Game Changers

April 2009

Gone are the days when film and TV product from the major Hollywood studios dominated the worldwide marketplace. Over the last ten years, a number of companies have transcended the traditional international syndication business and innovative executives have adapted to the fast-changing media landscape with out-of-the-box thinking and new models.

Most obviously, a new approach to production has changed the nature of the international distribution business over the past decade. Changes have taken place in the making of both scripted and especially unscripted programming. Several of these companies are relative newcomers, and they have emerged as market leaders in international television by moving nimbly—and in turn creating change that has pushed other companies to raise their games.

Twenty years ago, when Europe was opening up as the primary export market for the American studios, there was a widespread perception that TV screens would be flooded with American movies and series, and this gave rise to various forms of regulation aimed at limiting foreign imports and nurturing homegrown production. But the distribution business has a genius for adapting to limitations, and it can be argued that the origins of this group of new leaders lay in that constrained market reality.

The Hollywood majors that dominated the international business were descended from studios created in the first part of the last century. The game-changer Endemol, which pioneered reality TV and now produces hit programs in two dozen countries, was created in the Netherlands only 15 years ago. And though BBC may have been around since the start of television, its commercial arm, BBC Worldwide, was born in its current market-leading form as recently as 1995. Some of the formats distributed by FremantleMedia, such as The Price Is Right (part of the old Goodson/Todman stable), have been on the air for over 50 years, but its game-changing Idols talent-search show launched in 2001 in the U.K. (and has traveled to over 40 countries). Eight years ago, Fremantle­Media Enterprises (FME) had ten salespeople in London, one in New York and eight sales agents. Now it has regional sales offices in London, New York, Los Angeles, Sydney, Berlin, Singapore, Madrid and Miami, and the FremantleMedia group has 22 production offices.

MARKET INFLUENCE

The expansion of global production has had a creative effect on Hollywood. “It’s made them far more open, along with the U.S. broadcasters, to material that comes from outside the U.S.,” says FremantleMedia’s CEO, Tony Cohen. “We see that many of the leading TV executives come to places like London in the weeks before MIPTV and MIPCOM to see what the local market is generating, because the material is very powerful and particularly because the U.K. market is the leading exporter of entertainment and reality formats.” He adds, “It’s opened their eyes to what’s possible, but I think it has also intrigued and whetted their appetites as to what the potential might be for them to operate locally in markets around Europe. Many studios have been thinking about or investing in building their own production networks around the world. The only issue with that is that the execution of those ambitions can be very tricky because in each of the local markets around the world you need credibility and relationships, the same as you do in the U.S., in order to make that a really strong business.”

MOVING THE MAJORS

Michael Lynton, the chairman and CEO of Sony Pictures Entertainment, a studio with significant local productions around the world, has mentioned plans to move further in that direction. “As far as local-­language television production is concerned, we’ve been probably the most successful of all the U.S. studios,” he told World Screen in 2007. “I think there’s a ways to go, judging from the work of companies like Fremantle­Media and Endemol. We have to get more involved in the formats business because that’s really where the money is.”

Now the obstacles to such a strategy may be financial. “Our timing was right,” says Paul Römer, the global head of programming at Endemol. “We bought production companies when it was affordable so that we could build our international machine, and most important, we had fuel for the machine. We had a lot of formats that were in multiple countries. You need a lot of money and a lot of time. In today’s world, I don’t think it’s going to be possible to do what we’ve done again in the foreseeable future.”

The powers that be in international television are reflected in the ratings. Imported feature films are now gone from the top of the hit parades around the world, except for the occasional family film such as Shrek. There are fewer imported fiction series, with the notable exception of the CSI franchise and a handful of U.S. dramas such as 24, House, Lost, Desperate Housewives and Grey’s Anatomy.

In their place, new types of international programming have been riding high.

