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Top 10 ways to plug TV budgets

03 May 2011

It used to be so simple in the old days of television. A producer would develop an idea, pitch it to a broadcaster and, if they were lucky, walk away with a fully funded commission to make the programme.

But, ever since the terms of trade were agreed after 2003, broadcasters have been steadily reducing funding for shows and expecting producers to raise the shortfall themselves. It’s a trend that accelerated dramatically during the recent recession when broadcaster revenues plunged.

Drama, kids and high-end factual producers, in particular, have had to become experts in stitching together financing from multiple sources to raise the required budget for a programme.

“The aggregate amount paid by broadcasters has gone down and the cost of production has gone up,” says Simon Vyvyan, CEO of business affairs consultancy Industry Media Ltd. “That disparity is getting worse and getting harder and harder to fill each year.”

Arturi Films’ David Pearson, producer of acclaimed documentary Mugabe and the White African, adds: “Increasingly there are going to be weird and wonderful combinations of finance…for indie films in particular you have to look at every finance option and some you haven’t thought of.”

Of course many shows are still fully funded by UK broadcasters, particularly those with a strongly British focus. And for most producers, UK broadcaster funding is the mainstay of their business. “Pretty much 95% of what Keo does for TV is paid for by the broadcaster,” says Simon Huntley, finance director at Keo Films, which makes River Cottage.

The trend, however, is very much towards producers having to raise additional finance – anything from 60% to 5% - to meet broadcaster shortfalls.

Pact’s most recent industry census bears this out. Its Financial Census and Survey 2010 found that 85% of producers think that gap financing – the gap between what a production costs and what a commissioning broadcaster will pay – will continue to increase, putting further pressure on profit margins and the need for other sources of revenue. With that in mind, here’s a run down of the 10 most popular ways to plug this financing gap.

1. Distribution Advance

The relationship between producers and distributors has become increasingly close and collaborative in recent years, reflecting the vital role that distributors play in funding shows.

Distributors can provide an advance based on a forecast for international sales revenue for a show. It could be anywhere between 5% up to (rarely) 30% of a show’s budget.

In return for an advance, the distributor gains the right to distribute the show internationally. It will hope to recoup its entire advance based on sales, and then take a percentage of revenue from sales around the world.

A distribution advance is often the quickest and most straightforward way to plug a deficit for a show. “It happens on virtually every drama project now,” says Industry Media’s Vyvyan. “Now in the indie sector you can’t make a programme unless you get a distribution advance. Out of nearly 30 programmes we have done in the last two years, I’d say the vast majority have received a distribution advance into the production budget.”

“It’s best to speak to a distributor earlier rather than later,” adds TVF International director Leila Monks, who describes distribution outfits like TVF as “producers’ eyes and ears into the international market.” Going to a distributor early means they can often help develop ideas so that they are best suited to sell to international markets. Indeed, many distributors say that the development process itself is having to react to the structural issue of broadcasters reducing their budget.

Fremantle Media Enterprises’ chief operating officer Dan Allen says the onus is now on the producer, working with the distributor, to make projects more attractive at development stage to international buyers. “If producers are getting less from broadcasters for shows, either they have to make them for less or distributors have to increase their distribution advances. But that can be difficult because the pricing for acquisitions is not necessarily undergoing any fundamental increases. So you have to do something in development which makes the content more in demand internationally.”

2. Co-production / pre-sales
Increasingly, producers are topping up their budgets by co-financing their shows with other international broadcasters, through pre-sales or co-production deals.

Factual producers like Windfall Films, which makes big budget specialist factual shows such as Monster Moves, has a long history of stitching together finance from broadcasters around the world. UK budgets have fallen so much that Windfall says it is now having to find an increasing number of international partners. For its latest run of Monster Moves, it’s worked closely with distributor Cineflix to raise financing, pre-selling the series. “Between us we have ended up bringing seven different parties to the table,” says Windfall’s head of production Kristina Obradovic. They include Channel 5 and History Channel UK, Discovery EMEA, Germany’s Kabel1, Australia’s SBS and France’s Direct8.

On the plus side, pre-sales usually mean less editorial involvement from the acquiring broadcasters. The downside, says Windfall company director Carlo Massarella, is that pre-selling to so many key countries just to raise the budget means that Windfall can recoup very little by way of back-end distribution.

Co-production deals tend to be more complex agreements, with the UK producer often having to make the narrative more appropriate to the co-pro partner, or including local characters and locations. Often, the co-pro partner will expect a share of the back-end too.

“You have to put yourselves in the shoes of the commissioning broadcaster of the other territories. Why in a million years would they think your subject would appeal to their local public,” points out BBC Worldwide executive producer for international drama Ben Donald.

Again, distributors play an important part in helping match up producers with their international broadcaster contacts. “You have to be able to go to them at the right time with the right project,” says Donald. “You have to know your broadcaster profiles and the subject areas they like, and what slots they have available.”

Kids producers have long been experts at scouring the world to raise money from international co-production partners, as UK broadcasters rarely fully fund kids programmes.

Billy Macqueen, joint md of kids producer Darrall Macqueen, funded the company’s latest series, Pet Squad, with March Entertainment in Canada and Inspedia from Malaysia. The show airs on CBBC later this year. “It’s key in these kind of co-pros that you share a sense of humour and creative sensibilities,” says Macqueen. “And that you share the equity position right the way through.” Crucially, he thinks, producers should limit the number of production partner to three or a maximum of four. Any higher becomes very difficult to juggle – and expensive. “Per partner you have to spend an extra £30k for things such as legal fees,” he says.

