{"id":8502,"date":"2017-10-01T16:09:04","date_gmt":"2017-10-01T20:09:04","guid":{"rendered":"http:\/\/worldscreen.com\/tvdrama\/wheres-the-money\/"},"modified":"2017-10-24T16:26:08","modified_gmt":"2017-10-24T20:26:08","slug":"wheres-the-money","status":"publish","type":"post","link":"https:\/\/worldscreen.com\/tvdrama\/wheres-the-money\/","title":{"rendered":"Where\u2019s the Money?"},"content":{"rendered":"<p><em>As budgets soar and competition intensifies, Jay Stuart explores how distributors are piecing together the financing for high-end drama series.<\/em><\/p>\n<p>The business of producing high-end television drama is feeling the knock-on effects of digital disruption in a big way. As broadcasters, cable companies and traditional pay-TV providers around the world continue to adjust to the impact of streaming services, the companies making the big shows needed to drive ratings and subscribers are having to explore new ways to put the financial pieces together.<\/p>\n<p>You could call it the \u201cNetflix Effect,\u201d referencing the SVOD player most often cited by producers and distributors enmeshed in this brave new world of financing. It\u2019s really about adjusting to a new market reality covering the whole spectrum of OTT, broadcast, premium pay and cable and even mobile.<\/p>\n<p>\u201cThere are more high-end shows, and the financing ask has become a lot bigger,\u201d says Louise Pedersen, the CEO of all3media international, which will be marketing the new thriller series <em>Liar <\/em>and <em>Rellik<\/em> at MIPCOM. \u201cOn the other hand, the market is more buoyant. There are more sources willing to come in, so I would say the cost inflation is being balanced against more appetite for investing.\u201d<\/p>\n<p>Atar Dekel, the head of global co-productions at Keshet International, observes that because of the new level of competition, \u201cbudgets have exploded and distributors need to take bigger risks. The upside is that there is the potential for worldwide success.\u201d<\/p>\n<p>Drama is going more global. This has been driven in part by the SVOD platforms, but also by the major TV players that have been introducing SVOD alongside their main channels where they can often experiment with more niche fare.<\/p>\n<p>\u201cOver the past five or six years, the global growth of OTT really has brought the re-emergence of drama,\u201d says David Ellender, the president of global distribution and co-productions at Sonar Entertainment. \u201cThere are enormous opportunities. The market is more complex and competitive. The bar is higher. There is not always a correlation between the size of the budget and quality, but budgets have soared. And the market is much more global. It\u2019s not just the OTT players. Look at Sky or STUDIOCANAL or Telef\u00f3nica. They are multinational.\u201d<\/p>\n<p>But it\u2019s SVOD that has torn up the old rulebook. Netflix has brought in a new model: 100-percent financing in return for all the rights. This has very serious implications for distributors.<\/p>\n<p><strong>NEW RULES<\/strong><br \/>\n\u201cIn the old days, an American broadcaster would come in for 50 percent to 80 percent of the budget, and the international distributor would make up the difference from world sales,\u201d says Vanessa Shapiro, the president of worldwide TV distribution and co-production at Gaumont, which makes <em>Narcos<\/em> and <em>F is for Family<\/em> for Netflix. \u201cNow, if Netflix finances a show, we have to wait for their holdbacks to run out before we can exploit the secondary linear market. We produced the big Netflix hit <em>Narcos <\/em>but to date can only sell DVD rights internationally. It makes sense, of course. They are operating globally, and they need to have exclusivity. The model also allows shows of very high quality to be produced. Amazon is also trying to follow the same model. It\u2019s a disruptive trend. Broadcasters will very rarely finance series. The same with basic cable.\u201d<\/p>\n<p>Today, there are basically four distinct types of drama, according to Sonar\u2019s Ellender: nationally funded shows purely aimed at a domestic audience; nationally funded shows with cross-border potential such as <em>The Bridge<\/em> or <em>The Killing<\/em> from Scandinavia; international co-productions with creative control more or less with one originating country, such as the BBC\u2019s <em>Sherlock<\/em>; and transnationally financed programs with multiple partners involved creatively, such as Sonar\u2019s own <em>Das Boot<\/em>.<\/p>\n<p>\u201cWhen we view the kaleidoscope of IP, we are always looking through one of those lenses,\u201d Ellender notes. \u201cThe determining factor is relevance. The creative fit can\u2019t be forced. Once upon a time, financing often drove the show. You had the Europudding phenomenon. Those days are gone. Strategically, we look at the market in terms of needing to be open to multiple funding methods.