A Healthy Start

Ask most format executives about the future of the industry and they will point to the market’s recent growth as the best guide to its future.

In the last 15 or 20 years, however, the format industry has arguably been the fastest-growing part of the international programming business, and today big prime-time formats like Idols, Dancing with the Stars, Deal or No Deal and Who Wants to Be a Millionaire? often out-rate the movies, dramas, sports and comedies that have dominated TV ratings since the beginning of television.

Just last fall, the industry’s trade association, the Format Recognition and Protection Association (FRAPA), estimated that the format business produced €9.3 billion ($12.6 billion) in revenues between 2006 and 2008 in just 14 countries, a 45-percent increase over the €6.4 billion ($8.6 billion) in revenues the industry produced in the period between 2002 and 2004.

“To me a format is just like a recipe card in cooking,” Blumenfeld notes. “Before formats there were lots of ingredients to make a successful show but not a recipe. The format is a recipe card that tells you how to prepare those ingredients and how to mix and match them to make them work so that you can take a recipe that works in one country and adapt it brilliantly to another by adjusting the seasonings and ingredients.”

And those recipes seem to be in even greater demand these days, when cash-strapped broadcasters have been slashing programming budgets. “From a FremantleMedia point of view, in 2009 and 2010 we sold a lot more entertainment series and we saw the ratings in prime time for the right shows definitely go up, often by very big margins,” says Rob Clark, the president of worldwide entertainment at FremantleMedia. He sees no slowdown in the willingness of broadcasters to spend heavily on major formats. “If you have a big entertainment show and you produce it well and the broadcaster schedules it well, it will increase its audience.”

Yet, the very success of the format business, coupled with the recent economic traumas, poses some major challenges for the industry’s future.

“At the moment, broadcasters don’t have the money to invest in the level of content that they once did,” notes Mike Morley, the executive VP and chief creative officer for international production at Sony Pictures Television. “Not only have they been suffering from the downturn in advertising, they’ve been swept off their feet by the rise of digital channels and are losing audience share.”

These economic problems were recently highlighted by the big media-buying firm Magna Global. It estimates that TV advertising in many countries will see an uptick this year—thanks to slightly improved economic conditions, the Winter Olympics and the World Cup—but it’s also predicting that TV ad spend will remain sluggish in most major territories for years to come.

So far, those problems haven’t seriously hurt the format business—at least in the short run—because cash-strapped channels see formats as a safer way to program their schedule.

“We had a little bit of slowness last year, but things have been quite frantic over the last few months, and I think others are experiencing the same thing,” says Stephanie Hartog, the executive VP of format sales at ALL3MEDIA International. “If the idea is good enough it will sell, and we’ve been blessed with some very appealing ideas from our content creators.”

Lighthearted concepts have been particularly popular. “In the last year or so there has been a return to the kind of feel-good programming and old-fashioned family shows,” says Yvonne Pilkington, the VP of international formats at NBC Universal. “We’re seeing that people want a bit of escape. They want to see dreams come true. That is why the big talent shows like The X Factor and Idols remain so popular.”

SevenOne International is similarly seeing a demand for big-event shows, says Jens Richter, the company’s managing director. “They are big and they’re spectacular,” he says. “You air them tonight and they’re going to be the talk of the town tomorrow. Those kinds of shows are very important for the big free-TV channels all over the world. That is one of the big advantages of free TV—you can reach big audiences at the same time all over the nation. You can create events. That makes a big difference between pay TV and free TV and online: instant great audience reach. The channels can use that by building events.”

Still, the economic downturn facing many major broadcasters “is a double-edged sword,” according to Colin Jarvis, the director of international formats at BBC Worldwide. “Less money means less appetite for risk. On the plus side, when you have a hit, like we do with Dancing with the Stars, people are continuing to produce it and commission it because they know it works extremely well. On the other hand, though, people don’t have the appetite they would have had to try things out.”

That creates challenges for producers launching new formats. “There is tremendous pressure on budgets and the willingness to take risks,” adds Paul Römer, the chief creative officer at Endemol. “It is harder now to sell a new format and formats that are not already a success. And if your show does make it to air and it does not score a really great rating in the first two or three episodes, it is pulled off and gone. It is becoming more and more difficult to develop a show and the next big hit.”

MORE FOR THE MONEY
While the big money still comes from major broadcasters, their tight programming budgets are making lower-cost formats increasingly attractive, both for broadcasters and the rapidly growing cable and satellite market.

“We have free-TV channels looking for volume,” says SevenOne’s Richter. “Some are looking for shows that can create volume at reasonable costs. That is one of the reasons why Love Bites works extremely well. It’s cooking and dating, it’s a reality show, it’s a show that you can produce at a very reasonable budget level. It’s perfect for daily stripping. So you can build a brand, you can cover big volume in your grid and it’s very cost-efficient, plus you have great ratings.”

“Cable channels worldwide are just starting to take their first steps into original programming and starting to make shows with budgets that would have been unachievable for them only three or four years ago,” observes NBC Universal’s Pilkington.

COST CONTROLS
Finding ways to be flexible in the cost of producing formats—always an important issue when trying to translate big prime-time events to smaller territories—is also likely to become more important. Pilkington notes that when TMC in France commissioned its For Love or Money format, it ended up shooting it in Miami to save money.

Likewise, Endemol’s Römer notes that his company has been using central production facilities in Argentina for its formats 101 Ways to Leave a Gameshow and XXS. “101 Ways to Leave a Gameshow is a huge spectacular game show that would be unaffordable if they had to pay for the facilities,” he says. “But because we’ve built a central facility, it is affordable for individual buyers.”

