High Drama

Leading drama distributors weigh in on financing models and the keys to cutting through the clutter today.

Almost $60 million per episode. That’s how much Amazon is said to have spent on its epic new original The Lord of the Rings: The Rings of Power, making it the most expensive TV production ever, per a study by VPN Overview. In a distant second? A five-way tie between five different Disney+ shows that cost about $25 million an episode, including Loki and Obi-Wan Kenobi. The list is rounded out by several other Disney+ shows and Netflix’s The Witcher, alongside three non-streaming originals: HBO’s Game of Thrones, House of the Dragon and Watchmen.

The global streamers may be making the most headlines with their (oversized?) walled-garden originals, but as the IP owners surveyed for this report indicate, some producers aren’t as enamored with the global streaming cost-plus model as they once were. Meanwhile, distributors are finding lots of ways to create innovative funding mechanisms to maximize the value of their IP—a process that is not getting any easier amid inflationary concerns that are making an already expensive business even costlier.

“Consolidation, mergers, inflation and the cost of living, stock price drops and global political uncertainty will all have an impact on the drama business,” says Matt Creasey, Banijay Rights’ executive VP of sales, co-productions and acquisitions for the rest of the world outside EMEA. “The incredible spending over the past few years to launch streaming services has now hit the first roadblocks. Varied subscriber growth and the immediate impact on the markets have spooked the corporations that own the platforms, so we will see adjustments to spending and a churn of strategy and probable restructuring. There will inevitably be more consolidation in 2023. We are already seeing a knock-on effect with the U.S. co-production business, and I expect that to continue into next year; there will be fewer buyers in the market in 2023. However, I don’t want to be all doom and gloom. While doors close, other opportunities often appear, so our drive to create new partnerships continues.”

The rising cost of production and talent “is a major issue, particularly in the U.K.,” adds James Durie, the head of scripted at Cineflix Rights. “While financial models differ between the major platforms spending at a premium level and broadcasters and platforms that pay lower tariffs, all production budgets are increasingly stretched. Commissioners, financiers and distributors are going to need to take more responsibility for supporting the production community to sustain the pipeline and continue to deliver to the level of quality that audiences expect.”

Per Sam Kozhaya, executive VP of operations and corporate development at Legendary Entertainment, “The amount of investment by the streamers themselves is massive and arguably unsustainable, so third-party financing and collaborative exhibition models will likely take on more importance going forward.”

With a slowdown in subscribers likely to have the streamers reevaluating content spend, distributors point to a new willingness on the part of some global players to be flexible in the rights they acquire. “They are doing deals for territories or windows—they are not insisting on worldwide,” says Nadav Palti, president and CEO of Dori Media Group.

Fredrik af Malmborg, the CEO at Eccho Rights, observes, “At some point, I thought that all projects would go to global deals with the platforms, but I see a very strong trend in the other direction.”

Eccho Rights, like many other distribution outfits, has been positioning itself earlier in the value chain to help cobble together the complex financing structures often needed to get premium drama off the ground.

“We are investing much more in development financing with producers,” af Malmborg says. “Instead of going the commissioning route, we are going the acquisition route. We sell it as an acquisition to the platforms regionally and manage the rights from the start. There are several cases where the producer keeps all the IP but is pretty much fully financed from the start. We sell the rights to different regional or global platforms, in pieces and for shorter terms.”

A+E Networks is also aligning with producers early on in the process. “We believe in the prospect of profitable scripted projects,” says Patrick Vien, group managing director for international. “We focus on the independent film model in the scripted space, but we are not producing niche content for a niche audience.”

Vien continues, “We’re not a commissioning broadcaster. Rather, we establish a collection of players through a commissioning broadcaster and presale partners. In success, producers do well as a result. We’ve won projects against some heavy-duty competition on that exact formula. It’s about bringing key players together who get more screen value for their investment.”

