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Production 100: the state of indies in 2011

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07 September 2011

After three years of downturn, many indies say business has improved dramatically over the last 12 months. But with clouds gathering again over the global economy, can this brief revival of fortunes last?

The headline theme to emerge from Televisual’s 18th annual Production 100 survey is, for a change, rather positive: after three years of enduring the TV downturn that followed the credit crunch of 2008, many indies say that business has improved over the last 12 months.

Of course, business remains tough and incredibly competitive for independent producers. Budgets are continuing to fall, even though broadcasters expect production standards to be as high as ever.

But there’s a distinct change in mood among many indies, and it’s for the better. The reason is straightforward. Broadcasters have been commissioning more shows, buoyed by improved ad revenues. Channel 4 is very much back in the market, with slots to fill post Big Brother and is working with a broader range of indies. Sky has emerged as a real production force. And Discovery, with former C4 boss Julian Bellamy at the helm, is gearing up its production ambitions in the UK.

David Granger, md of Made In Chelsea producer Monkey, believes the climate has “improved dramatically” from the year before. “There are far more commissioning opportunities across all channels,” he says.

Debbie Vertue, general manager of Sherlock producer Hartswood Films, points to a rush of work in recent months: “It’s been slow, but it feels as if there has been a real surge now in production and commissions. C4, ITV and Sky all now seem to have money to spend, or so they say, in comedy and drama.”

Indies have also diversified their businesses in recent years, out of necessity becoming less reliant on the UK market. A strategy of pushing into international markets has paid off for many, while others have become adept at taking advantage of new opportunities in areas such as AFP and digital production.

The figures underline this story of cautious growth in the market. The top 100 indies turned over £1.9bn from the UK market in 2010-11, up slightly from last year’s £1.75bn. “Tough but ultimately rewarding,” is how Sophie Walker, head of production at Country House Rescue indie Betty, describes the past year. Thomas Benski, chief executive of Pineapple Dance Studios producer Pulse Films, also sums up the mood of many indies. “The climate has been very positive and we definitely feel that people are open for business, but budgets are challenging. We are also starting to see a steady rise in digital and brand associated opportunities as well.”

Melanie Leach, md of The Hotel Inspector producer Twofour, says the past few months have been the busiest she can remember in terms of new projects going into paid development and production. The indie has picked up new commissions from multiple broadcasters, as well as two sizeable ad funded projects for C4.

At the same time, it’s important to stress the sense of caution running through this year’s Production 100. Some indies may be buoyant, but it’s hard to detect the go-go optimism of the pre-2008 years when the sector truly boomed.

David Green, chief executive of Penn&Teller: Fool Us producer DCD Media describes the UK sector as “stable and static”. He doesn’t think the sector will expand greatly in the years ahead. “The reality is that we will never return to the pre-2008 power of the production sector.”

What’s more, this year’s Production 100 survey was conducted before the European debt crisis and the downgrade of the US economy’s AAA rating, which caused stock markets to plunge violently in early August. This is likely to have an impact on the production market in 2012, amid predictions that advertising revenues will continue falling next year as a result (ad revenues are already down about 3% in July and August).

Even before the events of August, ITV’s chief executive Adam Crozier said the broadcaster was “cautious” about the advertising market and the economy. Speaking shortly after the big stock market falls, DCD’s Green comments: “My feeling is that we might just start to feel some of the problems from last week in 2012.” He added that October’s Mipcom programme market would be a telling barometer for the year ahead, with many concerned that broadcast buyers could start to rein in their spend on acquired shows.

Indie consolidation

There’s been a spate of deal-making and consolidation in the indie sector over the past year, but far from the levels seen before 2008. A key trend has been the increasing presence of the US studios in the UK market, with NBC Universal (Carnival/Monkey), Warner Bros. (Shed Media), News Corp (Shine) and Sony (Gogglebox) now owning a significant share of the sector thanks to a spate of acquisitions.

In fact, Shine’s sale to News Corp for £415m in February ranks as the year’s biggest deal. This could be supplanted by All3Media, the UK’s biggest indie, which is currently for sale with a price tag of up to £750m – US studios are among the rumoured suitors. Meanwhile, Zodiak bought Inbetweeners producer Bwark in July. And Welsh superindie Tinopolis has been particularly active, making two significant acquisitions in the US – Base Productions and A Smith & Co – in the space of two months.

Leopard Films and Remedy Productions teamed up in May, with the ambition of creating a new superindie group under the banner Argonon Group. And Boomerang Plus acquired Meerkats Manor producer Oxford Scientific Films in June.