BBC Worldwide’s Strictly Come Dancing placed among the top ten programs in 17 markets in 2007. It’s even a hit on Hollywood’s home turf. Episodes of the U.S. version Dancing with the Stars on ABC ranked number three and four in the 2008 ratings top ten (with ratings of 12.4 and 11.3), according to Nielsen Media Research. Success also inspires imitation, of course. ITV’s Dancing on Ice (launched in 2006) has also achieved hit ratings in several markets. In Latin America, a similar show, called Dancing for a Dream, developed by Mexico’s Televisa, has had notable success.

Likewise, episodes of FremantleMedia’s American Idol on FOX (which is based on the British format Idols) ranked first and second in the 2008 ratings top ten (with TV ratings of 15.5 and 15.3), and the current season is also scoring high ratings for the network.

Endemol’s Big Brother, which practically created reality television—the most important new genre of the past decade—is now a huge hit in Latin America, coming in near the top of the ratings in Argentina, Brazil and Uruguay.

What these shows have in common is that they are locally produced formats. “Our biggest competitor, as good as they are, is not Warner Bros.,” says Mark Kaner, the president of Twentieth Century Fox Television Distribution. “Our biggest competitor is local programming.”

Probably the most significant change in the sales market during the past decade has been the emergence of this new form of “imported” local production. “One of the potential conflicts was always, should it be a format or should it be tape [the finished show]?” David Ellender, the CEO of FremantleMedia Enterprises, puts it. “And we challenged ourselves and said, Actually it can be both; it shouldn’t be either-or. And if you can capture the production margin and you can also capture the distribution margin, that’s the home run.”

CABLE REVOLUTION

The massive transformation of the television business in the past two decades has not been solely relegated to local production. The global explosion of cable outlets completely changed the media landscape.

In the U.S., the evolution of cable networks allowed for the creation of a “golden age” in programming.  Formerly relegated to offering reruns, these channels are now extremely profitable, and their schedules are filled with award-winning original series that often have more character and distinctiveness than what is airing on broadcast channels.

The cable revolution started at HBO when it evolved from an outlet for viewers to watch movies without commercials to the truly innovative industry powerhouse it is today, offering not only movies, but original series, documentaries, sports programming and specials. “If I think back 20 years, satellite delivery was invented at HBO,” says Jeffrey Bewkes, the chairman and CEO of Time Warner. “Original programming on cable was invented at HBO. Multiplex channels, invented at HBO. Video on demand, launched and invented at HBO. And I love that HBO continues this tradition of innovation in broadband.”

BASIC BOOM

Now, U.S. basic-cable outlets such as USA, SCI FI, TNT and FX offer viewers a much greater variety of original programming. USA has been so successful with its schedule that it has topped a broadcast network—a game-changing event in television. “Yes, we have beaten The CW,” says Bonnie Hammer, the president of NBC Universal Cable Entertainment and Universal Cable Productions. “Our originals have also beaten other networks, in certain demos during the summer.”

USA Network and SCI FI have also been models for change in the way shows are produced, scheduled and offered to their audiences. “The key for both of those channels and to their success is the clarity of the brand and what we call a brand filter. Everything we do—whether it’s the pilots we greenlight, the tone of a marketing campaign or an on-air campaign, or our choices for content for digital or mobile—has to go through a very clear filter that specifies the qualities of each of the channels,” says Hammer.

THE EDGE IS ON

Original cable series are in demand by broadcasters around the world, especially in Europe, where channels are looking for well-crafted shows with an edge. “A TNT show is not necessarily going to be made, cast and shaped the same way as you would shape a broadcast series that aims for the widest possible audience,” explains Bewkes. “So we can take more risks, because we have permission from our viewers. They want to see exciting new things. They want to see us push the envelope on the promise we’ve made to give them new drama forms, not just the old ones.”

