White Hot Hollywood
By Anna Carugati
Thanks to deep libraries and a constant flow of new product, the Hollywood studios are meeting the challenges presented by digital platforms.
Think about how you watched movies and TV shows ten years ago. Now think about how many different ways you have to enjoy your favorite films and series—on TV, computers, tablets and even mobile phones. What unimaginable convenience technology has given us!
The very same platforms and devices that enhance our enjoyment have caused unforeseen disruption to the business models of rights holders and distributors.
“It’s like the Wild West!” says Marion Edwards, the president of international television at Twentieth Century Fox Television Distribution. “Everything we have known about windowing content has changed. We all know how to window film. We were always thoughtful about how we shortened the theatrical windows, shortened the home-entertainment windows, layered in EST [electronic sell through] and VOD day-and-date release with home entertainment, but television was like this child running wild and free in the world! No one ever really thought about how to window it or what the purpose of windowing it should be. Now we find ourselves doing some incredibly interesting and complicated things and experimenting in a way that was never possible with film. And it’s only possible with television because so many of these new interesting services are driven by television.”
“SVOD and over-the-top services have fundamentally altered the way that shows are distributed,” adds Jim Packer, the president of worldwide television and digital distribution at Lionsgate.
But within the chaos, Hollywood studios have been able to mine unprecedented opportunities in the digital world. There is no question that today’s international distribution business bears little resemblance to the way shows and movies were sold a decade ago. Not only has technology added channels and services and altered viewing habits, but in response to today’s savvy viewers, shows have become far edgier and more sophisticated.
“Who we sell to and how we sell our content has changed, but equally, the quality of the content we are selling has also changed,” says Belinda Menendez, the president of NBCUniversal International Television Distribution and Universal Networks International. The production values and budgets of current television series are on a different level from 10 to 15 years ago, she explains. “Today, television is attracting the best writers, actors and producers creating incredible, high-concept series that are attracting global audiences.”
THE AMERICAN WAY
“For the most part, ten years ago, American series were not working internationally and there were very few of them in prime time,” says Jeffrey Schlesinger, the president of Warner Bros. International Television. “In most cases, programs would usually go directly to free television, and in most territories, especially the dubbed territories [where programming is dubbed into a local language], the shows wouldn’t air until about a year after they premiered in America. Oftentimes, after their run on free television, there was no place to go for a second cycle. So shows pretty much ran and then disappeared, with the exception of a few very successful shows.”
Today, continues Schlesinger, things are very different. “First, U.S. programming is working in major markets in prime time and is thriving. Second, broadcasters, especially in [English-language] territories, are airing programming very close to the U.S. airdates. Third, in dubbed territories, there are many cases where, in conjunction with the broadcaster, we are making hit shows available ‘hot from the U.S.’ on a transactional basis, meaning a day or a week after an episode airs in America, it’s available in VOD or EST in English with subtitles.”
“High-speed broadband opened the door for new, innovative digital services that not only changed the landscape, but also put the consumer in the driver’s seat,” adds NBCUniversal’s Menendez. “Nonlinear viewing overall, which includes everything from time-shifted viewing to OTT services to pirate sites, has put pressure on our linear clients’ ability to bring in the same audiences compared to 10 to 15 years ago. In turn, it has put pressure on our business as well.”
Studios have had to react to the rapidly evolving TV scene. Everyone in the content business is keenly aware of what happed to the music industry, when online file sharing of songs demolished record labels’ businesses. Studio executives are determined not to let the Internet and new digital devices destroy the value of their content.
“Technology has created all these additional devices, and with them it’s created a desire for consumers to have what they want when they want it,” explains Fox’s Edwards. “They want it for free and they want it on any device, and that is not a business model that can sustain the cost of production, which is currently several million dollars an hour for television. Every day we’re worried about the business models, concerned because we are starting to see greater and greater usage of our content even within the first window. Everyone knows that the library value is really where you start to churn money to help compensate for the loss of all the shows that fail. When you have such heavy use in the first window, which covers broadcast and catch-up rights as well as EST for the people who want to watch without commercial interruptions, then people start to say, what happens next?”
