As commissions have slowed down and broadcasters’ programme budgets have shrunk, indies are having to think outside the box to get projects off the ground, says Kate Bulkley
As the worldwide recession began to bite in late 2008, the boss of every UK indie knew pretty much what to expect: commissioning would slow down, broadcasters would have less budget to spend, and programmes would need to be thinner and smarter. The watchword was ‘belt-tightening’.
But the consequences of the money drought over the past couple of years is that the pressures are starting to reshape the business structure of programme-making in the UK, and these changes look permanent rather than part of a transitory financial cycle.
“Last year, the broadcasters said ‘we’re in the depths of the recession so we’ll put up less money for programmes, and once the market turns around it will all be fine’,” says Jeremy Fox, managing director of Digital Rights Group. “But it hasn’t been fine. It got bad and it’s stayed bad.”
Funding sources
The bottom line is that TV programme-making has become more complicated as indies have had to work with less money and slower commissioning from broadcasters. Financing TV shows in the UK is increasingly following the film business model, where a large roster of international partners and co-producers are needed to get a programme into production and on air.
And as the broadcasters struggle with cash-flow issues, the cost of cash-flowing productions has fallen increasingly to indies, pushing their ability to make a profit further into the future.
Indies are reacting in different ways. Some are focusing on advertiser- funded programming (AFP), while some are looking outside the UK for growth. Patrick Svensk, chief executive of Zodiak Entertainment Group, says: “We are directing our efforts to US cable because that takes the pressure off commissions in the UK. US cable is the least hurt market right now, and the growth we are seeing is coming, to a much greater extent, from the US.”
The lack of money in the UK is particularly affecting smaller indies. “When you add up the poor market, the slow decision-making, the focus on branded content and the cash-flow stuff, it helps to be part of a bigger indie with more financial cushion,” says Svensk.
Of course, Zodiak – which owns UK indies including Diverse Production and is finalising a deal to buy RDF Media Group – is a devotee of the ‘super-indie’ model. And when cash is tight, being big has its advantages.
Certainly one of the most difficult, and potentially costly, issues for the production sector is managing cash flow. ITV pays on delivery and is not known to cash-flow productions, while the BBC’s much-publicised cash-flow issues have forced indies to investigate other sources – including banks and investment funds such as those run by Ingenious and Octopus – for the cash to start productions.
“The problem is that you get a commission, but the broadcaster doesn’t want it until a year from today. So you have to manage cash flow internally, get loan finance, or get a distribution advance to finance it,” says Claire Hungate, commercial director of Shed Media Group.
The issue of cash-flowing productions becomes more difficult when a host of partners are involved, as is the case with an increasing number of productions, most notably in drama. “Funding for television is looking increasingly like feature films,” says Marigo Kehoe, managing director of Left Bank Productions, which makes
Wallander and is in the middle of raising co-production money for its next detective drama, Zen.
Like Wallander, Zen will have seven or eight co-producers. “If you have, say, eight different production partners, you need to get those heads of agreement in place. But in the meantime, you need to get into pre-production because you have a delivery date to hit,” says Kehoe. “If you are in a position where you haven’t got cash in the company, you are struggling from the get-go.”
She adds that she has been able to get some cash from broadcasters under ‘production agreements’ (she mentions Strikeback, which Left Bank made for Sky and filmed in South Africa to take advantage of a doubledigit
DTI rebate), but she has also raised cash from banks. “It’s tough – like putting together a jigsaw puzzle.”
Another highly contentious issue is grappling with the apparent shortcomings of the terms of trade agreements – which were finalised with broadcasters before the indie sector was hit by both a deep advertising recession and a structural change in broadcasters’ revenue streams.
Now, there are calls for the terms to be revisited to take account of the changed circumstances. “The terms of trade meant that indies had the right to chose their distributor and deal with their own IP [intellectual property], but what it has meant is that there isn’t a dialogue between the broadcaster and the distributor,” says
Helen Jackson, head of independents for BBC Worldwide.
