Netflix’s 3rd way for content producers emerging
November 16, 2016
By Chris Forrester
Content producers usually fund their new TV shows and formats either by ‘deficit funding’ whereby a US network or its studio finances ~65 per cent of a programme, leaving 35 per cent of the cash for the producer to source, but also most international and secondary rights. Others might use what is often referred to as the ‘European’ model whereby >65 per cent is funded in return for all but some international rights, with the producer receiving a production margin of ~10 per cent.
According to Laurie Davison, equity analyst at Deutsche Bank, a new model is emerging from SVoD buyers which goes beyond these established funding patterns, to a full ‘producer-for-hire’; with 100 per cent funding for all rights, including international and with the Cash Flow delivery spread over three-to-four years. Davison says: “So these high budget commissions are incremental & growing, but move the producer economics to lower-risk, lower upside & Cash Flow negative.”
Davison’s comments follow a meeting with senior staffers at Fremantle Media, and the news that the likes of Netflix and Amazon Prime have created a new segment in terms of on-demand and OTT viewing. “[This is] creating increasing viability of previously ‘niche’ non-English language formats. The monetisation and ‘value’ for a buyer is shifting from first-run ratings, to long-term catalogue value and differentiating a distributor with distinctive programming brands e.g.: Narcos/Netflix, Young Pope/ Sky/C+,” says Deutsche Bank.
The report says that there is a reduced willingness to experiment amongst traditional broadcasters, and where the value of proven franchises was highlighted. “America’s Got Talent is seeing highest ratings on NBC since 2011 and the relaunch of Match Game has been sold for prime-time on ABC. The [Fremantle] CEO also saw scope for Idol to return to return in the US after the cancellation by Fox last year.”
The bank says that it estimates that the ‘Idol’ format was generating c.10 per cent of Fremantle’s earnings; €100-120 million of revenues, ~€10 million EBITA. “Any potential re-sale of the format would likely be for less, but would be another material boost to the underlying turnaround at Fremantle.”