April 2015
Volume 35 No. 3

April 2015
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“Magic” Buyers Make To Stretch Their Budgets

By Dom Serafini

Years ago program buyers were appreciated mostly for their ability to pick winning shows; not necessarily shows that they personally liked, but those that “worked” for their audiences.

In those times, money was indeed important, but both buyers and sellers were skilled game players, a trait that made them good negotiators in the eyes of their bosses. For example, if an hour-long series was ultimately sold for $20,000 an episode, the seller would report to management that the buyer wanted to pay $15,000, while the buyer would mention to the higher-ups that the seller had wanted $25,000.

Naturally, there were some instances where sellers were so infuriated by the buyers’ low bid that they resorted to verbal abuse, like the time when a then-buyer for the U.K.’s ITV sent the then-head of sales at one of the Hollywood studios a telex message which read, “Dear Tom [editor’s note: The names are fictional, the story is not], following our conversation this afternoon, I have consulted with my doctor and he informs me that your suggestion is a physical impossibility! Yours, Marcus.”

Nowadays, in addition to the skill of picking winning shows, buyers have another responsibility: finding ways to stretch program acquisition budgets or, as cryptically explained by a French TV broadcaster, “performing the miracle of ‘multiplying the bread,’” with his budget (but he wouldn’t reveal how it’s done).
There are some inherent difficulties in putting together an article like the one you’re reading now: Most buyers aren’t willing to divulge their trade secrets and many sellers are not inclined to reveal their findings for fear of giving detrimental examples to their clients. And no one who actually spoke with us wanted to be quoted.
So, in effect, this article could have ended here, but clearly, this is not the case, because over the course of several months VideoAge was able to painstakingly piece together fragments of information that finally allowed this story to be told.

Keep in mind that there are two basic kinds of buyers: Those that are in competitive markets and those that have the power to negotiate. The nature of competitive markets, however, has changed over the years, compared to when in markets such as Australia, for example, sellers were complaining of de-facto “cartel to keep prices down.”
It is important to recognize that today’s buyers, unlike those of yesteryear, have to contend with a market inundated with a multitude of conflicting rights and consolidation — which has left fewer sellers, while fragmentation has created far more buyers. In addition, buyers must still juggle the traditional three challenges: Contending with their sellers, with their management in order not to have their budgets cut and with their programmer, to be able to move line items around within their overall program spend in order to acquire certain programs in another genre (e.g., spend less in some weekend dayparts to use the budget for a high-end format in primetime). Similarly, to stretch a reduced budget, some buyers sacrifice quality and tilt toward shows with lower production values or, in the case of good theatrical product, those that did not make it to the cinemas. And, on this topic, an American film distributor reported that in a European country, the state broadcaster assigns a local middleman to each distribution company so, for that particular market, the seller has to take whatever the buyer offers and the broadcaster saves money even after paying a commission.

At critical times, like at the end of the budget year, when little or no money is left in the till, buyers have to plead with management for extra money to acquire unique programs seen, for example, at trade shows such as AFM, which happens at the end of most companies’ year-end budget time. The skill, of course, lies in not having that extra money deducted from the following year’s budget.

In order to multiply the evangelical “bread,” where here the “bread” is American slang for money, today’s buyers use multiple “tricks” that are all legit. Here is a non-definitive list:

The most common way to stretch one’s acquisition budget is to negotiate, for the same license fee, more rights in order to tap into someone else’s budget within the same group. Similarly, buyers tend to ask for longer license periods and more runs so that amortization leaves more money in their subsequent budgets. In the past, by increasing the program inventory through longer terms, the TV stations ran the risk of not fully utilizing many shows due to restructured programming strategy or changing audience tastes. However, today TV outlets tend to run all they have in the inventory.

Conversely, if longer licensing periods cannot be obtained, buyers look to save with shorter windows. In order to save additional money or to get some revenue later on, buyers also negotiate for the re-transmission fees where applicable.

Slower payment plans is another negotiation tactic to leave more money in the programming pot, as is the request to switch to the home currency if the exchange rate is more favorable. Slowing down the acquisition process is another way to obtain some fee reduction in exchange for expediting the finalized contract (this tactic could also be used by the seller to increase the license fee).

At times, buyers delay the start date of the show’s airing in order to get the payment to fall in their budget for the following year. Other delay tactics involve rejection of material and/or dubbing, which at times are used as tools to renegotiate the deal.
Buyers who acquire children’s TV shows also tend to extract more runs at a lower license fee by leveraging the power of television to generate merchandising sales, which adds to the distributor’s coffers. Some additional advantages are also obtained by buyers who have in-house dubbing facilities or special arrangements with independent dubbing houses which allow distributors to acquire the dubbed track at market cost after the rights expire (usually getting back 50 percent of the market costs).

Some buyers also resort to getting sponsored content for free, after being cleared by their airtime sales division and, in markets where bartering is an established practice, savings are secured with reduced fees in exchange for some airtime.

Then there are the “creative” ways. For example, acquisition executives who buy for multiple channels could acquire programs for the channel that demands the lowest license fee. In the contract, they specify that they own the rights, and then give the acquired show to one of their channels that is subject to a higher license fee.

Another creative way is for buyers to acquire hour-long programs for access time (i.e., before 8 p.m.), which demands a fee lower than that of primetime, then schedule the show at 7:30, so that it starts before primetime, but ends at 8:30 p.m., during primetime.

Finally, as reported in VideoAge’s Day 2 Daily at NATPE, buyers also creatively leverage trade publications to find out which companies are not advertising — a clear indication that a company is experiencing some financial stress and needs to make sales — in order to extract lower license fees.