Netflix reportedly shelled out almost $100 million to keep Friends on its service through 2019. This year may, in fact, be the streaming giant’s last opportunity to let its users binge-watch all ten seasons of the beloved sitcom.
WarnerMedia, which controls the rights to the comedy that ended its broadcast run 15 years ago, may want to keep the lucrative asset for its own streaming ambitions, since a platform from the AT&T-owned business is expected by the end of this year. The higher-ups at WarnerMedia will have to make some tough decisions as they weigh the value of what Friends could do for their own direct-to-consumer business against forgoing a generous licensing fee. Of note, Disney has already said its operating income will be about $150 million lower in 2019 as a result of reduced licensing fees from holding back content for its own service, which is also expected in late 2019.
These developments reflect the seismic, and ongoing, disruptions in the licensing of IP that have everyone—from the Hollywood studios to indies to the distribution houses of major broadcasters—figuring out new ways to keep up with the onslaught of change.
However, the traditional distribution business isn’t dead, it isn’t dying and it’s not even in need of intensive care.
“Principally we make the vast majority of our revenues in the same way we always did,” says Richard Halliwell, the CEO of DRG. “But the route to that has changed for all distributors over the last few years and continues to accelerate. The old model doesn’t exist, and therefore we’re all trying out new ways to support and grow our businesses and to understand what our role is in the new world.”
And in that new world, DRG now sees itself as a “content company that does distribution, as opposed to a distribution company,” Halliwell says.
Espen Huseby, the president and CEO of NordicWorld, expresses a similar sentiment when he observes, “We are rights management, we are financiers, we are developers; we are much, much more than distributors. Distribution, meaning sales and representation, is just a part of what we’re doing today.”
The most significant manifestation of that change in thinking has been companies boarding projects far earlier than they used to. For many rights owners involved in big-ticket international drama, the old days of picking up a show after it had been commissioned—and largely paid for—by a local broadcaster are long gone.
“We prefer to come in at the co-development stage, where we are full co-production partners from day one and co-developing and sharing the costs along the way,” says Vanessa Shapiro, Gaumont’s president of worldwide TV distribution and co-production. “We’ve found that by the time content is already produced, there’s normally a distribution company attached, so to get great content that fits with our clients’ needs and what we’re looking for, we have to come in as early as possible. And in some cases, we will develop our own content. I’m a distributor, but I can bring my creative team and co-develop with other production companies.
That view is shared by Greg Phillips, the president of Kew Media Distribution, who notes that early involvement can help “eliminate risk—or, as I’d rather put it, maximize potential. We have Carrie Stein now on board [as Kew Media’s executive VP of global scripted series], we have extremely talented people at our internal companies and we trade with some extremely talented people who bring us product. We are happy to develop directly with networks via those entities. We are also happy now to commission, as our sister company TCB Media Rights does, based on our knowledge of the marketplace and our relationships with the networks and platforms.”
Phillips adds, “In the old days, broadcasters were paying for 100 percent of the budget and the foreign sales were the icing on the cake. Once that stopped, you had to rethink your methods and your operation and take into account other things. It’s just much bigger, and the process is more complicated and sometimes needier now than it was before.”
David Ellender, the president of global distribution and co-productions at Sonar Entertainment, stresses the importance of early involvement on projects to deliver something that will have worldwide appeal.
“We develop internally and externally with a lot of third-party creators, both [in the U.S.] and internationally,” Ellender says. “It’s not just finding a great story—when you’ve found that story, how do you craft it into something that will work universally? That’s incredibly important. You can only do that at the formative stages of a project. With that comes risk. You have to make a financial contribution in terms of acquiring the IP and then investing in scripts. It’s a lengthy process as well. Crafting some of these projects will take months, if not years. Not everybody has the pockets to do that. If you’re going to create something that has global value, then it takes a little longer.”
“We’ve all learned to be a bit more patient,” quips DRG’s Halliwell on the practical impact of being an early investor in a project. “That’s the one thing they don’t tell you. If you get involved in product and development earlier, it takes a hell of a lot longer to turn up!”
Halliwell continues, “Very rarely now are we the last dollar into a conversation, which would have been our role until a couple of years ago. Very often now we’re the first dollar on the table. We recently worked with one of our successful first-look companies to acquire some hotly contested book IP. That’s not something we would have been doing a few years ago. Through the group we have a relationship with TV3 in Norway, where we are co-commissioning, co-financing projects for them. They’ve come up with the slot and we’ll co-finance it. That gives us IP and product that we can then take to the market. And it gives our first-look producers, most of whom are in the U.K.—which is still a very small market with very few slots—a better chance of getting something commissioned internationally first.”
