As dynamics in the kids’ industry shift again, leading kids’ producers and distributors are returning to traditional co-production models to piece together the financing puzzle.
With the soon-to-be renamed HBO Max amid an overhaul as it merges with discovery+, strategy changes at Netflix and other streaming services and broadcasters, commercial and public, figuring out how to do more with less, funding models are being upended yet again. But distributors who have been in and around the sector for a long time don’t seem too stressed about the changes afoot; as usual, they are relying on the creativity that has long defined the kids’ programming industry to get great shows made.
“Officially, we’re not in a recession, but I would say the entertainment industry probably already is in a recession,” concedes CAKE CEO Ed Galton. “Buyers are being more cautious about the content they are trying to acquire. Budgets have been put on hold. I anticipate 2023 to be somewhat of a different difficult year. But I think once we get past 2023, in 2024 or 2025, things will start getting better again.”
Frank Falcone, president and executive creative director at Guru Studio, believes that the market is beginning to settle somewhat after the spending spree that happened before and during the pandemic.
“There was an abundance of content created with overexuberance and enthusiasm for the people trapped at home that were suddenly a captive audience. A lot of that content isn’t attracting the eyeballs. It’s time to regroup and look closer at what we’re commissioning. It’s healthy for the business to make things people watch and not burn money on shows that never find an audience.”
It is a challenging landscape today, though, when it comes to putting budgets together. “We see consistently 20 to 30 percent gaps in our financing across all shows,” Falcone explains. “You have an anchor tenant and other broadcasters, and then you’ve got this large nut to crack. The discussion can only move toward venture capital and private equity financing. That creates many challenges for producers because the business for that show has to be greater than just selling content to other broadcasters. It has to be a much larger package of a larger offering. I feel for anyone entering the business right now as a TV producer who wants to just make a show. If your company’s positioned with the ability to flex in licensing and other areas, you can at least bring that to the table. For an independent producer, it becomes a lot more challenging to raise the financing. You’re dependent in some ways on the graces of a public broadcaster or the belief that the show will matter from an executive. And that’s dwindling, given the lack of success some of these big swings have created on the platforms in the last couple of years.”
Raphaëlle Mathieu, executive VP at Cyber Group Studios, says that the changing market dynamics mean that the number of models available to assemble a show will likely multiply.
“I do not believe there is going to be a shift from one model to another; I trust different models will co-exist, and depending on the type of momentum or content, we will turn to a specific one.”
Katharina Pietzsch, Director Junior at ZDF Studios, says the key to dealing with funding challenges today lies in getting the right partners on board a project. “As well as the financials, the rights needed and taken by each partner need to be aligned as well as the editorial line—all partners must share the same creative vision for the project.”
And flexibility is paramount, explains Sophie “Kido” Prigent, head of sales at HARI. “Finding compromises on rights, license periods, territories, feeds, etc., enables producers to add funding partners at the financing stage or right after the green light; that’s a must these days when the broadcasters’ and platforms’ budgets get reduced.”
The influx of money into the ecosystem over the last few years did set unreasonable long-term expectations, observes CAKE’s Galton. “When you have people like Netflix giving you 100 percent finance to make a show; they’re giving you $15 million to $18 million to produce a series, and then suddenly that starts to go away, that’s becoming a problem for a lot of people. We’re relying on a small number of platforms that were doling out a lot of money to get shows off the ground. We’re almost going back to the model that some of us were very successful at for many years, which is putting multiple partners together to get to 100 percent. That is the model that we’re looking at. We would love to continue working with people like Netflix, Disney and all the other platforms that can get you to 100 percent faster. But there will also be those co-pro models that we will cobble together deals to get us to 100 percent so we can go into production.”
As costs rise and budgets are restricted, “there continues to be a great demand for working together and sharing costs,” ZDF Studios’ Pietzsch says.
As for making those collaborations work, Cyber Group’s Mathieu emphasizes the need to “establish clear communication, set realistic expectations and align on creative vision and objectives. It’s also important to have a thorough understanding of each territory’s regulatory and cultural landscape, as well as a willingness to adapt to local market conditions.”
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Of course, exclusivity can often be a sticking point, with platforms’ and broadcasters’ need to have something unique to offer their viewers often at odds with rights holders wanting to have ubiquity to build a multiplatform brand.
“If we are talking about an original series, the desire for long exclusivity is extremely strong,” Mathieu says. “If we are working based on co-production and presales financing, there is more flexibility. However, this flexibility is often linked to the amount invested—the more invested, the less possibility of a short-term window until now.”
Indeed, Mathieu does see the rights-ask situation evolving, “especially for content with strong potential for merchandising,” she says. “After a window of exclusivity, it is very helpful to have other potential exposure to maximize merchandising revenues.”
“I’ve been a big advocate of sharing rights and non-exclusive rights for as long as I’ve been doing this job,” says Galton at CAKE. “Brands can’t exist on one platform anymore. You don’t have enough eyeballs anymore to allow brands to succeed. You have to be on multiple platforms to get maximum eyeballs. The platforms and the broadcasters are all now starting to understand that. It’s not perfect yet, and there’s still a long way to go, but we’re seeing a lot more cooperation than we have in the past. I hope this will continue without degradation of investment and license fees from our partners.”
Pietzsch at ZDF Studios reflects a similar sentiment, explaining: “Some global partners are willing and able to carve out or hold back in certain territories and on rights if the overall model makes sense to them. At the same time, partners from ‘smaller’ territories and with limited acquisition budgets are increasingly interested in coming on board early to secure content that would otherwise end up in a multi-territory deal and not be available to them.”
Prigent at HARI agrees that clients are becoming more flexible. “With open communication, we manage to find ways to make things work according to the budgets allocated, but also because IPs that work well elsewhere are attractive to all to drive and retain the audience.”
As such, FAST and AVOD services are becoming increasingly crucial to distributors as they look to build awareness and maximize revenues across the value chain.
“AVOD is crucial to the exposure of IP,” Prigent adds. “Retaining some flexibility to exploit at least clips and a few episodes benefits both the producers and the broadcasters. It’s impossible to want brand recognition without YouTube exposure; for Grizzy & the Lemmings, we have 1 billion views per year on YouTube fed by our content and our partners’ promotional efforts.”
Prigent continues: “We’re having a lot of discussions with our free-TV partners around the FAST model because they’re moving in that direction to either offer a simultaneous service or one meant to replace their linear channels in some cases.”
Mathieu believes that “AVOD/FAST is a must now. At this stage, we focus more on the back catalog content that is available. Still, we are working on creating digital native content as we did with Giganto Club, a great spin-off of our flagship series Gigantosaurus.”
Galton says he is a firm believer in the ad-supported VOD business. “It’s just a matter of how that shakes out and how the platforms come together and allow that to happen. I believe that that will be where we will ultimately profit in the future.”