\u201d<\/p>\n<p>Financing timelines are less predictable today. \u201cWith more and more global and multiplatform players entering the market, you can do one-stop-shop deals and things can move very fast,\u201d says Henrik Pabst, the managing director of Red Arrow International. \u201cHowever, if you involve various partners and the structure becomes more complex, it can take much longer, sometimes years. There are also instances where projects look like they are not going to fly and suddenly they get revived and financed years later, as the time had not been right before.\u201d<\/p>\n<p>Even with the new OTT players coming to the fore, the role of the broadcasters remains fundamental.<\/p>\n<p>\u201cThe key thing for us as a co-production or sales house is to have a primary commitment from a broadcaster,\u201d says all3media\u2019s Pedersen. \u201cWe have pulled together a lot of co-productions over the past six months or so, and all of them have a primary broadcaster. Once you have that piece in place, the rest of the financing can come together quickly, in three months or so, sometimes longer. It all depends on the size of the ask.\u201d<\/p>\n<p>The problem is that broadcasters can support less and less of the cost burden.<\/p>\n<p><strong>SHIFTING THE BURDEN<\/strong><br \/>\nAnke Stoll, Keshet International\u2019s director of acquisitions and co-productions, says even two or three years ago in the U.K., a broadcaster would finance 90 percent of a drama, with the distributor covering 10 percent. \u201cNow the market for high-end drama has exploded. Budgets of \u00a32 million per hour are not unusual anymore and not even considered very costly. No broadcaster can finance 90 percent anymore,\u201d Stoll observes.<\/p>\n<p>\u201cBig broadcasters aren\u2019t guaranteed 20 percent market shares anymore,\u201d adds Sonar\u2019s Ellender. \u201cThe new market reality has encouraged them to open up to partnerships that they might not have accepted a few years ago when they assumed most of the cost and wanted to be in the driver\u2019s seat. So now you see Netflix working with BBC or Sky with HBO.\u201d<\/p>\n<p>The traditional process is to look to get a big domestic piece in place to drive the international distribution, but there are some companies that will take the reverse approach, selling a lot of foreign and leaving the domestic until later, says Kenneth Christmas, the head of business affairs and legal at MarVista Entertainment. \u201cThe risk profile is different. The latter could leave more upside if a show is a success internationally because when you put the domestic piece in place first your pricing power is limited. The bottom line is that it\u2019s more and more difficult to have 100 percent of your shows.\u201d<\/p>\n<p>For Pedersen at all3media, \u201cthe basic model has not changed that much. What has changed, the complicating factor, is cash flow. Because the budgets are bigger, the cash flow is more difficult to manage. Distributors used to give an advance on sales on delivery of a completed program. This part of the model is evolving.\u201d<\/p>\n<p><strong>BREAKING THE BANK<\/strong><br \/>\n\u201cThe changes in high-end drama financing apply not only to new productions directly, but also to back catalog, and this, in turn, has an impact on new output,\u201d explains Lorraine Ruckstuhl, the head of media for Barclays Corporate Banking, which has introduced new production finance products to meet changing needs. \u201cThe key factor is the delay in collecting from SVOD players, meaning Netflix, Amazon and Hulu as the big three.\u201d<\/p>\n<p>Typically, a broadcaster will pay on delivery with a 30-day collection window. In the case of Netflix, for back catalog, the wait could be three years and up to even five.<\/p>\n<p>\u201cWe stay close to our customers, and we realized about two years ago that there was an issue developing in this area,\u201d Ruckstuhl says. \u201cA lot of it was happening in the States first, but it has become important elsewhere now as well. We felt that there was a financing gap in the market, and we created our new products to enable companies to manage their relationships with Netflix and other SVOD companies. The new products have been helping smaller independent producers as well as the larger companies. We can help smaller companies punch above their weight.\u201d<\/p>\n<p>There are two basic products. The first, launched about a year ago, is a long-term loan over the period that it takes for the producer to see the back end from SVOD. The second, begun in May 2017, is an SVOD financing fund through which Barclays actually takes over the contract for the receivables. The liability is no longer between the producer and Netflix but Barclays and Netflix. The fund\u2019s big appeal is that it makes income available up front.<\/p>\n<p>The new fund made its first deal in support of Roughcut TV. This involved the bank purchasing Roughcut\u2019s Netflix receivable, giving the company the upfront cash benefit of a multiyear contract for the streaming of the comedy series <em>Cuckoo<\/em>. A handful of deals with other companies are signed but have not been unveiled as yet.