But one of the most interesting developments in the Production 100 has been the emergence of a second tier of mid-sized indies that have come out of the last 12 months in a much stronger position. Companies such as start up The Garden (24 Hours in A&E), Renegade Pictures (Heston’s Mission Impossible), Love Productions (The Great British Bake Off), Raw TV (Banged Up Abroad), Keo Films (Hugh’s Fish Fight), Windfall (Inside Nature’s Giants), Blast! (Coppers) and Firecracker (My Big Fat Gypsy Wedding) have all had a strong year and remain, for now, very much independent. “If there is going to be another rush of consolidation, you can see that there are five or six companies that have emerged over the last 12 months who look very interesting,” notes Twofour’s Leach.

Superindie vs small

To some extent, mid sized and smaller indies have benefited over the last year as broadcasters, notably C4, have attempted to work with a wider range of suppliers. Truly independent producers report that broadcasters are sometimes nervous about doing business with consolidated indies because ‘there is a worry over where the money is going’. Says one indie: “Is it going upstairs to feed the big beast that owns it rather than onscreen?”

Nevertheless, smaller sized producers say business remains challenging for them. “We do not have the economies of scale or the resources of the larger indies and superindies who are able to invest in substantial development teams and sophisticated taster tapes and have the resources to pitch more widely,” says Claire Nicholls, finance director of Candy Cabs producer Splash Media. “However, broadcasters are realising that they are best served with a wider supplier base.”

Smaller indies say that the downward pressure on budgets has a particular effect on them, as it plays into the hands of larger indies that benefit from economies of scale. Clare Byrne, director of Rivers with Griff Rhys Jones producer Modern Television says broadcasters are expecting the same production values for a 25-35% cut in production tariffs from recent years. “Our margins are being squeezed and squeezed which is why there is a trend towards indies biting the bullet and being bought by the larger players.”

A similar point is made by Leonardo indie Kindle Entertainment: “We were the Bafta kids production company of the year in 2010, and yet the climate has never felt tougher. Licence fees are being squeezed and the work of securing funding from other sources becomes increasingly onerous. A lot of time is spent building and creating new relationships in Europe, the US and Australia. As a small truly independent producer with no big corporate brother to shield us, we’re vunerable in tough negotiations with various commercial/broadcast partners.”

Budgets
Falling budgets emerge, once again, as a key theme in the Production 100. In fact, 63% of respondents say that broadcaster budgets have fallen over the past year, while 28% say they have stayed the same. Only 10% think they have risen. “Broadcaster tariffs have been reduced substantially and the ability to negotiate with broadcasters is more or less non-existent on issues of price,” says Simon Gray, finance director of The Alan Titchmarsh Show indie Spun Gold. “Our cost base has continued to rise as we have little negotiating power given the size of the company.”

Hardcash md David Henshaw adds that his indie has never been busier, but says work is a “constant struggle because of tighter budgets, lengthier negotiations and delayed cashflow from broadcasters.”

In particular, indies talk of cash flow issues with Channel 5 since its takeover by Richard Desmond and “Channel 4 commissioning on E4 budgets but expecting the same level of production.”

Although ad revenues have risen substantially since the downturn, many producers say that broadcasters continue to pay as if they are still in recession. As a result there’s an increasing need to top up budgets. Factual indie Brook Lapping says that although commissioners and broadcasters are very supportive and the genre is buoyant, “there’s an increasing need to supplement UK tariffs with overseas pre-sales and distribution deals to make certain projects viable.”

It’s a point echoed by Glyn Middleton, creative director of Dick ‘n’ Dom Go Wild indie True North. “Production budgets are still under enormous pressure and we are fortunate to have a strong and viable post production department and excellent secondary sales to provide a firm foundation for the company’s growth.”

At the same time, producers say rights are becoming ever more difficult to retain. “The pressure on commercial channels for increased revenues makes it tougher for indies to retain control of their IP and talent,” says Laura Marshall, md of River Monsters indie Icon Films. Hanging on to rights in an increasingly aggressive post terms of trade broadcast culture is shaping up to be a major battle for independent producers.

And there are complaints that broadcasters remain slow in their decision making. “There’s always uncertainty to deal with but delayed decisions seem more than ever,” says David Strachan, md of Wildlife Patrol maker Tern Television.”

Of course, many of the concerns of indie producers about budgets and delayed decision making crop up year after year in the Production 100. What is different this year is that they are tempered by a real sense that business is busier for many than at any time in the last three years. The words ‘improving’, ‘buoyant’, ‘busy’ and ‘positive’ – which have been completely absent in survey forms for so long – are widespread in indie feedback. Many independent production companies have effectively rebuilt their businesses over the last 12 months. The big question is, how long can this buoyant period last given the dark clouds that are once again gathering over the global economy?

For full Production 100 survey, see Televisual's September issue

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