Exclusive Interview: Red Arrow Studios’ Jan Frouman

PREMIUM: Jan Frouman, chairman and CEO of Red Arrow Studios, discusses the integration of the Red Arrow Entertainment Group and Studio71.

A reorganization of the German conglomerate ProSiebenSat.1 Media in December 2017 saw the merging of Red Arrow Entertainment Group and Studio71 into Red Arrow Studios, helmed by Frouman, who is also a member of the executive board of ProSiebenSat.1 Media. Red Arrow Studios houses 20 production companies—of which ten are in the U.S.—a digital studio, a bouquet of MCNs (multichannel networks) and international distribution of films and TV programming. The combination of assets allows Red Arrow Studios to better access talent and resources when producing for all platforms, from traditional linear channels to digital destinations, while offering multiple options to advertisers.

WS: What motivated the integration of Red Arrow Entertainment Group and Studio71?
FROUMAN: It was the realization that the assets are complementary to one another. Initially, ProSiebenSat.1’s investment in Studio71 came through our digital entertainment business, with TF1 and Mediaset then brought in later as investors. But last year, when we decided to reorganize ProSiebenSat.1 into three clear segments—entertainment, content production and global sales, and commerce—we realized that Red Arrow and Studio71 belong together. They both deliver certain pieces of the puzzle that we would otherwise have to build on our own.

Studio71’s business is a lot more than the aggregation of YouTube channels. All the fun parts come on top of that, including IP creation, branded sales and selling our own advertising inventory. I see a lot of overlap with what Red Arrow’s TV production companies do, and how they want to develop in the branded-entertainment business. At the same time, they can support Studio71 in packaging their IP slate and talent. Red Arrow Studios has become a hub for networks and video platforms that includes everything from IP creation, talent packaging and production to branded sales and influencer marketing. We are addressing a huge growth market. Then you add in our distribution capability, and you see that even though we are coming at the content business from slightly different angles—one more traditional, linear television production, and the other more digitally focused—the businesses are a natural fit.

WS: Red Arrow recently acquired Gravitas Ventures. What do they bring to Red Arrow Studios?
FROUMAN: Gravitas Ventures is an important investment for us. Obviously, Gravitas broadens the scale of our distribution business as they’re active in the feature-film space and have deep relationships with OTT and SVOD players. This allows us to take a much broader packaging approach in the financing of programming, much like a mature studio would. We have the ability to do single title deals, but also package deals, bringing film and television together into an overall deal with an outlet. If you believe, as I do, that the ability to finance programs dictates how many assets you’re going to end up owning, then you want to have breadth in your distribution business. This also makes sense economically, as distribution is on the higher margin end of our business. So, as soon as we became aware of Gravitas Ventures, and got to know the founders and their business, we saw how it would fit with our own and got immediately excited about it.

WS: We talked two years ago. Since then, what’s been the strategy in investing in production companies or talent? Are you still always on the lookout?
FROUMAN: Our formula for how we choose partners hasn’t changed. We ask ourselves: is it a territory we want to be in? Are they great creators and producers? Do they have good breadth and depth within their market? And are they ready to engage, bring value to the group and be an active part of it? What has changed is that we have now achieved a certain scale and market position with our 20 production companies. We are seeing a degree of shift and upheaval in key markets such as the U.S., and we can’t ignore that development. However, our appetite for new acquisitions remains robust and we will continue to make disciplined decisions about production company add-ons as long as there’s a good fit between us, and the pricing is right.

WS: You mentioned scale. Why is it important?
FROUMAN: For Red Arrow Studios, there are a couple of reasons. We’re part of a big media group, so a certain amount of scale regarding output and financials is required to make our production business a meaningful pillar of the group. Then, we’re in a business characterized by a degree of volatility that comes out of hits and misses, with shows getting picked up, dropped or shifted. The more broadly positioned you are, the better you are at creating a balanced business. And of course, scale matters in terms of improving your market position and remaining competitive.