The cable revolution can also be seen in other parts of the world. The proliferation of thematic channels in Europe, Asia and Latin America are offering viewers much needed choice, and a significant challenge to the terrestrial status quo. “What are a stegosaurus and a tyrannosaurus rex doing with their heads pointed up toward the sky? They are watching the meteor that is about to crash down on them.” That’s how Paolo Landi, a professor of marketing and communications at the Politecnico de Milano university, summarizes, with a dramatic flourish the crisis affecting the two Italian media giants—RAI and Mediaset. According to the professor, the terrestrial behemoths are “moribund dinosaurs” on the way to extinction. The meteor? News Corporation’s SKY Italia satellite platform, which is having an explosive impact on the Italian TV landscape.

21st century fox

As the executive in charge of Fox International Channels Italy, Emiliano Calemzuk was at the center of the Italian television revolution when, a couple of years ago, he was asked by Peter Chernin (the departing president and COO of News Corporation) to go back to the U.S. and head Fox Television Studios. Now, Calemzuk is developing a studio for the 21st century.

“When thinking about how to be global, the lessons of ten years as an international broadcaster came in somewhat handy,” says Calemzuk. “It was very difficult to secure access to good American series. And if the first three or four episodes didn’t get good ratings, the series would be cancelled in the U.S., and you would have invested a lot of money and time in the schedule and be left with nothing. I felt those were inefficiencies in the market that needed to be corrected, and we had an edge on how to tackle them, as we are a small but very diverse group of people coming from different countries.”

In a game-changing move, Fox Television Studios created a new financial model for series production. “We said, ‘Why don’t we take scripts from good show runners, work with American writers, actors and directors, and instead of pitching them to U.S. networks, let’s pitch them to a consortium of international networks first,’” says Calemzuk. “So we decided to put three shows into production thinking that we were going to get only one financed, but in four months we got three of them financed!”

Among them is Mental, a co-­production with Fox International Channels that has now been picked up by Fox in the U.S.

The evolution of the cable world also created opportunities for independent producers and distributors. The most obvious example is Lionsgate, which now produces several critically acclaimed prime-time series. These series, including Weeds and Mad Men, have impressed buyers worldwide, offering them an alternative to the majors. Of course, the big Hollywood studios continue to provide an impressive volume of quality series—both for cable and for the broadcast networks—but the tremendous success of Mad Men has made it clear that there is a new kid in town, and it opens the doors for new entrants in the production of prime-time television series. 

INDIE SPIRIT

A few years ago, Lionsgate was selling feature films to the television business, but it was not selling its own television product internationally, going through third parties instead. That approach changed with the arrival of Craig Cegielski, now executive VP of programming and sales for international television, who launched Lionsgate’s worldwide syndication business from a standing start. The first programs were the half-hour comedy Weeds from the pay-TV service Showtime, and the one-hour drama Wildfire from the cable channel ABC Family.

“There was no brand awareness internationally,” Cegielski says. “I chose not to lead with the product. The product speaks for itself. And I didn’t have much product at the time. I would lead with the company, which has a fantastic story to tell. [Co-chairman and CEO] Jon Feltheimer grew Lionsgate from annual revenues of $184 million in 2000 to approximately $1.2 billion in 2008. He has done this by being prudent and responsible, and the same discipline applies to the creative. We offer somebody like Matt Weiner (the creator of Mad Men, who signed a two-year deal with the company in January) the resources to make the programs that they want to produce. Our strategy was to embrace our content but push our brand.”

Lionsgate concentrated on markets where demand for television programs was very strong and not where the major studios had output deals with huge theatrical features on top and buckets of library series on the bottom. Out of the gate the company worked with Nine Network in Australia, where demand for features was declining. “We did an output deal with Nine Network, and that sent out a message to the market that we were a serious supplier,” Cegielski says.

Lionsgate’s sales strategy has broken with Hollywood tradition by not relying on pilots. “We arrived in the market selling series rather than pilots as the major studios do, and our brand message is that we sell series, not pilots,” Cegielski says. “What we’re selling is programmable. They are not buying something that by the time it gets to their shores may already have been cancelled, so they promote it and then they get a few episodes and that’s it. Our message at every L.A. Screenings is that what you see here is what you’re going to get. It won’t be a cancelled series.”

