“What’s next?” is the key narrative driver of any good story. It’s also the question taunting the media industry today. There are no easy predictions, but one thing is certain: the need for content remains extremely strong. Production is at an all-time high. Budgets are increasing (Prime Video’s The Lord of the Rings: The Rings of Power is said to have cost $465 million—yes, you read that correctly—for eight episodes). Competition—driven mainly by the global streamers—is fierce. The SVODs are fighting for subscribers. Linear channels, in response, are vying for viewers, and everyone is chasing IP, talent and even production crews.
“As we look at a maturing streaming market, unlimited growth may not be the future,” says Sandra Stern, the president of the Lionsgate Television Group. “That is both a challenge and an opportunity. It requires us to double down on our quality, to be the studio that breaks through the clutter.”
Buyers are looking for premium scripted projects across the board, says Karen Wilson, the managing director of Kudos. “It’s an interesting time for us as sellers because we have a lot more buyers. We, therefore, have many more opportunities, but we also have a lot more competition. Linear is still an incredibly important place for us to be,” she continues. “It doesn’t feel to us anymore that you go to linear for the lower-budget shows and streamers for the higher-budget ones. It’s more a taste question.”
Amid the opportunities, there are challenges. Ramped-up production has resulted in a lack of talent, particularly behind the camera. “For us, right now, I would say the biggest demand is for production teams,” says Cathy Payne, the CEO of Banijay Rights.
“Everybody in the market talks about the shortage of crews,” explains Tim Gerhartz, the managing director of Red Arrow Studios International. “The number of shows in production increased massively over the course of [a few] years, so there’s just a lot of production going on. But then, there are just not enough new young people getting into this industry interested in working in TV in general. That’s something the industry in itself has to solve. It will be interesting to see what happens in the next two years. The market was also overheated here and there in the past.”
Demand goes beyond lighting and sound technicians or props and costume personnel. Because there is so much in production, there is also strong demand for writers and showrunners.
Looking at the prolific U.K. production market, Stuart Baxter, the president of international distribution at Entertainment One (eOne), notes, “the increase in the number of shows commissioned out of the U.K. pushed the demand for what was already some absolutely fabulous talent—Peter Morgan (The Crown), Abi Morgan (The Split), David Farr (The Night Manager), Jack Thorne (His Dark Materials) are having projects thrown at them at [an incredible] rate. These writers can’t be stretched too thin. That’s important. They still need time to develop and nurture and write and rewrite these projects because that’s what they’ve always been so good at. We see cases where we’re having to import people from overseas to the U.K., occasionally, because not all the skills, with so many projects, are resident here.”
The premium on talent is all the more urgent because, increasingly, A-listers need to be attached to a project for it to be commissioned and financed.
High-end actors, writers, producers and directors inevitably increase costs. So do the continued Covid protocols, which remain in effect as the spread of the virus persists. Producers would rather deal with the costs of regular testing than incur the much more onerous expense of shutting down and delaying a production because someone contracts Covid.
DOLLARS & SENSE
Increased costs are making productions more challenging to finance. So how are producers dealing with the bigger budgets? They are increasingly piecing together financing with partners.
In its many forms, co-production has become, as Lionsgate’s Stern explains, not only necessary, but “it’s a fact of life. Most of the platforms want to have an ownership stake in everything they put on the air. So, it is a rare situation where we do not partner with the platform.”
Though financing formulas have become bespoke to each project, Louise Pedersen, CEO of All3Media International, explains: “When you talk about models, it always boils down to one basic one, which these days is one commissioner, one other major co-production partner, perhaps two, a tax credit and a deficit from a distributor. Probably 75 percent of financing models can be put into that bucket. The days of getting something fully funded and having rights to sell are not around anymore. So [projects] all broadly fall into the same model, but it’s about who’s putting in what, who wants what rights-wise, who wants what creatively, and who’s going to go first and at what time they come in.”
“All of us will admit to seeing some very healthy sales inflation in the market at the moment because of the competition” among so many platforms, says Ruth Berry, the managing director of global distribution at ITV Studios. “The reality is that cost inflation is outstripping that. We’ve all got to think much more thoroughly about how we deficit finance, our capability to do that and who the partners are that we can do it with. More importantly than ever, it’s about building those partnerships for those shows and which markets they’re in and how we can work with our partners, who are going through similar challenges themselves.”
Baxter at eOne notes that he and his colleagues at the super indies have all learned a lot in the last few years: “I think we’ve all benefited, not necessarily financially, but experience-wise. We’ve evolved from a market where a lot of us were distributing shows that had been largely funded, and the deficits were smaller, and we got to take them out to the international market, which was growing. Now, the deficits are getting bigger and bigger, and the risk with that is bigger and bigger. You have to be a lot more creative in those partnerships, and you need to be a banker and be able to cash-roll projects. You need to add value not just as a distributor but creatively. We’ve learned that having three co-producers isn’t always a good idea. You can have a Euro pudding. It’s one plus, say, somebody joining in later to be a co-producer, or it’s two. But it’s not more than that because you need people with the same vision and voice for the show. You’ve got to empower your writer-showrunner to make it their show. You’ve got to want their version, not your version, not the French or the German or the Italian or the British. It’s got to be the talent’s show.”