Faced with risk-averse broadcasters, format producers are also increasingly investing their own money to get concepts off the ground, a trend that is likely to become even more important in years ahead.

Römer explains that Endemol has been spending more money to commission pilots, which increases the chances that a broadcaster will pick up a show, and FremantleMedia’s Clark says that his company has used a central fund to develop shows from local production companies that could not find a home in their originating market.

The concept for Take Me Out, for example, was developed in France, but “France didn’t want it,” Clark says. “At many companies it would have died at birth because its originating territory didn’t want it, but we believed in it and, by using centrally funded money, have developed it to the point where it is now in 15 territories.”

New revenues will also have to be part of the mix. “The biggest challenge will be seeing how the business models are altered as we come out of the recession and taking advantage of those changes,” declares Sony’s Morley.

He believes producers will have to become much more active in raising money for shows and look beyond the traditional broadcast-license fee for funding. That means they will need to work more closely with advertisers on things like product placement.

“The smart producer is going to need to be equipped for a conversation to bring in extra revenue from the multiple streams that a show can create from merchandising, interactive, off-screen licensing, etc.,” he says.

GEOGRAPHIC EXPANSION
This hunt for new revenues will also extend to regions like Latin America and Asia, where the TV markets are smaller but likely to see faster growth in the next five years. Magna Global sees TV ad spend growing by 8.4 percent a year between 2010 and 2015 in the Asia Pacific and a healthy 6.5 percent in Latin America. Both regions will see TV advertising expand by more than 12 percent in 2010.

ALL3MEDIA’s Hartog notes, for example, that Saudi Arabia has recently changed the law to allow game shows, which made it possible for the company to sell its format The Cube into the territory. “I think a lot of the Middle East will start opening up for single-territory acquisitions, which is something they haven’t done traditionally,” she says.

These territories are also likely to become an increasingly important source of new formats. Early this year, ITV Studios cut a deal with Hunan Satellite Television in China to develop and license a series of formats that will air initially in China on Hunan Television and then be exported worldwide.

“If it is popular with 58 million people who watch it in China, we think it will inspire confidence that it will work in other countries,” Blumenfeld says. 

The format industry continues to look for ways to capitalize on the rapid spread of high-speed Internet connections and the growing popularity of social networking sites and other digital media.

“I’m convinced that the next wave of television shows will be a convergence of television and the Internet,” states Endemol’s Römer. “It is a major topic of discussion at the moment.”

As producers face tighter budgets, revenues from digital media could play a larger role in financing big-budget prime-time events, Römer adds.

Some distributors are also eyeing 3-D or stereoscopic tele­vision. Sony, for example, has joined with Discovery Communications and IMAX to launch an as-yet-unnamed 3-D channel in 2011 in the U.S. Some satellite providers, notably BSkyB in the U.K. and DIRECTV in the U.S., are also planning to roll out 3-D channels this year.

“3-D is a great leap forward because it has the potential to make TV an occasion again and to bring things to life and engage viewers in a way that hasn’t happened in decades,” notes Sony’s Morley, who adds that Sony is already looking to develop 3-D formats.

THE TECH FACTOR
For the moment, however, the widespread discussion of how technology might transform the format business has not translated into a breakout hit. While format producers have created a number of compelling web and mobile applications, most admit that the long-predicted promise of digital media has yet to fundamentally transform the business.

“Technology is important but not that important in the great scheme of things,” says FremantleMedia’s Clark. “If you are talking about entertainment formats [like Idols], you need to have a very clear multiplatform strategy. But it is still a marginal part of the business. What drives a format is still the broadcast-TV platform.”

Some of the biggest upcoming trends, in fact, may be the same ones that have shaped the industry over the last decade. For starters, having a hit in one of the major territories is likely to remain an extremely important factor in a format’s initial launch. While formats are increasingly percolating into global markets from a wide range of countries, FremantleMedia’s Clark estimates that “about 32 percent of all formats come from the U.K., the Netherlands and the U.S.

“A format idea can start from somewhere else but it has jet boosters on once it has a U.S. or a U.K. broadcast,” Clark says. “Likewise, if it fails miserably in those territories then you are looking at the death of your format.”

Distribution clout and having an extensive network of local production companies or allied channels that can generate new ideas is also likely to remain extremely important.

“Size does matter,” says Clark. “A format idea can come from anywhere, but you have to have the capacity to launch it.” As a result, a number of companies have been following the lead of FremantleMedia and Endemol in setting up a global network of production companies.

ProSiebenSat.1 Media, for example, recently set up Red Arrow Entertainment Group as a new content division that will acquire and launch production companies and seek out development partnerships. “We want to create new properties with these production companies,” says Richter at SevenOne, which is part of the new Red Arrow group. “Within Red Arrow we also do have development deals, like the ones with Phil Gurin, the creator of The Singing Bee, and with Dick de Rijk, who is the inventor of Deal or No Deal. Dick has a great image in the international market, and with him we are developing new show ideas in the fields of game shows and reality TV.”

“When we started out in the format business, over ten years ago, we were effectively a licensing business, going to market and getting the best format fee we could,” says Jarvis of the BBC, which has expanded its local production activities into nine territories in recent years. “But [over time] you plateau out because there is a limit to what you can get from just format fees. From a strategic point of view, you need not only to own the shows to license them. You also need to be able to produce them and have some ownership of the ancillary rights.”