Monday 11 October 2010
Not much connects ITV's lush Downton Abbey with Channel 4's teenage laughfest The Inbetweeners but two of this autumn's hit programmes share a provenance. They are both made by independent production companies, and the broadcasters buy a licence to screen them.
Now this system is under stress and may even be in danger of breaking down. Talks between Pact, the indies' trade body, and leading broadcasters are taking place in a bid to reach agreement by next year.
The interests of broadcasters and independent producers rarely dovetail, but the gap appears to be worsening just at a point when a fresh modus vivendi is needed - by next year, when internet-enabled television is expected to bring about a fragmented online world. Broadcasters and independent producers want to control more of the programme content and secondary rights, especially in a market in which DVD sales are waning.
Broadcasters are dealing with the negotiations in different ways but all of them want change. At Channel 5 last week, payments were temporarily frozen to some programme suppliers by Richard Desmond's new team. He also abruptly concluded talks with an equally hard-nosed independent, Endemol, about buying Big Brother.
The BBC, the UK's biggest spender on independent production, is in negotiation with Pact and Jana Bennett, the director of vision, is "careful not to hold negotiations in public". Yet sources say the BBC is hawkish. In his MacTaggart lecture in August, Mark Thompson, the BBC's director general, rattled the bars when he said it was "time to take a fresh look at whether the current [terms of trade] are fit for purpose … we may need more flexibility from the producers".
Over at ITV, where the former chairman, Michael Grade, led a fierce but ineffective assault on the independents in 2009, the new chief executive, Adam Crozier, is diplomatic but keen to address the unfairness of the system. "In the UK we're massively over-regulated and it is distorting the market in a number of different ways. Some of the programme suppliers we deal with are every bit as big and powerful as ITV."
Downton Abbey's producer, Carnival, for example, is owned by America's NBC Universal studios and is subject to different regulations.
The terms of trade relate to the agreement in 2003 between Pact and broadcasters which gave the independents copyright of their programmes, rather than the broadcasters, who paid them. This big piece of government intervention, enshrined in the Communications Act 2003 and monitored by Ofcom, transformed the British production business. Many more indies became attractive businesses after a bitter 20-year struggle by producers. (All sides subsequently updated terms in 2006, to allow for the iPlayer, and video on demand).
The current negotiations are seen as an attempt by broadcasters to wrest back a bit of that control. Ofcom's Communications Market review for 2010 shows that independents have 50% of the market, and are beating in-house producers with new programming.
The indy sector's total revenue was £2.2bn last year of which programme commissions were the biggest portion, £1.395bn. Growing international activities totalled £439m.
What is less discussed is that the 2003 deal also seems to have made the UK unique, a kind of Switzerland of television. A well-known television executive says: "I really think we should simply be able to buy programmes outright, from suppliers, like they do everywhere else."
Wayne Garvie, the former managing director, content and production, BBC Worldwide, says: "The UK is completely different to any other market in the world. The rights position is really healthy for UK plc.
"When a producer takes a format to the US, they retain all the rights, format sales, secondary rights. The US broadcaster will accept you wholly own the rights. This has helped UK independents enormously. If we change we will weaken our international position."
Gerhard Zeiler, the chief executive of RTL Group, whose Talkback Thames/Fremantle subsidiary makes American Idol, The X Factor, and Britain's Got Talent, recently told an RTS conference: "There is no other country where you have these terms of trade, at least that I know of. In the UK, where we own Fremantle, it's brilliant!"
However, over the past two years US networks have become more savvy about what rights they want to keep, and they have become tougher with UK producers.
ITV's grievance is compounded because the terms of trade only apply to the public service channels - BBC, Channel 4, ITV1 and Channel 5 - and not ITV, C4 and Channel 5's digital channels. They also exclude BSkyB, increasingly making deals for glossy drama, and other digital channels.
Meanwhile, broadcasters are talking up the power of their mass audiences as a bargaining chip. Peter Fincham, ITV director of television, says: "Our airtime has a value. We can make a format famous. So as a commercial broadcaster, we want to participate. An airing on ITV1 is as good a driver of international sales as [an airing] anywhere in the world."
Fincham reaches for an example that still rankles, even though the deal was struck years before the 2003 agreement. Who Wants to Be a Millionaire?, which launched on ITV in 1998, was sold after eight years of income (which dwarfed the sale price), for £106m, then resold on to its current owner, Sony, for £137.5m. ITV had allowed its creator, Celador, complete copyright and exploitation rights.
That is why it is trying to re-establish its ITV Studios division, encouraging commissioners to look at all aspects of a programme decision, including the financial consequences, and to seek to co-produce more new shows with suppliers, regaining rights. Crozier recently revealed that only 16-17% of ITV1's programmes were made inhouse, excluding Emmerdale and Coronation Street. "We want to be free to do a deal on its own merit, with only the lightest touch intervention," he says. "The terms of trade stem from a different era. There is only a limited role for terms of trade."
C4's position is the most nuanced and careful of all the broadcasters , since it is set up to wholly source programmes from outside. It naturally doesn't want a huge conflict with Pact, but it wants a more sophisticated business model.
Martin Baker, the head of commercial affairs, says: "Rather than shout at independents, we want to work productively with them."
John McVay, the chief executive of Pact, says he does not expect root and branch change at this point; he wants sensible, rational discussions, especially with ITV, with evolution the aim.
The real sticking point remains the principle of copyright. "We will never give it up," says Jane Turton, the deputy chief operating officer of All3media, the UK's biggest independent.
But there are pressure points, as broadcasters increasingly refuse, or say they are simply unable, to meet the full costs of producing programmes, especially drama. Fincham insists: "It is absolutely in the interests of the production industry and viewers that the commercial model is sound, with well-funded broadcasters commissioning programmes, and stable suppliers. We are complementary."
It remains to be seen whether independent production companies, which have benefited from the current regime, are prepared to agree
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