Marta Ezpeleta, general manager of distribution, co-productions and international offices at The Mediapro Studio, stresses the importance of being adept in various financing mechanisms. “We work with very different business and collaboration models depending on each production. To a large extent, everything depends on the content before deciding who might be the most suitable partner, and from there, we implement the business model with the platform or network in question.”

“Each project has its own challenges and has to be considered on its merits and the local market setup,” agrees Banijay’s Creasey. “We, the distributor, may look at a deficit on a drama and decide the gap is too much of a risk to fully fund, so we will need to find a buyer or partner to help close said gap. For producers, this sometimes isn’t ideal as it could delay production, and the possibility remains that funding might not be raised. The more common model is where we are willing to take the risk up front and step in on the deficit, which we then look to recoup through co-production and sales. This way, our producers can start production immediately and hit the schedules needed. Soft funding—tax credits, location grants—remains important.”

Legendary is deploying a variety of approaches—deficit financing, co-productions and cost-plus structures with global streamers—Kozhaya says. “We construct a business model for each show. This allows us to find the best home for each project and maximize the value. For our projects that we deficit finance, the key is to start with channel partners from the territories where the content has originated or where it will resonate the most, and then build out additional co-commissions and partnerships from there, harnessing local incentives, but never at the expense of the creative vision.”

As Durie at Cineflix Rights indicates, between rising costs and intense competition, it’s incumbent on distributors to “be more creative as a company when we look at financing models and be flexible in our approach. This has meant a greater emphasis on getting in the door at an earlier stage and looking at development funding, but also co-production opportunities to assist in closing off the financing. Traditional deficit financing remains core to our business model, but we are seeing bigger deficits, so finding projects that stand out both creatively and commercially for us is essential.”

As for what it takes to stand out today—well, it turns out you need a fair bit to make an impact in the age of peaking peak TV. “Talent is a big one,” says Sally Habbershaw, executive VP for sales and co-productions in the Americas at All3Media International. “It does the marketing for you. We’re taking out The Marriage, starring Sean Bean and Nicola Walker. That caliber of talent immediately creates an appointment to view, so there is certainly interest from buyers. There’s also been quite a trend of revamping old classics—again, the preestablished IP does the marketing for you,” says Habbershaw.

It is all about casting and brand recognition, Cineflix’s Durie agrees. “Firstly, premium-level talent able to make noise assist in the promotion of the series and bring audiences to a given project. Secondly, IP [buyers and commissioners] can market effectively connects with an audience with more immediacy and can build into a high-profile, returning brand. That was our feeling when acquiring Last King of The Cross—not only did we have a series that was inspired by a best-selling memoir, but also it had the potential for some great casting in established Hollywood star Tim Roth as Ezra Shipman and the very talented Lincoln Younes as John Ibrahim, which, coupled with the explosive story, makes it a compelling series for buyers.”

Banijay’s Creasey says it’s all about the package that will give buyers and commissioners “comfort in the show’s potential. The local commissioning broadcaster, the creator/writer, director and production company are as key as the foundation to getting that hit series,” Creasey explains. “Buyers need this assurance that a show can deliver creatively and practically. It’s the initial package that can get the program greenlit. To achieve attention, platforms increasingly rely on a big-name attachment or a piece of IP to build a campaign around.”

Vien at A+E Networks has his eye on three factors when he and his teams are exploring properties to potentially invest in. “First, might the potential story be so fresh and unique that it can crack through the clutter and may not even need brand recognition? Second, can it be anthologized? Could we bring this concept back with new talent and a fresh story? We do this very successfully with our V.C. Andrews franchise. It means that seasons two and three are more manageable to bring to market, instead of starting from the beginning all over again. The third piece, could it be a returnable series? Returnability is probably harder now than ever, but it is achievable. That, of course, is what everybody is ultimately looking for.”

Returning series are indeed crucial, distributors assert, as both subs-driven platforms and ad-funded broadcasters look for ways to keep audiences tuned in and engaged. “For long-running returnable series, there is the obvious advantage that you can build brands around them, bringing back a loyal audience season after season,” Durie says.

