Once upon a time you’d pitch a show to a TV channel and if they liked it they’d give you the cash upfront to make it and you’d take home a healthy 10%+ margin. Then along came the terms of trade, and in many cases producers not only took their 10%+ margin but also got to keep the programme, effectively granting the broadcaster a limited license to transmit a show they’d paid for. Once that license expired the producer could then sell that finished programme elsewhere without compensating the broadcaster, as well as selling the format rights for localised versions. It was certainly the good old days – the equivalent of running a factory where you sell all the inventory before you’ve made anything (plus a margin), work at 100% capacity, hand over the goods, and then, 2 years later your customers give you all the goods back to sell second hand – nice!
Of course there’s only so long this can last, and a lot of very bloated incumbents are now seeing their business model challenged. Children’s TV adapted earlier than most, recognising the big money opportunities derived from merchandise and deficit funding against this future revenue. Then big budget drama producers increasingly sought co-funding across territories to get their work made, recognising the opportunity to make profit through sales and merchandise (books, DVDs, films, live experiences). Now it’s creeping into every genre, and like it or not any of us wanting to get our work out there need to be as creative with our business models as we are with our content.
‘Digital’ is influencing TV funding in three main ways: in creating new distribution models (from VOD services, mobile, even direct to consumer), new monetisation models (from micropayments to patenting proprietary technology), and in new development models (a move away from selling ‘off paper’ to prototyping, more iterative development processes and increased testing with audiences). It’s on the development process I wanted to focus in this post.
Development is such a vital component of content businesses, and yet it wasn’t always such a formalised activity. It was when independent producers came onto the scene, spurred on by the formation of Channel 4, that the game became much more about the quality of the idea, and the ‘development team’ came into existence – blue sky units dedicated to conceiving and researching the ideas for TV shows. Production companies would pitch these ideas off a sheet of A4 and then some would receive funding to develop their ideas in detail. A certain proportion of paid developments would lead to pilots, and some would be grenlit and eventually turned into a series. Money flowed from broadcaster into each stage, increasing in amount at each step, from paid development through to broadcast.
Here’s where things are changing. Instead of increasing funds from the broadcaster in each stage up to broadcast, smaller investments are flowing in during the pre-production stage, with the remainder of funding increasingly coming in from the traditional post-broadcast revenue streams – ie. advances on distribution rights, ancillary rights, and so on. The diagram below shows this changing business model:
Traditional TV funding model
Changing funding practices
The result is the emergence of a ‘funding gap’ – where producers are having to strike complex deals to get stuff made, and increasingly having to ‘self fund’ projects. This has led to a rationalisation of the development process – leaner, more focused, more audience and data driven, more testing and prototyping – when it’s your own money on the line upfront and the risk is no longer 100% sitting with the broadcasters there’s a real incentive to get it right. Granted not everyone is feeling this change yet, and TV still behaves much like the movie business (where only 1 in 7 films make their money back). This low-hit rate is great in some ways: for creativity, for experimentation, but ultimately it’s not a sustainable business model for anyone. Now with so many economical digital tools at our disposal we have the opportunity to thoroughly test our ideas before they go on TV, or anywhere else for that matter.
As storytellers we’re usually pretty good when it comes to explaining our idea, but in this new rationalised future we’re going to have to get better at telling the bigger business story: showing our understanding of the audience and proving through research and testing that they’ll engage with our content, giving the rationale of why this works for our paymasters (brands, advertisers), giving a compelling technology pitch: that it will work, that we have the competency to deliver and the right people in place behind the scenes, and proving we have the business competency to get it financed and effectively exploited. Essentially the successful producers of the future will need to have a flair for business as much as they do for content.
(Image sources: Ravensbourne/firsthandexperience.net)