As companies continue to widen their footprints by investing in talent worldwide, Jay Stuart explores how these federations have become distribution powerhouses.
There was a time when the word “independent” in the media business referred to any company that wasn’t part of a Hollywood studio. Today, the idea of an indie is much murkier. Yes, there are still companies that are privately owned and are opting to go it alone. Many, though, have wound up as part of international federations, operating largely independently in their home markets while having the backing of a larger entity and a sister distribution business that can help with financing and turn a local hit into a global one.
Challenging the major U.S. studios (and their unmistakable American accent), these new international federations draw on a diverse range of voices and relationships (including in Hollywood). They have the resources to invest in top talent and large-scale projects, and to set trends in programming innovation. They have been dubbed the “mini-majors,” but seen in the wider context of the global media landscape, some leading players in this breed don’t appear so “mini” at all.
Red Arrow Studios is part of Germany’s ProSiebenSat.1 Media, owner of multiple German TV and digital channels, with 2017 revenues of €4.1 billion ($5 billion). Also German-owned, FremantleMedia is part of the RTL Group, a division of media conglomerate Bertelsmann, which had 2016 revenues of €17 billion ($20 billion).
Endemol Shine Group is 50-percent owned by 21st Century Fox and will become part of the Disney empire when that megadeal closes. (It’s unclear how long the other 50-percent partner, Apollo Global Management, will remain part of the picture.) In 2015, Canal+ parent Vivendi paid $311 million for a strategic minority stake of about 26.2 percent in Banijay Group, majority owned by LOV Group of France in partnership with Italy’s De Agostini Group. Discovery Communications (now Discovery, Inc.) and Liberty Global banded together in 2014 to shell out $930 million for all3media.
A key strength of these federations, perhaps their defining characteristic, is their capacity to work creatively across borders.
“The all3media model is all about having a diverse set of creative voices,” says Louise Pedersen, the CEO of all3media group’s distribution arm, all3media international. “We do not direct them,” says Pedersen of her group’s production subsidiaries. “They run their own companies. We let them get on with it. That’s what the model is all about.”
The 25-plus production companies under the all3media umbrella benefit from having in-house distribution available, Pedersen notes. “And on top of helping with the finance, we help look for co-production partners.”
Tim Mutimer, the CEO of Banijay Rights, calls Banijay Group “a federation of producers.” The structure is about “offering a central service across the production network. We have implemented various initiatives across the group to encourage and cultivate ideas and sharing of IP to help projects travel internationally. This means that not only are we able to advise on individual potential of finished tape content, but we can also help realize co-production and format-sharing opportunities across the group.”
Consolidation can be an unpredictable thing. Once upon a time, some people feared that if big media conglomerates gobbled up production companies, it would lead to a stifling of creativity and greater homogenization of output—a natural fear, perhaps. But the reality of the past years has been quite different.
“It’s a different kind of consolidation,” says Greg Phillips, Kew Media Group’s president of distribution. “Instead of having a simple merger of like-minded, like-functioned companies aggregating guys to do the same thing, and making savings, this is about integrating an entertainment provider from the ground up. It’s preserving the branding and the relationships of the companies and adding the distribution function over the top to service them and to provide income from distribution of their programs and third-party shows, too. It’s a construction job of building a new programming group as opposed to putting companies together to become gigantic. The whole is supposed to be greater than the sum of the parts.”
The distribution arms of these federations are pioneering new models for how to piece together the financing for shows for producers within the group and external ones, too.
“We now get involved in potential projects much earlier, investing in development,” says Henrik Pabst, the president of Red Arrow Studios International. “It used to be that a distributor was the last one in and the first one out financially, but our organization has changed with the market and we are now far more involved and active in the entire life cycle of a show.”
Getting in early also better enables the federations to build their shows into global events. “We not only finance at the greenlight stage, but we also help with bringing on board co-production partners, and we are always very actively preselling,” says Jens Richter, the CEO of FremantleMedia International. “We want to position shows early in multiple markets and get the clients involved early, so they are engaged in the marketing and the launch. It’s a global market, and we like shows to launch close together around the world so they share momentum.”
“We have more focus on helping the producer finance shows,” reports Pedersen of all3media, which has 10 or 15 high-end drama projects at various stages at any one time. That includes not only shows from within in-house production companies but also those from third parties. “We are now more involved in the financing of production,” Pedersen says. “We cash-flow production and we cash-flow tax credits. We didn’t do that two years ago. Every deal seems to be different nowadays. We do the deals we need to do to get the shows made.”