DRAMATIC ENTRANCE

Alex Mahon, the president of the U.K.’s Shine Group, says the approaches to production in the U.K. and U.S. may be converging in this respect. “It will be interesting to see if the U.S. model changes to become a little more like the U.K. model, where you don’t necessarily pilot, you go to production straight off the script, but maybe you make a shorter order or you reduce the deficit and bring in international sales earlier. We may see the U.S. and U.K. coming closer together rather than the U.K. always trying to catch up to the U.S.”

At a time when some companies are succeeding by breaking the American studio mold, the Shine Group has changed the game in U.K. production by emulating Hollywood values with shows like the spy drama Spooks, sold in 70 territories, including a syndication deal in the American market, where it’s called MI-5. “Spooks has changed British drama in the sense that it’s a very high-end glossy drama, much more in the American style of production,” says Mahon. “It’s high budget, very slickly produced and post-produced, the characters are all good-looking and attractive, and that’s not usual for U.K. drama. It’s not parochial, it’s wide-ranging and international and mold-breaking in that sense.”

Mahon points to the success of Doctor Who on the BBC as a more parochial forerunner. “It created this new slot on Saturday night, 6 p.m. to 7 p.m., when the whole family sits down and watches drama together. That hasn’t really existed in U.K. television in a long time and it certainly hasn’t existed in U.S. television in a long time.” Now Shine is hoping viewers who tune in to NBC, which has bought a 13-episode run of Merlin, are ready for the same experience. “It has to hit the sweet spot of something that is appealing enough to adults whilst children are also compelled by it. That’s the Doctor Who effect, and Merlin is definitely an international version of that.” Merlin has been a hit in Italy and has also been sold by FME in France, Germany and Australia, among other large markets.

RAPID CHANGES

A fundamental fact of today’s worldwide market is the much faster speed of communications. A hit in one country that appears exportable nowadays travels the international grapevine at the speed of light.

Four or five weeks after Big Brother was launched in Holland, Endemol started getting requests for the show, from Germany first (RTL), then Spain and Portugal and then the U.S. “After it was on in the U.S., it exploded all over the world,” says Römer, who was the first executive producer of the original show in Holland and who produced the first American version.

The phenomenon of speed also has a downside, of course, which has not necessarily helped American sellers. With the Internet nowadays, people know immediately when a show is cancelled in the U.S.

To be sure, the international game-changers did not just sit down one day to design products to shake up the world market. They have built on the success of what was originally a local production.

“All formats are the same, in that they start as a local program and then become international,” says Römer. “It’s impossible to develop an international hit on purpose.”

Big Brother grew out of a brainstorming session in 1997. “We felt it was something special, but we had no idea that it would be the huge game-changer it turned out to be,” Römer says. “It was a huge project and a very expensive one for the Dutch market, almost impossible to sell, but after two years of development, we finally got it on Veronica (part of the RTL Group). It started slowly for a few weeks, but after we had the first eviction and the first love story, it became a huge hit.”

One of the factors in the success of Big Brother was a decline in ratings for drama programming. “At the time there was a debate in society about privacy with the idea of the webcam just emerging in a big way,” Römer says. “In terms of the television market, scripted programming was becoming less successful. It was time for something new. Big Brother was not scripted, but it was still a kind of soap with a story you could follow with characters. It was like a good drama, only for real, and it mirrored society and culture. Three years earlier would have been too early.”

In the fast-moving television world, Strictly Come Dancing was of a later generation, following the reality-­TV boom and the likes of Pop Idol (the inspiration for FremantleMedia’s global Idols franchise). “It was a bit different from the big shows that were around,” says Colin Jarvis, the director of international formats at BBC Worldwide. “We thought perhaps the market could use something less confrontational, that we could bring back a bit of light entertainment.”