<\/p>\n<p>The SVOD fund is a U.K. initiative and requires a U.K. production company to be involved, and that means a \u201creal\u201d producer, not a shell. However, the actual counter party in the deal can be a global company, and to date, that has sometimes been the case.<\/p>\n<p>\u201cIt\u2019s hard to generalize about production,\u201d Ruckstuhl says. \u201cSome shows are one-on-one deals with SVOD, but co-productions between SVOD and broadcasters are becoming more common. More SVOD players will probably enter the market, and major broadcasters are already coming into the space. It will be interesting to see if the shift away from traditional broadcaster financing will be accelerated.\u201d<\/p>\n<p>As the difficulty of funding shows has pushed companies to broaden their financing horizons, a positive trend has been the opening up of the market to multi-language shows. The success of <em>Narcos<\/em>, which is in Spanish and English, has helped push the trend. \u201cEven the Netflix people were surprised by how successful the show was in two languages, and they will want to repeat that success,\u201d Gaumont\u2019s Shapiro says.<\/p>\n<p><strong>MIND YOUR LANGUAGE<\/strong><br \/>\nIn Germany, a channel like ZDF is now subtitling some imported drama, observes Stoll at Keshet International. \u201cWhen even hard-core dubbing markets start to subtitle, you know that there is a big change under way.\u201d<\/p>\n<p>Sonar\u2019s <em>Das Boot <\/em>will feature dialogue in German, French and English. \u201cAcceptance of subtitling has grown enormously,\u201d Ellender says. \u201cMuch of the thanks needs to go to Netflix and Amazon. They are taking a global view, and that has meant subtitling. But it\u2019s not only about OTT. Three years ago I never would have thought that HBO would greenlight a show in Hebrew and Arabic like their new project with Keshet.\u201d<\/p>\n<p>Tentatively titled <em>Flesh of Our Flesh<\/em>, that new production is steered by Hagai Levi.<\/p>\n<p>\u201cCreative partnerships have become a necessity,\u201d Ellender continues. \u201cFinancing comes down to, How do you create partnerships? Every show is completely different. There is no cookie-cutter solution. Anomalies have become the norm. Every project is different. Story comes first. The challenge is marrying the deal and the creative. Everybody has to be on the same page. It\u2019s not always easy. There are a lot of voices in the room.\u201d<\/p>\n<p>But first, you need to come up with the financing package. And covering bigger budgets is a challenge, not least because the needs of potential partners are not always compatible.<\/p>\n<p><strong>MANAGING RIGHTS<\/strong><br \/>\n\u201cThe big issue for us remains the co-production requirements the networks put on us in terms of what they want,\u201d says MarVista\u2019s Christmas. \u201cThe challenge is figuring out how the digital rights are apportioned; questions like, When is the SVOD exclusive? Or, What will be available to binge-watch? Netflix has very clear ideas about what rights it needs to have. Cable companies also try to have their own hold on certain rights. We find we are unable to put together some shows because we can\u2019t get the potential partners on the same page. Sometimes it\u2019s not even close. You would think cable companies and OTT platforms, for example, would have more understanding of each other, but they are still in very different places. We find ourselves telling cable partners that they have to take all of the show because the rights they are leaving us are not enough to monetize the deficit we are facing.\u201d<\/p>\n<p>Benchmark Television, established by BBC Worldwide, Access (headed by ex-BBC exec Danny Cohen) and Lookout Point, aims to address the challenge of securing funding from broadcasters by working outside of the traditional commissioning structure. \u201cThe aim is to get more high-end drama into the market,\u201d says Liam Keelan, the director of scripted at BBC Worldwide. \u201cWe will be able to greenlight projects without a broadcaster in place. This allows things to happen more quickly.\u201d<\/p>\n<p>BBC Worldwide has also set up The Drama Investment Partnership, a fifty-fifty venture with Anton that plans to invest at least \u00a3150 million over three years in the production of high-end drama.<\/p>\n<p>These new funds are just taking flight, so there are no projects going ahead yet.<\/p>\n<p>\u201cWe\u2019re in a key position,\u201d Keelan says. \u201cWe have extremely strong relationships with broadcasters and other companies around the world. Being well-connected enables us to know what\u2019s out there, and evaluate and identify the best projects.\u201d<\/p>\n<p>BBC Worldwide, of course, has long been in the business of lining up partners on U.K. commissions, including <em>Good Omens<\/em>, based on the novel by Terry Pratchett and Neil Gaiman, which will be on Amazon Prime, and <em>McMafia<\/em>, a thriller that will air on AMC.<\/p>\n<p>\u201cFive years ago, BBC Worldwide was a traditional distribution business,\u201d Keelan says. \u201cYou would wait for productions to turn up. But the market has changed massively, and we have responded. Digital has speeded things up. The idea is, if you know what the market wants, go for it. We want to be able to take a shortcut to get projects into the pipeline more quickly.