“Long-running shows that build an audience and grow over time are key for broadcasters and platforms,” Creasey adds. “It gives the platform and broadcaster less of a headache when they can pencil shows into their schedules knowing there is already a viewership.”

“While a long-running returnable show is generally the biggest prize, there’s no guarantee of sustained success at the outset,” says Kozhaya at Legendary. “So, while it’s good to have a plan for a multi-season show that could become a franchise, the producers and the commissioners/buyers need to adjust if the performance doesn’t warrant continuing. Many highly touted projects have not performed to expectations over the last few years, so perhaps that’s why we’ve seen so many limited event series come into the market as of late. Buyers can benefit from less of a long-term financial commitment. Yet, in some successful cases, there’s still the possibility of continuing the ‘franchise,’ maybe with a different cast or setting.”

“Event series can make for incredibly entertaining television with many opportunities for impactful stories and interesting, high-level casting,” observes Durie. “Audiences are responding to this type of programming. It’s a shorter number of episodes, which is easy to consume, particularly across catch-up and on-demand, so it serves broadcasters and platforms alike.”

Vien at A+E Networks remarks, “You’ve got to give [broadcasters] a reason to deploy capital in marketing against the show. If it’s going to be one and done, it will have to be pretty remarkable. Streamers market differently than television broadcasters. If you’re asking the broadcaster to invest, they will be looking for ad sales ROIs.”

As for what’s next in the drama space, IP owners are keeping watch on various developments, from new narrative techniques to the increasing importance of diversity, equity and inclusion (DEI).

“We are completely committed to DEI in terms of how we make shows and what shows we make,” Vien says. “We work very closely with our producing partners to understand their own DEI policies. If they don’t have one, we don’t tend to want to work with them. DEI is a big part of who we are. It’s not something we want to spend much time talking about—it’s good to have a conversation, but it’s way better to take action. We’re on the let’s take action side of things.”

It’s a similar situation at Cineflix, Durie explains, “On-screen diversity is certainly something that is at the forefront of our minds and something we speak to buyers about regularly. That’s something that drew us to Last King of The Cross, an incredible story about a mix of cultures descending onto one very specific area in Australia. It comes down to great storytelling and an intriguing mix of characters.”

Expanding its non-English-language offerings is a priority at All3Media International, Habbershaw says, referencing the MIPCOM launch of the Italian YA production The Gymnasts. “Aside from foreign language, we’re all impacted by monoliths like The Lord of the Rings and House of the Dragon launching, but I think there is quite an interesting development in seeing video games and graphic novels transformed into dramatic iterations.”

Asked about the trends he’s keeping an eye on, Banijay’s Creasey observes: “The beauty of the drama business is that there is always a surprise; and just as you predict one genre, another show comes along, sending everyone in a different direction. If the show is great, then the audience will come, whatever the genre!”

And it’s incumbent upon distributors to be flexible in the deals they are structuring. “Ultimately, you’re trying to look for the most promising opportunity,” says Vien. “The most promising opportunity is also about where the show will perform best. It’s a fluid marketplace. The way new players in the market are making windowing decisions is evolving, and we are evolving with it.”

As for if peak TV has hit its peak, the verdict is out on that, but the consensus is—probably. “We may be gravitating toward a world where less is more,” Vien observes. “There’s been some research about the number of minutes spent perusing the menu before you make a choice; it’s 45 hours per year. That’s one of the reasons people fall back on familiar shows. Those of us in the business are spending much more time being very thoughtful about every single initiative, finding a way for the show not to get lost in that marketplace. You’re seeing some of our bigger competitors pull back in volume. I don’t think that’s necessarily a bad thing. The search fatigue is very real. The industry, over time, will react to it. The last thing any of the television broadcasters or streamers out there want is for you to turn off. I think the bar will continue to be raised, and everybody will win as a result.”