Just Spee

PREMIUM: Just Spee, the CEO of Endemol, talks to World Screen about managing the debt left over from the change in Endemol ownership two years ago, and looks ahead to numerous growth opportunities in several areas around the world.

WS: Would you explain for our readers what the restructuring of Endemol’s debt entailed? Why was restructuring the debt preferable to selling the company?
SPEE: The most important thing to remember about Endemol’s debt is that it is the result of a transaction that took place in 2007. When the shareholders acquired the business they put the debt into the company. So it was a typical leveraged buyout reflecting how business was done in those days.

When you look at what the debt is today—it is currently close to €3 billion ($4 billion)—it’s totally out of whack. I view it as inherited debt. Obviously we need to deal with it and we need to make sure that it goes away, but it doesn’t have an impact on our operations.

We started to talk to our lenders and effectively we have found a way out. The solution is to restructure the debt and all the senior lenders agree with the plan that we have drafted. However, the operational performance of the company at the moment is so strong that there is no urgency to get it done. Therefore, we and the lenders are taking time and care to make sure we do all the right things. Then once everything is agreed upon we can just push the button and execute.

WS: Despite the debt, is Endemol doing well in its core businesses?
SPEE: Absolutely. Obviously some markets are tough and since we are in so many markets, we are exposed to both stronger and weaker economies. We definitely feel the heat that Southern Europe feels for instance and as you know, the markets in Italy, Spain, Greece and to a certain extent France, are very tough as the advertising spend is down tens of percentage points versus where it was. I was even hearing from our Italian team that the money being spent on programming now is as low as it was in the mid ’90s. So it’s really a big problem for everybody in the industry compared to where those markets once were.

But the good thing is that our overall strategy of diversification, which we started a number of years ago, is paying off because we are growing in other areas: growing geographically beyond North America and Europe, growing in scripted programming, growing in the digital space—so that all in all, we have been able to offset the negative market trends.

The other thing I would underline is that we’ve been pretty proactive dealing with the trends we’ve seen in the industry. And one clear thing we have seen, and still see, is that there is continuous pressure on pricing. We do not believe that will ever go away. So you better prepare for it. We have probably been one of the first to address this issue. We’ve become very cost conscious and as a result very cost efficient in the way we operate. And that has helped us maintain our margins, so at the moment we’re doing very well.

WS: Years ago, the U.K. and the Netherlands were the main ‘incubators’ of new and successful formats. Yet earlier this year, Endemol announced a significant slate of formats coming from several of its European companies. What is fueling the creativity and productivity of these companies?
SPEE: It makes no difference to us where the creativity comes from. We are as happy with a show coming out of Spain—like our most recent hit Your Face Sounds Familiar—as with a show coming out of the U.K. or the U.S. It’s in the DNA of the company to be a network of creative entrepreneurs. So we nurture that in every country that we’re in. And yes, you’re absolutely right, traditionally the incubators of our formats have been the Netherlands, the U.K. and the U.S.  And we still have big shows coming out of those countries. To name just one, The Money Drop, from the U.K., which we launched just a few years ago, is a very successful show around the world. We have sold it to more than 50 territories, which by any standard is a great success. It proves that our model of local creativity is the right one. So I am happy that the latest shows are now coming out of Spain, Italy and Germany. Looking ahead, although we are not there yet, we hope that someday soon big international shows will come from India or maybe from China, because that is what the Endemol model is all about.

WS: You are looking at those developing businesses in those countries, aren’t you?
SPEE: Definitely. Outside of Europe and North America the business growth is bigger and better in those markets. To be a truly global company, we have to be there, so we do have operations in a number of those countries. As for the countries where we are not yet present, if we see potential, we will enter one way or another. What we try to replicate in each of these countries is the successful DNA of [our existing] Endemol companies. So an Endemol China will have the same core values as Endemol Italy or Endemol India or Endemol U.K. in the sense that the creativity, the commercial acumen, the close relationship with clients, has to be the same. Because that works for us, those practices have become an added value to the network that we already have.

WS: So there is a sharing of ideas and best practices across the various companies?
SPEE: There definitely is. This entrepreneurial spirit that we have has always been there from the day that John de Mol and Joop van Ende set up the business. What we’ve really become better at over time, especially in the last few years, is sharing best practices; first and foremost on the creative side. There is a global creative team and within that team are the key creatives from the major markets we are in. They meet on a regular basis to share ideas, to look at things that work and things that don’t work, so we can use the strength of our network most efficiently. In addition, we set up a central group some time ago, a creative operations team that captures all of the data we have around the world. When one of our big formats works, we identify the elements that make it work and we give that information to our people across the network. So even our smaller operations that are not part of the global creative team have access to that knowledge and can also benefit.