As Halliwell indicates, it’s not just producer relationships that are being entered into earlier than before; conversations with broadcasters, and platforms, are also starting at the beginning phases of a show’s life cycle.
Fernando Szew, the CEO of MarVista Entertainment, reports that one of the biggest shifts at his company has been the integration of its creative and sales teams. “We’re giving our buyers much earlier awareness of our creative process and what the distribution pipeline is going to look like. One of the reasons we’ve done that is in part to answer the changing distribution landscape. It’s also about our understanding that the pipeline from content to distribution to audience is much more integrated than it used to be. We started as a distributor who was more of a marketer and seller of content. Now it’s more about being creators of content.”
And just as distributors are evolving, buyers are too, with linear broadcasters having to find new ways to maximize the rights they acquire while facing off against the FAANGs.
Broadcasters “are undoubtedly more ambitious and more aggressive at trying to get more rights,” reports Stuart Baxter, the president of international distribution at Entertainment One (eOne). “Exclusivity is at an even bigger premium than it ever was before. Having said that, they are constrained by this year’s budgets. Some of the SVODs in the market are less concerned about this year’s P&L—it’s about growth, it’s about subscriber numbers. The traditional broadcasters all operate within annual P&Ls.”
In some cases, broadcasters are being more flexible in the rights they acquire based on what their needs are. Of note, ProSiebenSat.1 Media, which used to be one of the world’s biggest buyers of U.S. content, licensed some of its American shows to 7TV. “This content can be better exploited on a streaming platform due to changes in viewer behavior,” the company said when announcing its financials earlier this year.
ALL OR NOTHING?
On rights acquisition trends at broadcasters, Shapiro at Gaumont reports, “The more [buyers] want something, the more flexible they are! It’s becoming extremely complicated, especially when you sell a show [following] a Netflix window. We are competing with a major platform available to 130 million-plus subscribers worldwide. So, we’re looking for creative ways to make, rebrand or repackage the content to make it unique to a channel. For instance, in the case of Narcos, the original version is 50/50 Spanish and English. Now, we’re dubbing the whole series in local languages (English, Spanish, French) for free-TV broadcasters where audiences might not want to read subtitles.”
Kew Media’s Phillips observes a “steady progression” toward buyers being more pragmatic about their acquisitions. “Years ago when some of these [OTT] platforms started, the broadcasters said, We have to have everything. We said, No you don’t, you’re not going to do anything with it! It was just part of the negotiations. A broadcaster needs catch-up rights. There’s a difference between that and buying SVOD rights exclusively or blocking other rights and paying over the top for them. Most broadcasters are very aware of what they need and what they don’t need and what they’re prepared to pay for. That’s part of the process now.”
Many broadcasters have also been miffed by the raft of global SVOD deals that effectively pulled content out of the market before they even had a chance to look at it. ITV Studios Global Entertainment opted for a global window on Netflix, outside of the U.K., Ireland and China, for the buzzy Bodyguard. BBC Studios’ hotly anticipated Good Omens will have its first run on Amazon outside of the U.K. Atresmedia’s La Casa de Papel (Money Heist), after two seasons as a modest success in its home market, became a phenomenon on Netflix, which took exclusive global first-run rights to a third season.
The whole process of crafting a route-to-market strategy is becoming increasingly complicated as distributors take into account the wants of the commissioning broadcaster or platform, the producers and the potential to maximize their own return on investment.
Baxter at eOne references the conversations within the company about the approach to selling Mark Gordon’s ABC procedural The Rookie, led by Nathan Fillion, whose previous show, Castle, was a huge hit on free-to-air and pay-TV broadcasters around the world. “We knew the potential of this drama series and were confident it would be a prime-time international free-to-air proposition,” Baxter explains. “We turned down a global SVOD offer and sold it separately to big premium and free-to-air broadcasters all around the world, and we kept the upside. We’ve reaped the rewards for doing that.”
Baxter continues, “Others may have been tempted to take that early SVOD offer and make some money that way. We said, We believe in this show and we’re confident we’re going to sell it to the Skys, the M6s, the Rais, all of the big broadcasters, so we’re not going to rush and do an early panic sale. We’re going to wait until we get the broadcasters who will invest in the show.”
Halliwell says that the approach at DRG is “driven by value. Exclusivity can be fine as long as it comes at the right price. We don’t want to go all in with just the OTT guys because we need to remain a relevant supplier to the international marketplace. We want the knowledge and the intelligence that come with trading on an international basis. That’s valuable to our producers, particularly in drama. While the OTT people currently are still paying a premium, sometimes the increasingly high cost of drama means that you don’t get the scale of return you want. We’re old-fashioned in that we still believe we have to work for a living! If that means a territory-by-territory approach over time, then that’s what we have to do.”
