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Upfronts: Series Dealmaking Turns ‘Brutal’ Amid Ad Market Jitters, Declining Ratings

This year’s upfront season is shaping up to be a correction year for the broadcast networks.

Industry sources described the process of coming to terms on new series pickups and renewal agreements as ‘brutal” this year. The mad dash of dealmaking in the days before the network upfront presentations is never an easy process, but this year has been particularly challenging. NBC and Fox on Monday kick off the four-day marathon of network fall schedule presentations in New York.

Concerns about the health of the advertising market are driving the nets to rein in programming costs by hammering studios on license fees. Renewal deals on some shows have been structured to give the networks a share, or greater share, in backend profits generated through international sales and domestic SVOD and syndication licensing. The trend of networks favoring programs from in-house production arms has only heightened as ownership of content has become crucial to profitability for networks and studios.

Multiple sources said NBC has been more aggressive than in past years in negotiations with its outside studio partners. Industry sources said the license fee for Warner Bros. TV’s “Blindspot” took a significant cut in exchange for landing a third season renewal — something the studio agreed to because the show has been a hit internationally and scored a rich SVOD pact with Hulu. Sony Pictures TV’s NBC drama “The Blacklist” also took a license fee cut. “Taken,” the action-drama from EuorpaCorp Television, is said to have handed over a bigger chunk of the backend in the show that was already a co-production.

NBC declined to comment.

In varying degrees, sources closely involved in series dealmaking said each of the Big Four networks were pushing hard on license fees, even on shows from sibling studios. On new series hailing from non-aligned studios, there has been intense pressure to grant ownership interests or backend participation commitments as a condition of an order. This is not new, by any means, but it is more pronounced this time around.

“They’re all trying to see how far they can push it,” said a veteran studio executive.

The belt-tightening reflects the simple fact that most primetime network TV shows no longer are profitable in their first-run airings on advertising sales alone.

Another seasoned TV dealmaker said the pressure on license fees is an effort by networks to “get real” about the steady decline in live TV ratings. “You can’t keep spending $2 million (per episode) on a show that does a 1 rating,” the executive said. “It’s not sustainable.”

In this environment, networks are more incentivized than ever to grab a piece of after-market action. From the network perspective, a show that launches on their air should pay dividends beyond advertising. From the studio perspective, the pinch in license fees and the squeezing for a greater share of backend only makes it that much harder to generate the kind of profits that fuel a sizable TV studio operation.

The softness in the advertising market that was evident in the first quarter earnings results for major media conglomerates has cast a shadow over programming decisions. Networks have no choice but to brace for the possibility of a down market when the wheeling and dealing begins on the real focus of upfront season — wheeling and dealing with media buyers on landing $9 billion-plus in advance advertising commitments for the 2017-18 season.

The concern is the ad revenue forecast may also cut into the volume of new series ordered for the coming season. As of Saturday morning, the total number of new scripted series ordered stood at 30. A few more orders are expected to come through in the next few days but the total tally is likely to be far short of the 42 shows ordered by the end of upfront week last year.

Industry sources said the cost consciousness has influenced the decisions to renew some marginally performing shows. Networks are more inclined to stick with a show that has some promise if only to save on the expense of marketing and promotion for a brand-new title. NBC’s quick reversal of the cancelation for “Timeless” reflects this dynamic.

The Big Four will put on the razzle-dazzle to unveil their grand plans for the coming season at the upfront presentations next week. Behind the scenes, the hedging of those bets has already begun.

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