“We take a portfolio approach to how we look at our slate,” explains Lionsgate’s Stern, by having both projects that they deficit and for which they control all the ancillary rights as well as projects they sell to SVOD platforms. “The streamers will pay an expanded license fee, a cost-plus license fee with a substantial premium, but take rights for an extended period of time. We do get those rights back. We can monetize downstream, but it takes a while. So we try to balance those two different kinds of models. Ideally, if we get it right, we have a self-sustaining system where the premium on the cost-plus streamers allows us to defray the risk of the broadcast model, which has historically been risky.”
Selling to or partnering with a streamer most often means sacrificing rights. But there are benefits to getting streamers to buy or invest in a show. “We’ve got a number of British dramas that would not have been made if we didn’t have a streaming partner come in with [financing],” notes Banijay Rights’ Payne. “[That] allows domestic broadcasters to have shows at a higher budget level than they’ve ever had before, [which] is only possible because we can bring in a partner. We have to acknowledge that.”
“The streamers have been a massive opportunity for local-language producers and content,” notes ITV Studios’ Berry. “Hence all the M&A interest we’ve seen over the last couple of years.”
Indeed, indie producers and distributors are also aware of a new source of financing in the market—money coming from private equity. These firms are looking for assured streams of cash flow. Given the surge in production, they are not only investing in soundstages and studios, but they are also acquiring stakes in production companies.
KKR backed Germany’s LEONINE Studios. Peter Chernin set up The North Road Company, which is now looking to expand in Europe, with $500 million from Providence Equity Partners. Blackstone invested in Kevin Mayer and Tom Staggs’ Candle Media, which in turn acquired stakes in Reese Witherspoon’s Hello Sunshine and Faraway Road Productions, the producer of Fauda.
STRENGTH IN NUMBERS
Though streamers have given non-English-language programming unprecedented global exposure, in Europe, at least, linear broadcasters would increasingly prefer to partner with other linear channels rather than streamers.
“For us, it’s hard to retain rights if we work with streamers, especially if they are operating on a multi-territory or global scale,” says Robert Franke, VP Drama at ZDF Studios. “It’s more beneficial to get them on board as a partner that would fund a project entirely rather than co-produce.
“In Europe, linear broadcasting communities are quite skeptical,” continues Franke. “We see the fierce competition driven by all those platforms entering the market, and it is hard to find meaningful projects that justify co-production between a linear partner and streaming partner. We’d rather work on the linear side on a co-production model or sell it off to a global streamer entirely, simply because the rights are not that valuable if it is branded by a streamer.”
Co-producing and getting involved early in a project is also essential for regional streaming services, such as Viaplay, currently operating in over 11 markets across the Nordics, the Baltics, Poland, the Netherlands, the U.S. and the U.K.
“At a bare minimum, every show that we get involved in, we need to secure for our broad markets: the Nordics, the Baltics, Poland, the Netherlands,” says Filippa Wallestam, the executive VP and chief content officer at Viaplay Group. “We don’t go into any shows if we cannot secure at least those. And then more and more also now the U.K., which is a little bit of a challenge when it comes to co-production setups. We can go in very early as a real co-production partner from development until the finished product. We can also come on board later and do it more as a prebuy setup. The ones that we are jumping on early are, in many cases, big-scale productions that need to have more partners on board to get the show funded. We sometimes do the prebuy option when it’s a really good show, but they could get it off the ground without us, and then we just come on board at a later stage.”
Negotiating such a variety of deals indicates how essential scripted programming is to Viaplay. Drama has “an enormously important role,” says Wallestam. “It is what people will associate with Viaplay, and it is in most cases what makes people sign up for our service. It is really important both as a sales driver and a brand builder. In our [newer] markets, we have a slightly different strategy. In the Netherlands and Poland, we are now developing our very first scripted shows. We have a lot to look forward to in those markets. The ambition is that it should have the same role in those markets as well.”
THE LONG TAIL
Dermot Horan, the director of acquisitions and co-productions at the Irish public broadcaster RTÉ, notes: “As broadcasters are no longer just broadcasters, we’re public-service-media organizations, our online and digital offerings are as important as our more established linear channels. One of the genres with a long tail that works in digital is scripted.”
Drama not only attracts viewers and builds a brand, but its proper exploitation is also extremely valuable. Owning a stake in a scripted series means a broadcaster or platform can control rights. “If a story is well told and well produced, and you hold on to a good copy of it, be it on film or digital, that is an asset for a production company,” he continues. “It’s also a great asset for a broadcaster to have in their catalog. That’s why I think a lot of broadcasters are getting more into co-productions because then they have much more control of the rights. Because if I am buying something from a studio, I get a finite license. The next time I go to relicense, [I’m told], ‘Oh, I’m sorry, we sold that to Netflix or Amazon or Disney.’ Whereas if it’s something we commissioned, we can have much more control over it; we have much longer rights.”
STORIES FOR EVERYONE
That well-told story, and its proper execution, depend on a writer and top-notch production team, which takes us back to the current shortage of personnel. The search for ideas and creators dovetails nicely with the long overdue push in the industry to find more diverse talent, particularly underrepresented voices.
“We are all making big steps forward, but I think we still have a huge amount to learn, and there’s a lot more to improve,” says Kudos’ Wilson. “At Kudos, we have diversity, equity and inclusion targets for all our productions. But ultimately, it comes back to breadth of voice, which comes through in the stories you want to tell and then the people you hire to make them.”
“We have got to tell stories [more] authentically by the people who thus far have not had their stories told,” she continues. “That is something we and I think everybody in the industry should be looking at.”