Pedersen continues, “You used to get a commission and the distributor would put up a 5 percent or 10 percent distribution advance and sell it. Those days are gone. You need more partners. Now each show is an individual project. There is a greater risk. There is also more potential upside and reward. So we are getting involved earlier. Right from the creative start of projects, we are part of the finance and the risk profile.”
“We are getting more proactive earlier and getting more generous as we step into the fray,” adds Kew Media’s Phillips. “We might step in with development money or fund a pilot so that we can grab hold of a property early and engage in presales. And we can pay for it to get made. At this point we are talking about non-scripted shows [like Jigsaw’s Rolling Stone: Stories from the Edge for HBO], so the level of budgets and investment required is lower than for drama. However, we want to [do more in] scripted, too.” The group already distributes third-party drama like the CBC series Frankie Drake Mysteries.
Known as a pioneering company in format distribution, FremantleMedia produces in about 30 countries around the world, often under its own brand, but also through well-established local producers that have a strong presence in their markets. Its German production brand is UFA, which celebrated its centenary in 2017.
FremantleMedia has only been a major player in the global drama space for the last few years, beginning with UFA’s Deutschland 83, a German-language series that aired worldwide, including in the U.S. on SundanceTV. It has made huge strides after acquiring control of companies like Miso Film in Scandinavia, Wildside in Italy and Kwaï in France and adding them to what Richter calls “the Fremantle family of producers.”
The strategy is to produce original drama around the world that can travel beyond the home markets. Part of achieving that is working with internationally known talent like director Paolo Sorrentino in Italy, who did his first TV program, The Young Pope, with Wildside. The Italian outfit is currently producing television versions of Elena Ferrante’s worldwide best-selling Neapolitan novels, starting with My Brilliant Friend, for Rai, TIMVISION and HBO, with a presale to Canal+. Wildside is also making the new series The Miracle. UFA will produce the first TV effort by Austrian director Michael Haneke, the ten-part Kelvin’s Book. Ahead of that, its Deutschland 86 is in the works to go out on Amazon Prime in Germany and SundanceTV in the U.S.
“We want to produce drama that creates awareness,” Richter says. “There’s a lot of fragmentation in the market and there’s a lot of drama. We ask ourselves how we can produce shows that break through. It’s not just about producing individual programs. We try to curate an entire slate of drama for the international market.”
With their high-profile drama slates, along with substantial catalogs of shows that can be replicated in multiple markets, international federations have tilted the balance of power in the content market away from the American studios.
Cathy Payne, CEO of Endemol Shine International, explains, “The U.S. studios have fundamentally been distributors of U.S. scripted product, a large amount of which is produced for American broadcast television. In recent years, that scripted product has not delivered the audiences it once did internationally, in particular for the larger free-to-air networks, in their prime-time slots. International networks will, like all networks, look to homegrown product, both scripted and non-scripted. Traveling formats have had a part to play in the growth of the mini-majors, combined with the distribution appeal of non-scripted finished programming.”
“Broadcasters around the world have moved away from output deals with the majors,” says Banijay’s Mutimer. “This gives them more scope to commission content that we can pick up for distribution and to acquire more content from other sources. As the popularity of non-English-language scripted and factual and entertainment has increased, distributors like us have benefited greatly. We’re now seeing studios like Disney keeping their own content for their proprietary OTT services. Netflix and Amazon have been bold for some years now in supporting a broad range of programming for different territories around the globe, and the diminished U.S. offering available to them will no doubt see this strategy flourish.”
“The market has opened up to new voices and new ways of doing deals,” agrees all3media’s Pedersen. “We have not encroached on the U.S. studios, which are of course vibrant businesses. But we have established ourselves as a supplier of high-end drama. Space has opened to sell and co-produce. There are different ways of structuring deals in different markets. There is more flexibility. It’s not just about the U.S. creative side.”
Red Arrow’s Pabst notes that global production scale allows distributors to have a better sense of what broadcasters and platforms worldwide are looking for. “Given that we are reviewing the slates of up to 20 production companies, we have the opportunity to identify trends more quickly and connect the dots between the demands of one broadcaster and a slate from a producer in a completely different territory. We can react to the market, thanks to our coordinated presence in so many territories. We can offer immense market intelligence. We have offices around the world and people on the ground in all major territories, so we know what’s in demand and what’s working.”
