Menendez comes to market with a duo of buzzed-about series, Michael Mann’s “Robbery Homicide” and Dick Wolf’s revamp of “Dragnet.”

And newly named Sony Pictures TV Intl. can boast the Emmy-winning cable original “The Shield,” which has already been pinned onto Channel 5 vests in the U.K.

For its part, MGM has licensed the upcoming Bond release “Die Another Day” to ITV in the U.K., RTL in Germany and TF1 in France, and is bullish about its prospects for new fall series like “American Dreams” and “Boomtown” — both of which come to it courtesy of a distribution arrangement with NBC.

Despite these likely successes, there’s simply no willingness among mainstream broadcasters abroad to take on additional product from the majors that they may not ever be able to use.

A recent deal done by Warner Bros. with RTL in Germany may be a template for things to come: It involves only a couple dozen movies and a handful of series for a three-year term.

That agreement is far removed from the 10-year buyer-take-all deals signed back in the heady, competitive mid-’90s.

And the good news. . .

There are, of course, some silver linings in the dark clouds.

For one thing, several of the Hollywood majors are circling the assets of the Kirch Group and could end up with a substantial toehold in the most lucrative offshore market for American product.

“It’s not just about getting the IOU’s out of the busted deals with Kirch but about getting a stake in the fast-growing over-the-air station ProSiebenSat 1,” says one media analyst.

Similarly, there are proposals on the table in Britain for opening up the commercial airwaves of ITV and Channel 5 to non-European Union (i.e., American) companies, a move that could enhance the ways in which U.S. players make money out of that foreign market as well.

“How the Kirch deal unwinds, how Vivendi Universal regroups in France and how ITV evolves in the U.K. will open up opportunities for us,” says Sony Pictures TV Intl. prexy Michael Grindon.

And leaving aside these possible developments, there are other bright spots on the horizon as well. The efforts of American majors to set up their own local production efforts in various foreign territories are beginning to pay off.

Sony is actively producing Hindi serials in India, historical dramas in China and cop shows in Italy, while Fox’s alternative programming unit is busily churning out a number of local versions of its reality hit “Temptation Island” in various markets around the world.

These two majors are out ahead of their competitors in coming up with lower-cost programming options for foreign markets. If these methods and formats can then be re-imported or re-introduced into the U.S., so much the better.

“If we don’t find a better way to make programming more cheaply,” Kaner says, “we’ll be dead.”

And finally, the business of channel spinoffs is beginning to pay off for a number of the majors.

MGM’s TV chairman, Jim Griffiths, says the costs of launching channels has come down and for the Lion, that business is now cash-flow positive. Under MGM Networks topper Bruce Tuchman, eight different feeds now reach some 90 countries, though the Lion has not yet penetrated several key Euro territories.

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