Halliwell continues, “We do have great relationships with some of the global players. And sometimes it’s important reputationally that a producer gets their show on [a Netflix or Amazon]. It’s good for their brand. Sometimes that one-and-done approach is absolutely what you want to do. Again, it’s going to depend; it will be case by case.”
Kew Media’s Phillips likens the windowing question to assembling a “jigsaw puzzle,” adding, “There are prescribed deal templates, but it usually boils down to, what’s the project, what’s the level of people’s enthusiasm and what are their needs?”
He continues, “Is it great to do work for hire, as it were, for Netflix? Sure, if you make a profit on it! Is that better or less attractive than owning something yourself and taking a higher risk? It’s a judgment call. You’re judging things now as businesspeople, as creative people and as salespeople.”
MarVista’s Szew says there are many factors to take into consideration when devising a windowing strategy. “One is money, for sure! It’s thinking about what gives us a better opportunity to have [higher] returns on the investments we are making. So it’s looking at deals we have in place and market knowledge and making educated guesses as we think of the different windowing strategies. That is one factor in the matrix. The other is looking at the specific content and understanding its audience and where it can get its biggest reach. There are no tried-and-true windowing strategies anymore. That doesn’t mean we can’t templatize and have specific content follow a similar path. Understanding what works for key buyers and where they can carve out certain windows becomes essential. But it has become a pretty complex part of licensing content. It’s about understanding the different variables of how content can be exploited with the purpose of maximizing audiences and revenues.”
Given the range of models, Sonar’s Ellender stresses the importance of having “a mixed portfolio that meets the needs of everyone from the streamers to basic cable. With those global streamers, you know you’re not going to have international rights. So some things we will wholly own and some things we won’t. With a company of our size, you have to accept that that’s the way you have to operate going forward.”
Rights owners are also discovering that aligning with producers before they get pulled into the streamers’ eye-popping exclusive deals is crucial.
“These sorts of deals have been done forever by the studios—this is not new,” notes eOne’s Baxter. “In many ways, what the global SVOD guys are doing is emulating a lot of the studio practices. They are vertically integrated by having their own production, they are doing direct deals with talent, they’re taking all rights internationally. I don’t think it’s a dramatic change in the landscape. However, it is still incumbent on us to have our own key talent relationships.”
Baxter adds, “We’re not in any way finding ourselves being restricted or excluded from the market. There is plenty of talent available, but we’re not necessarily throwing out the $400 million deals that the global SVOD players are!”
DRG has a deep well of content from its parent NENT Group to tap into via sister production companies, the Nordic broadcast outlets and streaming service Viaplay. “But that’s massively outweighed by the amount of money that we’re investing into the third-party market, most tellingly for us through a suite of first-look and development deals,” says Halliwell. “We have 13 long-term first-look and development deals across scripted and non-scripted. That’s all about giving those producers room to breathe, to acquire IP, to negotiate book rights and to go through the process of building content from the ground up.”
Indeed, it’s important to be flexible in how those talent relationships are developed. “In some cases we’re doing first-look or overhead deals; in other cases it’s project by project or equity investment,” Baxter explains. For many producers, that flexibility is preferred to what Baxter calls a “front-loaded, cash-only, producing-a-number-of-shows type of arrangement.”
Amid the never-ending headlines about the prowess of the FAANGs, what’s often lost in the conversation is that linear broadcasting is still a force to be reckoned with—and channels around the world are still buying lots of content.
“I think it’s over exaggerated that all linear channels are going to die,” says NordicWorld’s Huseby. “You can see in market after market that it’s stabilizing, at least in the mature markets where the fall [in linear viewing] came first and hardest.”
LONG LIVE LINEAR
The entire Turkish export business has been built on the back of selling long-running shows to broadcasters in Latin America, the Middle East and parts of Asia and Europe, to run as daily strips.
“Even though digital is growing, I can say that less than 5 percent of our business is digital,” reports Izzet Pinto, the founder and CEO of Global Agency, citing deals with the likes of Netflix and iflix. “Especially for Turkish drama and TV formats, we are mostly targeting the ‘old-school’ free-TV channels. We are mostly distributing Turkish dramas to less wealthy countries where ready-made shows are a big part of their business. They are the easiest and most cost-effective ways [to fill their programming needs].”