We’ve also got a team of flying producers. They specialize in the big formats and they travel around the globe ensuring that when we roll out a show in a certain country, we have the best knowledge available from the Group in that particular area. For example, we did Big Brother in Canada this year for the first time. So we sent flying producers to Canada to assist the local team and make sure they had the necessary expertise at their disposal to produce the show to the standard that we believe is necessary.

WS: No doubt Endemol USA has been a huge driver of the group’s business. How has that operation developed and what has the approach been to the U.S. market, which is very complex and competitive?
SPEE: When I look at the U.S. there is always one thing at the back of my mind: it’s the largest market in the world today and we believe it will be for a long time to come. It is very high on our priority list. The way we have dealt with the complexity of the U.S. market is by having a number of companies there that are all slightly different from each other and that address the different needs of the market. For instance Original Media is in New York and produces reality and drama for cable. It’s different from Endemol USA in Los Angeles, which deals more with the networks and offers the big shiny floor shows that networks like. So the heart of the approach is to have different companies and different people for different demands in the market.

WS: And not every network can pay the same amount of money for a program.
SPEE: Absolutely, and because the price levels are different, the cost levels that we have are also very different. It’s fair to say that we are very focused on making sure that our shows are creatively right, but also commercially and financially right. And financially means that our price-cost structure always has the right relationship. That doesn’t mean that we should not invest in our shows; we do sometimes take positions where we invest in our content, but that would only be if there were a particular strategy behind it.

WS: Why was it important for Endemol to get into scripted programming?
SPEE: Firstly, we recognized that if you want to be successful in this business you can’t stay only in unscripted. If you want to be a supplier of choice to many broadcasters you need to be involved in both scripted and unscripted. Secondly, if you go back in time, Endemol’s original operation in the Netherlands has always been in scripted, as have the companies that we acquired in the early days, like in Italy and in Spain. But until a few years ago our scripted business was only local, and it was non-English language. We said, if we want to really grow scripted, then we have to go into the U.S. because that is obviously where the biggest opportunities are. So we needed to try to use our leverage more on an international scale and not only on the local level. To that extent, we acquired some companies in the U.K. and we also set up Endemol Studios in the U.S. In order to leverage the Endemol network, we created Endemol Worldwide Distribution [EWD], which has close ties to our English-language scripted business, particularly in the U.S. and in the U.K. and sells that output internationally.

WS: How is EWD diversifying its catalogue?
SPEE: In our thinking, it is very clear that scripted is such a big driver of EWD’s business that it has to be its primary focus. Also, why would you have a distribution business at all? Because there are synergies with the rest of the business. There are lots of formats in our catalogue that you can package with other shows and all of a sudden they become very attractive assets. So we pride ourselves [on] offering a very strong catalogue of scripted and unscripted content to broadcasters who are naturally interested because they get their hands on an exciting portfolio. Cathy Payne [EWD’s CEO] is very skilled at spotting what’s out in the market that has potential for us. For example, we just bought a very exciting asset from BBC, The Ark, a World War I drama, which, with the upcoming 100th anniversary of World War I, will be a very interesting high-quality series.

It’s also worth pointing out that Cathy makes the decisions as to where she wants to invest; it’s not up to our other operating companies. Cathy makes decisions based on the impact it will have on EWD’s business, not on the overall Endemol business. That works well—she is a professional and she looks out for the business she runs.

WS: What has been Endemol’s digital strategy?
SPEE: The first thing to say here is that contrary to what so many people have predicted, we do not think television will go away in the foreseeable future. We believe television will remain very strong and will probably drive the business for a long time to come. [Regarding] digital, I think it is very difficult to predict who will be the winners and who will be the losers. The key theme for us is to follow the money because that is what we believe will determine the shape of the landscape. So we will try to find out where the money is going and where the money is being made, which sometimes involves advertising models and in other cases subscription models. It can be different things. Why is this great for Endemol? Because we are all about content. The more channels there are out there, traditional or non-traditional, the better it is for us. We want our content to travel to those channels. What we have to do is learn to adapt the ways we produce, and adapt to specific consumer needs as they relate to those specific channels. So we have different approaches in different markets. One thing that is here to stay is online video. Nonlinear programming will be very, very big whatever form it takes. In the meantime we stay in touch with all the parties out there, work with them, supply them with either original content or remakes of what we already have available. We’re entrepreneurial, we try to see where the money is and we follow that.

WS: In what areas do you see the most potential for growth in the next 18 to 24 months?
SPEE: Because the restructuring of the debt has held us back in financial terms, we have only recently got back in the [mergers and acquisitions] game. There are still some very interesting parties out there that we would like to add to the family. This year we acquired a controlling stake in Kuperman, the leading production company in Israel. Israel is such a creative market and of all the creative markets around the world, that was the one we were not in. Meanwhile we are still in the process of establishing a presence in all the key markets around the globe. Some of them we’ll do in a more organic way, which is to go in and establish a presence on our own, while in other markets we will look to acquire an established party if that is the better way forward.