Digital platforms have certainly revolutionized the traditional sequencing of windows. “It used to be that at the end of the first season of a show, in theory, it would be renewed for another season and two seasons later you could sell it in syndication and hopefully make a lot of money,” continues Edwards. “But now, at the end of that first season, the series will go into the SVOD window, about concurrent with the home-entertainment window. And while we are absolutely being compensated very well for that, it’s changing the long-term additional licensing activity that used to make up the very long tail of distribution.”
Studio executives have also noted a sense of uncertainty in the international market. Buyers are concerned that given the continued emergence of new devices and platforms, they are not acquiring sufficient rights. “Trust me, trying to close deals in today’s environment is very difficult, because people are worried,” says Edwards. “Things are changing so quickly, people are very worried about stuff that doesn’t even exist yet and may exist during the term of their license.”
Despite the disruption and confusion caused by new platforms, studios have found ways to do business with them, get remunerated for their content, and find new audiences in the process. But first, they had to learn how to carve out windows for their programming in different ways, and be willing to keep adjusting those windows, depending on a given market’s circumstances.
“New digital services are an exciting development to our business because more players mean more opportunities to sell our content,” says NBCUniversal’s Menendez. “We have the ability to reach different audiences with our content in the way they want to watch.
“Digital platforms allow us to implement creative windowing strategies that grow our overall business, and we have found new syndication cycles for our library content,” continues Menendez. “Recent examples of this strategy paying off include Heroes, the U.S. version of The Office, Battlestar Galactica and Warehouse 13—all bringing in healthy revenues on SVOD services.”
“From our perspective, the issue isn’t doing business with [digital platforms], it’s doing business in a smart strategic way, which at the end of the day doesn’t hurt the value of the programming in the market, but adds value,” says Armando Nuñez, the president and CEO of the CBS Global Distribution Group.
In today’s world of international distribution, the key is to find the proper mix of outlets to maximize the revenue that can be derived from a show. A sales executive must know his or her product intimately, and studio product today is quite varied. It includes broad-audience procedurals, soap-type series on broadcast networks, edgier serialized shows on cable channels, and innovative, push-the-envelope fare that finds a home on premium services like Showtime or HBO.
“Each show has to be positioned a little bit differently,” explains Lionsgate’s Packer. “If you look at shows like Nashville, Mad Men and Weeds, each one has its own distribution story in terms of how we approach the market. With Mad Men, we first sold to a lot of cable platforms and slowly migrated it to free TV, and it became an international phenomenon. Now, many of the SVOD players are buying the show after it’s already been on the air on cable and broadcast, so in many markets we have three or four different partners for the show. The same thing happened with Weeds.”
As Packer explains, the Nashville distribution path was a little different. “We pre-sold Nashville,” he says. “It’s a broadcast network show, but because it’s about country music, some people wondered how it would play internationally. So we really focused on the soap nature of the show, since internationally soaps are very popular. And there is a week-to-week story line to Nashville; there is a sexiness to it. The sexiness really plays well internationally and it’s been a very good show for us from that perspective.
“This goes back to where technology helps,” continues Packer. “In one market we couldn’t get a broadcaster to sign upfront, so we put Nashville on iTunes as ‘hot from the U.S.’ and that stimulated interest in picking up the show because it was doing well on iTunes. That’s where digital gives you a new model…. You can put an episode up in English the day after it airs in the U.S., build a fan base, and then sell the show to the cable and broadcast world.”
Lionsgate was one of the very first studios to embrace digital platforms. In its deal for Mad Men, Netflix paid nearly $1 million per episode to stream seven seasons of the multiple-award-winning series.
A MAD WORLD
“Looking back, it was a moment in time that was critical because it did two things,” says Packer. “First, it showed that Netflix would step up and is forward-looking enough to spend enough money to buy the back end of a show, and Mad Men was the first big one that they did. Second, it showed that serialized shows, which had previously been viewed as not having a lot of back-end value, could actually be incredibly valuable from a back-end perspective. A particular genre that once had a stigma attached to it suddenly became the belle of the ball.
“That one deal shifted the way shows were distributed. If you look at AMC or some of the other networks, they got a little bit more comfortable with doing high-quality serialized programming because they knew they now had a back end. It created a bit of a renaissance and, looking at the television landscape from basic cable to what Netflix is doing with product, there is now a lot of really good television available.”
One of the most lauded series on television now is Homeland. “Homeland is our miracle show and the show that flies in the face of everything you think” about serialized shows not working internationally, says Fox’s Edwards. “It’s such a good show and it has performed incredibly well.”