Endemol Shine is investing in technology to enable its format business to work more globally. In late 2017, the group unveiled an agreement with Microsoft to introduce a cloud-based production workflow system. A new app will make it possible to streamline production processes, with filming controlled remotely and content edited remotely. The new technology has already been successfully tested in the Spanish production hub of the Big Brother format and can be rolled out to multiple markets for production of global formats.
Keshet International (KI) emerged as a major player in the global content landscape largely on the back of its format business—launched by the Israeli drama Prisoners of War, the basis of Showtime’s Homeland.
KI is open-minded about originating drama in a variety of languages. It is partnering with the Spanish company Sr. Mono Producciones to develop a Spanish-language thriller series (working title Alone). Early this year, it announced a new drama co-production (working title Diamonds) with Belgian producer De Mensen in Flemish, English and French, and it has started talks with potential international co-producers and co-financiers.
“Sometimes shows work best in the original language,” says Alon Shtruzman, the CEO of KI. “As a distributor, we have sold shows in Croatian and Swedish as well as Hebrew. Sometimes they work better in locally made versions. Shows like Prisoners of War and The A Word can be told in so many ways. Every country has its own possibilities. In Israel, the family in The A Word was in the desert. In Britain, they were in the Lake District.”
KI’s booming scripted-format business has come as part of a broader expansion of the global drama sector, largely spurred by digital players.
“OTT has been a very significant factor in pushing change in the market,” says Kew Media’s Phillips. “Netflix and Amazon and Hulu—and others soon, I hope—are buying into projects as a first window for all rights or a second window, and that has been a shift.”
There has been a sea change in television over the past four or five years, according to KI’s Shtruzman. “OTT completely changed the way of doing business. Everything is much more global since the arrival of Netflix and Amazon. They’re putting $11 billion or $12 billion a year into the market. Nowadays with OTT, a distributor can make a global deal for a program. That wasn’t the case before. It’s probably the biggest change in television since the arrival of cable.”
So how are companies structuring their distribution operations to take advantage of all the new opportunities in the market?
“Our distribution business has always featured distribution hubs in major international locations feeding through to our London head office,” says Endemol Shine’s Payne. “We have always felt having key executives on the ground doing business locally is fundamental to successful distribution.”
Payne adds, “As part of an integrated production-and-distribution entity, we are very closely involved with our production businesses, feeding back distribution intelligence on the potential for a particular title, the genres that are traveling well, particular market needs and other factors.”
The Red Arrow distribution team includes executives with both development and production expertise. The distribution team is in daily contact with its production companies and there is a central creative development team, led by Michael Schmidt, assessing the slates of all the production companies within the group.
“We look at their slates all the time and help to shape those slates with an eye on international potential,” says Pabst. “We work with producers to build assets that we own and control.”
“The role of a distributor has completely changed,” Pabst continues. “We are no longer just selling product—we are helping to create it. As we develop projects from such an early stage, we need people within our organization who can be the counterparts for the creatives outside of it.”
“We’ve beefed up our acquisitions team to make sure we’re actively pursuing quality content that is being commissioned to fill prime-time hours, which were once [dominated by] fare from the U.S. studios,” says Banijay’s Mutimer. “Co-production and presales are skills that are becoming more important in this arena, so we have ‘up-skilled’ our team to make sure that we have the expertise required to be effective. We have combined sales and acquisitions roles in Britain and the U.S., which means that our acquisitions execs understand the requirements of the international market and have a real stake in making sure the productions that they champion work. We’ve also got OTT specialists within the team who act as an initial point of contact for the OTT services and coordinate with the sales team when they make pan-territory acquisitions.”
The FremantleMedia International team gives producers feedback, evaluates the international potential of projects and sees how much financing the umbrella company can bring.
“There are different routes to go with a show,” says Richter. “Sometimes it’s the local route and sometimes it’s the global route. There’s more communication within the business than there was five years ago. You can see whether it’s better to go left or right, local or global. We also have our producers talk to each other. We get them together to exchange ideas. The goal is to get two or three of them working together.”
A good example is Munich, based on a novel by Robert Harris, which is being produced by UFA and FremantleMedia’s British label Euston Films.
“The producers are plugged into their local markets,” Richter continues. “They know what their local commissioners want, so you put together something that can work for both markets at the start.”
“Everything comes down to original IP, and people are looking at existing IP with an underlying fan base or proven track record—so it’s incredibly competitive,” says Red Arrow’s Pabst. “Contacts and relationships with the creative community are paramount. As a result of this, we as a distributor, and content groups like ours, are more embedded in the market than ever before.”