WS: How do the production companies in Red Arrow Studios benefit from being part of the group?
FROUMAN: First and foremost, having a dedicated distribution partner is a clear benefit. In every project, our production companies automatically have aligned partners with whom they can strategize to retain rights and to see the show travel. Within Red Arrow, we also nurture an enormous amount of creative collaboration, whether it’s on a co-production basis or developments from one territory flowing into companies in other territories. And of course, there’s sharing of best-practices, financial scale and infrastructure that you wouldn’t otherwise have. In the past year, we’ve had a lot of our production company CEOs extend their contracts with Red Arrow. That is a true vote of confidence, as often people part ways at the end of the deal because the collaboration didn’t evolve as expected. In our case, our partners value both their creative freedom and the support we are offering, and are choosing to re-up and stay with us.

WS: You mentioned the shifts in the U.S. market. What’s your strategy and what opportunities do you still see in the U.S.?
FROUMAN: The U.S. buying universe is changing dynamically, so the right strategy is to be as broadly positioned as possible. The biggest mistake for a producer in that market is to sit still and take your clients for granted. A breadth of your client base is essential, as is the range of genres. One of the things that people like about Red Arrow is that there are no rules regarding the content our producers can work on. If one of our unscripted companies sees a great opportunity in scripted, and it makes commercial sense, let’s go for it. Also, the cross-pollinating we are starting to see between our Studio71 and TV production businesses reflects where the market is now: different types of content for linear and digital, short- and long-form programming, and up-and-coming stars crossing over from the YouTube universe into more traditional TV. I am convinced that you need to be more nimble, open-minded and proactive than ever before to secure your success in this changing market environment. And we are doing just that.

WS: Absolutely, Facebook launched its Watch Tab and Snapchat is showing video.
FROUMAN: Everyone agrees that content appetite continues to grow globally. So, as long as you run a smart, lean, disciplined studio group and execute well, it’s a good time to be in the content creation and distribution business.

WS: Some companies are seizing the huge demand for scripted and doing a less unscripted because everyone’s waiting for the next huge hit. What is your strategy? Are you still doing both?
FROUMAN: Definitely both. We certainly produce more unscripted for the simple reason that most of our companies were already in that business when we invested in them. Even though you hear about an ever-growing number of scripted series ordered in the U.S., there are a lot more unscripted commissions. That being said, despite the appeal of hit formats and ready-mades, if you can get scripted shows that travel, it’s a very interesting business. We have a lot of scripted producers in the U.S., the U.K., Israel and Turkey. In 2017, we produced the fourth season of Bosch; Deep State and City of Secrets for Fox Networks Group; and Lifeline for YouTube Red with Studio71. It’s a broad mix and we expect our scripted slate to grow. It takes the time it takes, and you need to be realistic about the timeline from concept to on-air, how long it takes to get shows sold, and in retaining rights.

Some of our peers have picked up ownership stakes in small scripted companies around Europe. We have not aggressively pursued that because our experience with smaller territories has been mixed. We are still focused on the U.S., the U.K. and, actually, Turkey. One of our U.S. companies, Karga Seven, opened a branch in Istanbul last year given that Turkey is a promising market for scripted. Not only is the production quality high, but the distribution profile of the shows is also interesting: an episode in Turkey can be three hours long, but that becomes three episodes for global sales.

WS: As you look out a year, where do you see the biggest opportunities and challenges?
FROUMAN: The biggest opportunities for us are in the successful integration of Studio71 into Red Arrow Studios. We now have these amazing components of the group, so we want to create as many synergies as possible. Marrying production know-how and capacity with embedded talent, expanded slates and new monetization options, that’s essential for us. 2018 is an execution-focused year. The biggest challenge that I see at the moment are the changes in the U.S. cable landscape, and what that’s going to mean for buying, volume, pricing and rights-retention opportunities. The U.S. remains the most interesting market for producers in terms of scale and profitability, but you need to move with the market or even be ahead of it. And I think Red Arrow Studios, with its new set-up, is in good shape for this.