Kids TV buyers: Reluctant gods of the new broadcast reality?

It's Judgement Day for the kids business. Like the stock markets that pumped it up, the industry is deflating with a resounding thud.
March 1, 2003

It’s Judgement Day for the kids business. Like the stock markets that pumped it up, the industry is deflating with a resounding thud.

Those of us who have been around for an embarrassingly long time see this as a good thing, despite the pain we’re all going through. Once the scallywags who nearly wrecked the business are either humbled or ousted, we should once again have a reasonably good business where good companies and people can make a decent living. This will happen when a rough balance between quality program output and demand is achieved. (No revolutionary economic theories here!)

But how quickly we get to this nirvana where responsible producers who care about what they do make only what the market wants to buy will largely depend on the tough choices made by broadcasters today. It’s worth having a look at the growing number of factors broadcasters have to consider before they commission a show. I see this as having progressed mainly over three stages.

Stage 1 – Broadcaster as passive

Until recently, broadcasters in the kids business played a reasonably passive role. They could choose projects based on what they liked, in most cases based on a producer’s reputation for being able to deliver. Barriers to entry were low for a creative producer who wanted to start his own company, and even a small, worthy production outlet could have its turn at bat.

Once a program-maker got a local sale, there were at least a half dozen distribution companies with a lot of stock market cash who were ready to pick up the production deficit in return for distribution rights. So financing responsibility was not an issue for commissioning broadcasters.

Stage 2 – Broadcaster as active

The market downturn began about two years ago when the public company-driven oversupply saturated the market, drying up demand and, in many cases, lowering license fees. Selling good kids series was suddenly a lot tougher.

At the same time, a lot of the stock market-backed rights companies that put up fat distribution advances were under pressure because their financials didn’t stack up. They were running out of money and, with the sector rapidly falling out of favor, they couldn’t raise any more. The result? The tap was turned off, and no one was putting up distribution advances.

With the easy money gone, broadcasters soon learned the hard way that they couldn’t just go with projects and producers they liked. Equally important was the producer’s ability to raise a lot of pre-sales directly, relying on banking relationships to factor contracts, raise gap financing, etc.

As an example, a lot of broadcasters have been burned recently by supporting small producers who presented good-but-impossible-to-finance projects at Cartoon Forum. It often appears that the only Forum projects actually being made are those that are picked up and fully funded by the BBC and ITV in the U.K. Projects that rely on multi-territory pre-sales just aren’t getting financed because the producer doesn’t have the broadcast contacts, resources and know-how to get the job done.

This is where we are today. Most major broadcasters now realize that they should only be pre-buying creatively strong shows from companies that have a track record of handling complex program financing. But from here on in, choosing projects backed by the right companies is not enough. If the production industry is going to survive, broadcasters now have to choose the winners and the losers.

Stage 3 – Broadcaster as God

Market demand is weak because of oversupply, compounded by a tight advertising market. Obviously, with less ad revenue, there is less money for programming. Budgets for public broadcasters are also tight: In the relevant European countries, governments are compelled to follow strict budget deficit guidelines imposed by the introduction of the Euro.

The result is that broadcasters are, more than ever, focused on burning off inventory. One major kids buyer in Europe says she is not buying anything next year because her channel has more than two years of programming stock that her management says she must play out before she can start buying again.

This is probably a bit extreme, and no doubt this broadcaster and others will need to buy fresh inventory. But the market is going to be very thin over the next year or two. So thin, in fact, that there will not be enough orders to go around for all the companies that have survived until now.

This is where the broadcasters come in. Buyers are increasingly choosing projects on the basis of a company’s ability to deliver quality kids fare and finance it. But that’s not sufficient if the production business is going to survive. Since there are not enough orders to go around, even amongst companies that can deliver pro-jects and arrange financing, broadcasters will now have to decide which of these companies they want to have around two years from now.

In short, a broadcaster will have to pick its favorites. If it can only pre-buy five projects in a given year, the channel will have to allocate these projects to its key supplier companies accordingly. If the broadcaster does not hand out a commission to one of its preferred suppliers in a given year, the production company may not have anywhere else to go. With business conditions so difficult, this could sink the company.

Unfortunately, what broadcasters can’t do is cut their fees in half and double their orders in an attempt to support as many companies as possible. That will just result in under-funded production, which will put all companies at risk. Better that the buyer decides who lives and who dies, than the bank.

Neil Court is a partner in Decode Entertainment. Headquartered in Toronto, Canada with offices in the U.K., Decode develops, finances, produces and distributes live-action and animated programming for the family, kids and youth markets. The company’s catalogue includes Angela Anaconda, The Zack Files, Our Hero and The Save-Ums!

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