BRAND LOGIC

Thinking of a program franchise as an extendable brand is part of the game-changing outlook, and longevity is a key issue in television sales. Every distributor wants a show with legs. But the market moves on—faster than ever nowadays. So instead of looking at volume only in terms of trying to extend the number of seasons, BBC Worldwide’s emphasis is also on maximizing volume within each season, by encouraging broadcasters to run tie-in programming like behind-the-scenes shows so that the brand is on several nights a week. In the case of the Dancing franchise, there are also CD and DVD opportunities. “It’s important not to dilute a brand, but this is a music program and those ancillary markets fit in naturally,” Jarvis says. “So does having a stage-show version [of the program].”

Similarly, FremantleMedia has a global strategy in place to ensure that each show is treated as a brand in terms of global rollout, brand extension and sponsorships. “We have an extensive ancillary and off-screen operation, which means that we treat each format as an entire brand and we look at it holistically to ensure it’s getting the best exposure in each market,” says Vasha Wallace, the VP of format acquisitions at FremantleMedia.

Ellender adds, “At FremantleMedia Enterprises we are trying to align our distribution, home-entertainment and consumer-products businesses on a regional basis, so no longer are they working in their revenue silos, but they are thinking more strategically about the value chain of a piece of content. So you come up with more regional strategic thinking about a piece of content and how it should be rolled out across TV, home entertainment—and if there are other ancillary rights, you try to figure out the whole value chain.”

This approach has transformed the market position of the FremantleMedia group. “When you are dealing with the multiple parts of FremantleMedia that a broadcaster might be engaging with, we’re not just seen necessarily as extracting revenue from them, but we are also their production partner or their partner in other areas,” Ellender continues. “For The Biggest Loser in Australia, for example, we also look after the website and all of the DVDs and books. We have a weight-loss-supplement program out to retailers and grocers, and we are representing the broadcaster in that. So we are delivering revenue back to the broadcaster as well as taking revenue from them when we are producing the show.”

The brand concept is key, for within it is the logic of developing a group’s own production network internationally, the defining characteristic of these game-changers.

KEEPING CONTROL

BBC Worldwide had a hit with The Weakest Link, which was in 80 territories at its peak. But that was always licensed. Jarvis explained, “What’s different about Strictly Come Dancing is that we have expanded beyond the licensing business into the actual production around the world. This is a strategic point. When you just license, you do not really have control. But by producing it, you do, and you can control the brand. So, for example, we have had some broadcasters who have wanted to make 20 episodes a season or sell [Dancing-branded] tea sets, and we have not wanted to do that because it could dilute the brand.”

BBC Worldwide now runs basically two different operations from the franchise. One is for the countries where they produce the local versions themselves, and the other is for licensing. All told, the show has been sold to over 30 broadcasters.

BBC Worldwide has production bases on its own in three countries—the U.S. (both New York and Los Angeles), India and France—and production partnerships in four others: Australia (with Freehand), Canada (Temple Street), Russia (MIR Reality) and Argentina (GP Producciones). Either way, BBC Worldwide works on the ground with the local broadcaster.

FremantleMedia, which produces original local programming—its drama division supports serial drama production in 12 territories—as well as local versions of its international TV formats, has been intent on exploiting each show fully within each market, not satisfied just to make one broadcast sale. “Even in those countries where FremantleMedia is not producing, where we are licensing content to third parties, not every time, but by and large, we have managed to roll out both the format and the tape [of the finished program] on either the same platform or within the same broadcast group,” says Ellender.

Endemol now has production companies in 25 countries, and these produce the local versions for the broadcasters licensing Big Brother. Endemol only sells the license to broadcasters to produce their own versions in countries where it doesn’t have a production company. About half of the network of existing subsidiaries grew out of Big Brother, but Endemol had already bought up big local production companies in major markets—the U.K., France, Spain and Italy—and this process was largely complete in Europe before Big Brother began hitting the airwaves. 