“Linear is still our core market,” agrees Can Okan, founder and CEO of Inter Medya. “The conventional Turkish drama series are quite long and ongoing, and they are not being sold that much on SVOD or digital platforms.”
Both Okan and Pinto note the rising importance of international sales to Turkish producers as the country copes with a currency crisis.
“With the currency exchange and the potential economic crisis, [producers] cannot recoup their expenses from the local market or from sales to the broadcasters,” Okan says. “So they depend on international sales. Every single day, they are now trying to create concepts that appeal to the international market.”
Pinto adds, “The first years of the boom of Turkish drama were the best for everyone. At that time the Turkish economy was strong, and if producers were making episodes for $150,000, they were able to sell to the channel and make a profit. The channel was covering the cost and making money. Now, the channels’ incomes have decreased so much that they are losing money on every episode and the producers are selling for less than what they invest in the show. Both the TV channels and the producers are aiming for international sales to cover their losses and bring a profit. This puts a lot of pressure on distributors. Everybody wants big sales and a quick return.”
While the trade in local-language series from around the world is booming, some distributors have seen their businesses transformed by format opportunities—among them leading Japanese media group Nippon TV. While the company has long found a home for its drama series in Asia, the sale of scripted formats has dramatically expanded its horizons. Of note in the last few years, the company has seen two shows remade in Turkey that went on to become domestic hits (which also sold well globally).
“As cultural tastes and preferences expand, countries that only used to buy overseas content are now getting empowered to locally produce remakes,” says Atsushi Sogo, the president of international business development at Nippon TV. “This is where Nippon TV’s unparalleled production expertise in dramas and entertainment shows sets us apart. Our drama remake business is stable and the demand is solid. Japanese drama series have 10 to 12 episodes, which is short compared to the rest of the world, but Nippon TV titles are extremely [suitable] for formats and offer the flexibility of being lengthened through blending in local ideas.”
The scripted-format business is also developing quickly at Zee Entertainment Enterprises, which arrives at MIPTV with the first-ever African remake of an Indian series, Deceptive Measures (based on Pavitra Rishta). However, selling Hindi-language scripted remains the company’s bread-and-butter business—one that has to be balanced with the needs of its own branded channels around the world.
“We have channels in Russia, Thailand, Indonesia, the Middle East and Africa,” among other markets, says Sunita Uchil, chief business officer for international ad sales, global syndication and production at the Indian media giant. “There’s a continual dialogue with the channel programmers, and then we decide, OK, this is how we will window the content. It’s easier to have this conversation because we have 39 channels—if I had just one or two channels [we would need to make a decision between] licensing the content or keeping it for ourselves. There are other considerations. You look at the science of it and say, What is the reach of that particular platform you’re talking about? What is the language of the telecast? We have a very popular channel called Zee World, which is in English, in Africa. But there’s an opportunity to license content [dubbed] in Swahili and other African languages.”
Zee, like many other content owners, has gotten into the direct-to-consumer space with ZEE5. It’s a landscape that is moving fast as the major Hollywood studios place massive bets on setting up their own streaming services. Disney, NBCUniversal and WarnerMedia are all starting streaming platforms in the U.S., but international expansion should be expected. What that means for everyone in terms of content being held back from the ecosystem remains to be seen. Anticipating this development, Netflix and Amazon have been making more of their own content—but they can’t rely solely on originals, so they’ll have to look elsewhere to replace the shows and movies that will eventually be pulled from their platforms.
“The creation of those vertically integrated ecosystems should mean that distributors that can find content and give other players access to that content are in a good place,” says DRG’s Halliwell. “We are a business ourselves with distribution, production and broadcast, and we don’t have a completely shut-off ecosystem. [The studios’ direct-to-consumer initiatives] will affect us as well in terms of the access to the content that we need as a group.”
MarVista’s Szew also sees the studios’ direct-to-consumer ambitions as an opportunity. “For those of us who are not sitting on the sidelines but are also not creating those major direct-to-consumer strategies, [they are] welcomed. They demonstrate an appetite for major investments and significant technological advances in how and how much content is delivered to the audience on an individual basis and a mass basis. The overall level of investment, the race for more and better and more targeted content and a technological push to super-serve an audience all bode very well for those of us who can professionally make content.”
Kew Media’s Phillips also sees a potential upside for companies outside of the studio system. “If they’ll hold back some jewels and window carefully, that will create opportunities for all of us independents. But with 500 drama series in the marketplace [just in the U.S.], I’m more concerned [about making sure] that when I have shows, they are good shows. That’s what we’re focusing on.”
Pictured: Atresmedia & Netflix’s La Casa de Papel (Money Heist).