Two intractable forces have turned a once-healthy unscripted-TV ecosystem toxic over the past several years.
The first is the decline of cable channels, which are facing an existential threat from cord-cutting, the grim long-term outlook for their advertising and affiliate revenues, and intensified competition from streaming services like Netflix.
The second is the number of independent production companies that have been gobbled up by international media conglomerates for stunning amounts of money, providing their owner-producers with enviable paydays.
It’s only natural that this windfall is going to stir some resentment from the companies that own cable channels. After all, if it weren’t for the channels that take the financial risk of licensing these series, the production companies wouldn’t be reaping the benefits of the hit TV properties that drive their gaudy valuations.
In reaction to these shifts in the media landscape, some short-sighted buyers are trying to penalize their key producers for the systemic downturn in the cable business. These less enlightened networks have responded to the shrinking revenue pie by trying to squeeze more out of producers, endangering their profits.
All sorts of costs that were part of the program budget — requests for extra edits, executive-producer fees for talent, certain legal fees — are now loaded against the producers’ 10% profit margin, in some cases forcing it down to less than half of that. State tax incentives that used to be shared by producer and channel are now being demanded entirely by some channels. Additionally, production companies are expected to provide bonus footage for channels’ digital extensions at no extra charge, and to cover the cost of an endless loop of expensive development reels in place of pilots.
By financially choking the very producers on which the networks have always depended, these channels will see impoverished development going forward. For producers and buyers to survive, the ecosystem must get healthy again. Smart cable networks must continue to work in partnership with producers rather than alienate them by demanding free rights they really don’t want and won’t ever properly exploit.
My association, PactUS, has undertaken a series of initiatives to offer solutions to some of the more stubborn industry-wide issues brought to light by the LMNO/Discovery legal wrangling that has been chronicled by Variety. This begins with identifying alternative sources of funding, and working with flexible buyers who are willing to give increased global or digital rights in exchange for lower license fees. We are also taking steps to directly address a major issue raised by Discovery in its countersuit, which asserted that there were “false budgets” that “went far beyond ‘padding,’ or generous but good-faith estimates of actual costs.”
In an era when producers have to counter margin pressures and harsh cost environ- ments, PactUS has embarked on a multi-faceted project that will generate data from both sides through a series of meetings with cable channels and producers, plus other elements that will lead to PactUS publishing new industry guidelines. That can help all parties come to the budgeting and cost-reporting process in a more structured and easy manner that helps strengthen partnerships between networks and indies.
And to guard against the specter of a company being plunged into an awful hole by the actions of a consultant or employee, PactUS has organized a members’ catastrophe insurance program to protect them in these types of devastating circumstances.
Yet one primary ingredient is still needed to prevent the headwinds of change in the cable business from blowing out the heart of an entire industry: the ability of everyone involved to recognize that deal dynamics need to return to a more level playing field if creativity is to bloom.
PactUS president David Lyle previously served as CEO of National Geographic Channels, president of Fox Look and Fox Reality Channel, and president of entertainment for FremantleMedia North America.