Fox has also been successful with many of its edgier basic-cable shows, although Edwards and her team have had to help international buyers understand that today, cable shows are certainly on par, quality-wise, with broadcast shows.
“It reminds me of when I first came to Fox and people said, ‘Well you know, FOX isn’t a real network.’ You had to go through the struggle of explaining, ‘No, The X-Files is a real show!’ Now some people say, ‘Cable shows, well, they’re not really like network shows.’ But the reality is that some of the biggest shows on television right now are cable shows. I think people understand that the budgets are the same and that great television is great television, whoever you produce it for.”
Once again, the digital world has offered new avenues for studio shows. Just as over-the-top platforms can help introduce shows to a broad audience, digital terrestrial channels can take shows that a free-to-air broadcaster would not consider appropriate for its audience.
“For our clients who have a big network channel and also a number of smaller channels, including digital terrestrial channels, cable programming can really create a lot of noise,” Edwards notes. “They may not have been able to use Sons of Anarchy on their main channel, but certainly they can find a home for it on one of their digital channels. A show like The Americans really helps people recognize that a great show is a great show.”
Schlesinger has found that the cable shows produced and distributed by Warner Bros. are well accepted by international buyers. “If you look at Dallas, Rizzoli & Isles, The Closer or Major Crimes, these are shows that buyers and the audience do not discriminate against because they originated on TNT instead of one of the major terrestrial networks,” he says. “We have tended to produce mainstream generalist shows for cable as opposed to others who are producing narrow, targeted shows like Mad Men, Sons of Anarchy or The Walking Dead. Those shows by and large are only going to appeal to certain networks in each country because they are very targeted. So the generalist shows that might be appearing on TNT or USA Network are looked at in exactly the same way as a similar program coming from the broadcast networks.”
Digital channels are also providing homes to comedies, which traditionally have not sold as well internationally as dramas.
“With the addition of channels like Comedy Central, we have some broadcasters that are dedicated to comedy and are specifically looking to buy deep in the comedy vein,” Schlesinger says. “The great thing is we are seeing a lot of buyers coming back for second and third cycles of our comedies. In some cases, we are getting a higher license fee in the second cycle than what we got when we first sold the show. Of course, we are granting more runs, but once shows are perceived as successful and broadcasters can strip them, there is huge value to a hit sitcom.”
Edwards, who has been selling The Simpsons and Modern Family, still thinks comedy doesn’t travel well—not as finished product anyway. Selling scripts of comedies and allowing broadcasters to make their own versions is much more effective.
“We produced a Russian version of How I Met Your Mother. We are looking at a version in the Middle East. We have a version of Modern Family that will begin shooting in Israel and Chile. Comedy is the one thing that’s really right for local versioning because the original U.S. show is not going to work that well, whereas if you localize it, it does have the possibility of really becoming successful,” says Edwards.
In fact, the studios have been selling formats for a broad range of scripted series. Fox has licensed Prison Break, among several other formats, into Russia. Warner Bros. recently announced a version of Gossip Girl with Televisa and of Nip/Tuck with Caracol in Colombia. CBS has licensed the format for Taxi in the Ukraine and Cheers in Spain.
The international distribution business has changed so much in the last decade, and as it continues to evolve, studios need to find a new breed of salespeople with a very special combination of abilities.
“So many different things need to be done now,” says Fox’s Edwards. “There is the old-fashioned negotiation of license fees and terms and number of runs. That’s the easiest thing we do now and it happens the quickest. We need people who have a really good background in technology; content protection is something that every deal requires.”
“I’ve been running distribution operations for 28 years,” says Lionsgate’s Packer. “Ten years ago, I looked for pure sales skills when I hired someone. Fast-forward to today and sales skills are about half of what I look for. The other half consists of technical skills, knowing how to window product and being comfortable with change. If you’re not comfortable with changing windows, changing client dynamics, then you won’t bring value to the team.”
“We have a very stable team of industry veterans and that’s what enables us to do such a great job,” says Schlesinger. “But we’re also constantly looking for bright young people and bringing them in to our organization. Basically you have to look for somebody who is passionate about our business, who has a strategic view, who understands technology, is culturally sensitive and, in the end, is able to tell a clear, persuasive story. Our product is all about storytelling; ultimately, so is sales.”