BIG BROTHERS, BIG PARTNERS

In other countries, Endemol sold the format to a broadcaster and started its own company—for example, selling to CBS and at the same time launching Endemol U.S. In several markets there are production joint ventures with heavyweight partners such as Rede Globo in Brazil (started in 2001) and Televisa in Mexico (2002). Latin America has become a key region for Endemol. It now has a telenovela format with The Successful Mr. & Mrs. Pells, a huge hit on Argentina’s Telefe. The ambition is to emulate the success of Betty la fea, a Latin American telenovela from Colombia’s RCN that has been a global phenomenon.

Römer says, “One of our biggest strengths is that we have such a strong global network of companies that if we have something working in a country, we are able to get that new idea on the desk of TV managers all over the world in a week or two weeks. We can move fast and deliver quickly. Wipeout was well received in the U.S. as a summer program. We were able to sell it in 18 countries before it even had a regular network slot on ABC in the U.S.”

Endemol has taken the concept of producing locally for the international market a step further by producing local programs in a single location. Wipeout is an example. The program is a very expensive one to produce. Endemol built a single production setup in Argentina. Hosts and competitors are flown in from all over the world and Endemol Argentina does the whole production. Most countries take ten episodes. They are in Argentina for two or three weeks and they take the tapes back with them. Endemol used the same model for Fear Factor with two central facilities, in South Africa and Argentina.

THE IMPACT OF TECHNOLOGY

Stephen Jarchow, the chairman and CEO of the independent movie company Regent Entertainment, founded a dozen years ago, cites three major developments during the past decade. First has been the diminished importance of the German market as a source of big rights fees. The second has been the growth of the reality show, which has affected the demand for story-form programming, particularly movies of the week. Third has been the decline in what international broadcasters can afford to pay or want to pay for scripted drama. “This is partly because of the growth of their own productions but also a result of the general economic situation over the past year or so,” Jarchow says. “There is a bit of paralysis.”

The changes that we have seen in the international distribution market during the past decade will probably amount to nothing compared to those now under way. “The growth of online consumption is probably as significant for television as the online consumption of music was for that business, and that resulted in a complete change in the music business and a destruction of the traditional revenue models,” says Jarchow. “That change happened very fast, over 12 to 18 months. I think this is happening in television now.”

The big opportunity now seems to be to provide content online that people can see on demand and interact with, and that social networks can develop around. Advertisers are trying to find ways to access that market in a coherent way. The positive thing for the production business is that advertisers are apparently finding that user-­generated content doesn’t work for them. In Jarchow’s view, Regent’s best move to date—and an expensive one—was to create a VOD service called here!, which started out for the gay and lesbian audience. here! is now available as VOD or as a subscription service and in some cases as a 24/7 linear channel. Regent has now acquired brands in that space, including the Advocate and Out magazines and a number of websites, and is converting the magazines to digital brands by, for example, offering advertisers multiplatform deals covering magazines, online and television. Again, it gets back to branding.

FremantleMedia is already moving into the online market. In late 2008, it made a landmark agreement with YouTube to become the first global producer to offer two different strands of programming on the video site. FremantleMedia will create a multitude of new online formats that will be distributed exclusively via YouTube and will use YouTube as a web platform for many of its current and future TV shows. In the new deal, FremantleMedia and YouTube will shareall advertising revenues generated from the FremantleMedia YouTube Channels and videos. Many FremantleMedia shows already have successful official channels on YouTube, such as The X Factor, which generated over 1.3 million views in the U.K. FremantleMedia is able to fully brand its output on YouTube and will work with YouTube to extend the platform.

Today’s game-changers are shaping the rapidly evolving world of media with innovative ways of reaching viewers. As Ted Turner, one of the greatest game-changers in the history of television, was fond of saying, “Lead, follow or get out of the way.”