“That’s beginning to change as people realise that in order to work out how we are going to fund these productions, we need to get into one room together and plan.” The call for changes in the terms of
trade has been met with resistance by Pact, although chief executive John McVay acknowledges the problem: “The market is forcing people to take short-term decisions to get the work, but the longer-term issue is indies’ profitability, and that will be impacted.”
Pact says that in its indie census, profits were flat in 2008 and they will be “down” in 2009. “Three years ago, the average profit across the indies was 10%. [In 2009] it will be below 7%,” predicts McVay.
Partnering up
Of course, there are some “must-have” productions for broadcasters that mean budgets will be available. For these sorts of shows the funding gap that indies need to fill between the broadcaster’s licence fee and the programme budget will be smaller – but this is happening with less frequency.
Witness ITV’s Primeval, which, ready to go into its third season, was turned down by ITV as too expensive. The show was only recommissioned after producer Impossible Pictures worked with distributor BBC Worldwide to bring in an international coproduction list including ProSieben in Germany and BBC America.
Indies are having to think outside of the usual funding boxes, including securing advances on UK DVD sales, or from royalty-collecting companies such as Compact Media. “We can offer two to three times the amount we might collect in royalties to advance to producers or broadcasters,” says Compact Media Group chief executive John O’Sullivan.
AFP is also a growing currency in the production world. “Every major advertiser has AFP on its to-do list,” says Mark Wood, co-founder of Krempelwood, an 18 month-old agency that helps indies and broadcasters find advertiser money. “It’s an open secret that there are certain slots that are very AFP-able – such as Channel 4 daytime, early evening on Five and certain slots on ITV.
“Whereas last year there were a couple of AFPs, such as Krypton Factor and Wayne Rooney’s Street Striker, this year there will be at least a dozen, and even more next year.”
Krempelwood brought in Sharwoods as the majority funder of Five’s Chinese Food In Minutes, made by Dan Chambers’ indie Blink. “Sharwoods is on the bumpers and is the sponsor on screen, but it also did a lot of promotion of the show, such as buying advertising in newspapers and advertorials in magazines, as well as sponsoring the listing pages,” says Wood.
Its tactics paid off: in the first week, Chinese Food In Minutes got more than double the average number of viewers Five normally achieves in the slot. “That slot used to get 400,000 and the first episode got 1 million,” says Wood.
Tasty figures indeed.
Top Tips commissioning and financing
- Know your audience. Before you even walk into a commissioner’s office, know who your programme is going to appeal to. “If your show has no other life outside that broadcaster and the UK, then recognise this and cut your cloth accordingly,” says Jeremy Fox, chief executive of Digital Rights Group. “Don’t come and say you have the next Lost or Desperate Housewives. That is a waste of everyone’s time.”
- Have a good relationship with your distributor and bring them into the conversation early on, so all possible revenue streams can be assessed – from foreign finished sales to DVD sales to the potential for format sales. For example, Doc Martin has scripted formats in Germany, Spain and France, plus more in the works.
- Identify co-production partners – either co-producing partners in countries where there are tax credits available, or other broadcasters that would be willin to help fund the programme. “Finding the right co-producing partner is a lot about recommendation and I see a lot of it in the factual area but also in drama,” says Christine Corner, partner for film and TV at Grant Thornton.
- To get any co-financing agreements cash-flowed, you need a strong relationship with your bank. “There are lots of banks willing to cash-flow productions but the cost of cash gets passed on to the producer, and once you go to the banks, they will be asking other questions,” says Pact chief executive John McVay.
- Look beyond your bank to funds such as those run by Octopus and Ingenious. Both will lend money against productions, but be prepared for a lot of paperwork, especially if a tax-efficient fund is providing the finance.
- Look at other financing – from advertiser funding to prop placement and secondary rights.
- Hold on to the purse strings of your indie tightly. There is no room for excess overheads, and watch out for currency fluctuations if you are shooting in other countries.