\u201d<\/p>\n<p>Keelan adds, \u201cThe moment you think you are on top of the deal-making landscape, it all changes again. Very rarely do you see one partner or even two partners making programs. You need a number of partners.\u201d<\/p>\n<p>Red Arrow\u2019s Pabst observes that \u201cnowadays, all sorts of funds exist that we as a co-production partner, and the producers themselves, can access when financing high-end drama. Recently there is a trend for equity funds being set up, and there are local funds and tax incentives that relate to local production spend; and pan-regional funds like MEDIA, which focuses on supporting trans-European co-productions. For our new thriller <em>Embassy Down<\/em>, which is set in Copenhagen, part of the funding comes from the Copenhagen Film Fund, which invested \u20ac1.75 million in the project. This made it economically possible to actually shoot the entire series where it is set, thus adding to its authenticity.\u201d<\/p>\n<p>Gaumont\u2019s Shapiro points to tax credits as a good way to work through the new financing reality. \u201cCanada offers tax credits for 100-percent Canadian shows. We can co-produce with the Canadian producer and access the credits. With a Canadian broadcaster in place, we take the rest of the world and cover the financial gap. In effect, we make Canadian shows instead of American ones. We are looking at two of these productions rights now.\u201d<\/p>\n<p><strong>FRENCH CONNECTION<\/strong><br \/>\nIn principle, this could be done in other countries too. In France, Gaumont\u2019s home country, it has long operated this way, with broadcaster deals and tax credits covering most of the finances with a small gap for shows like <em>The Frozen Dead<\/em> (M6) and <em>The Art of Crime<\/em> (France 2).<\/p>\n<p>\u201cBuilding incentives into a budget is essential,\u201d says all3media\u2019s Pedersen. \u201cI haven\u2019t seen a single drama project without at least a U.K. tax incentive as part of the budget. When it comes to international incentives, the producer needs to feel the country is right for delivering the creative elements and is right to work in.\u201d<\/p>\n<p>Sonar\u2019s <em>Das Boot<\/em> was able to access incentives in France, the Czech Republic and Malta. \u201cThere are incentives and credits to access in all those places, but I stress that is not the main reason we are shooting there,\u201d Ellender notes. \u201cIt\u2019s driven by the creative.\u201d<\/p>\n<p>For veterans of the indie film business, these new TV financing formulas should sound familiar.<\/p>\n<p>\u201cWith the market becoming more fragmented, the scripted world is becoming increasingly like the independent film world,\u201d says Red Arrow\u2019s Pabst. \u201cThe financing is often based on a combination of several partners, co-producers, funds, presales and the clever use of tax incentives. Also, more and more equity money is entering the TV world, which is very common in the independent film world.\u201d<\/p>\n<p>Pedersen at all3media, however, says the parallel with movies only goes so far. \u201cAs tax incentives are built in as an important element, I would say that, yes, high-end drama production has become more like that. The big difference with television is that you have the ability to bring that anchor broadcaster in, which films don\u2019t have.\u201d<\/p>\n<p>But how long will those anchors remain?<\/p>\n<p>\u201cTen years ago, you had a network show on a Sunday evening and maybe it pulled 2 million viewers,\u201d says MarVista\u2019s Christmas. \u201cNow you could have the same show on a digital streamer like Netflix, Amazon or Hulu and it gets 500,000. The difference is that those 2 million viewers came in and out of the network show, while for the 500,000 on digital, it\u2019s their show. They\u2019re dedicated viewers. Brands are starting to see the marketing possibilities. You could argue that those dedicated viewers are three or four times more valuable than the broadcast viewers. The show almost becomes a channel\u2014a channel to the consumer.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"<p>As budgets soar and competition intensifies, Jay Stuart explores how distributors are piecing together the financing for high-end drama series.<\/p>\n","protected":false},"author":1,"featured_media":8504,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"pmpro_default_level":0,"footnotes":""},"categories":[77],"tags":[],"class_list":["post-8502","post","type-post","status-publish","format-standard","has-post-thumbnail","","category-features","pmpro-has-access"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.7 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Where\u2019s the Money? - TVDRAMA<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/worldscreen.com\/tvdrama\/wheres-the-money\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Where\u2019s the Money? 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