3. DVD Advances
The format might be on the wane but DVD advances can also be a useful addition to a budget. Comedy, drama and high-end factual are the most likely genres to attract DVD advances. A DVD advance can be particularly important part of the budget for comedy and drama shows which don’t travel well out of the UK, and find it hard to secure international funding.

4. Post production deal

Post production houses are becoming increasingly sophisticated in their dealings with producers. “They are more prevalent in feature films than drama, but there are a number of successful TV dramas where post houses have not only offered their post production services but have also invested quite a large sum of money, which is recouped alongside other investors,” says Industry Media director James Penny.

Lipsync, for example, has a strong reputation for its involvement in film projects, and successfully invested in BBC1 drama Zen.

Molinare has also built up an impressive reputation for its feature documentary work and film credits. “Post production houses are an option, but they will never give you so much money that your project will live or die by their investment,” adds Penny. “The pieces of the funding jigsaw get smaller and smaller each year, and the trick is to find as many as you can to stitch together – and post houses simply provide another small piece of that jigsaw.”

5. Regional and national funding agencies

Many high profile dramas, such as This Is England ’86 and Red Riding, have received financial backing from the UK’s regional and national screen agencies in recent years. BBC Worldwide’s Ben Donald describes screen agency funding as “one of the essential but later bits” of the funding jigsaw. “A regional fund in the UK could be a nice fillip but it is not going to make a major dent in your budget,” he says.

The poor state of the UK’s finances mean that many agencies no longer have the ability to fund to the extent they did in the past. The key is to know which of the regional and national screen agencies are currently investing.

Northern Ireland Screen, for example, is still very active, putting money into TV and film projects. And Northern Film and Media runs a £2.4m creative co-investment content fund supported by venture capital from NorthStar Equity Investors. “The fact that you are dealing with venture capitalists brings a certain level of bureaucracy and pain but nonetheless the few productions which have taken advantage of it have found it helpful,” says Industry Media's Penny.

6. Deficit /gap finance

Specialist financiers such as Ingenious Media or Octopus Investments can also provide funding to plug programme budgets. Ingenious, in particular, has been around for many years and is very supportive of the TV industry.

Nevertheless, funding from specialist media financiers can be expensive and complex. “If you speak to enough producers you will get the general impression that they find it slightly painful but nonetheless many people turn to companies like Ingenious because not only do they invest up to 5% of budget, but they also cash flow things,” says Industry Media’s Penny.

7. Overseas shooting
There’s an ever changing and ever increasing number of countries that will provide subsidies in a bid to attract international TV and film productions that will spend money in their territories, from Malta, South Africa through to Austria. “Each has its own strings and conditions,” says BBC Worldwide’s Ben Donald.

TV dramas are increasingly following the route trodden by film productions in a bid to unlock financing from around the globe. Producers can take advantage of formal co-production treaties with countries such as Canada. For filmmakers, the key attraction of a treaty co-production is that it qualifies as a national production in the partner nation. That means it can then access benefits that are available to the local film and television industry in the other country. Benefits may include government subsidies, tax concessions and inclusion in domestic television broadcast quotas. The latter is particularly valuable in Canada.

There are many countries where there is no formal co-production treaty but where UK producers can get a rebate on the cost of shooting in the country. Hungary, for example, is currently very popular with filmmakers because it offers a 20% tax rebate on local production spend. Donald says: “The choice of location often depends what you are looking for on screen. South Africa is very interesting because of the range of countryside out there which can double for various places.”

8. Advertiser funding
Ad funded programming (AFP) has been around since the 1930s when brands such as Proctor and Gamble and Colgate Palmolive funded daytime dramas in the US – and the soap opera was born. Until recently, however, examples of AFP were relatively scarce on British television. In particular, it was mistrusted by commissioning editors who disliked the idea of advertisers being closely involved in programme-making.

The recession, however, means that broadcasters and producers are having to compromise and are increasingly turning to advertisers to fund their programmes. This year, ad-funded programming has received a significant boost by the relaxation of the rules surrounding product placement. Now that brands can include their products in shows, many think that advertisers will look at ad funded programming more seriously.

ITV recently announced the first product placement deal with Nestle on This Morning, while C4’s first product placement deal is for a fashion show backed by New Look and made by indie producer Twofour. Few, however, think that AFP will lead to a major funding bonanza for producers – but say that it will bring some extra cash to the sector. “I think AFP will become slightly more significant if you are an independent producer,” says Simon Wells, head of ad-funding agency Drum Screen. “I think it will plug some of the gaps. It won’t be the saviour of the industry though.” Wells recently produced The Angina Monologues, a British Heart Foundation backed event starring Victoria Wood that has played in cinemas and aired on Sky.

9. Foundations / private financiers / self funding
Many projects, particularly feature documentaries, rely on money from wealthy individuals or from foundations.

Often, wealthy individuals will invest in projects where they know one of the creative principals, or they believe in a film’s creative potential or think the subject matter is important.

Producers will sometimes put their own money into a project. Keo Films, for example, put in 20% of the budget of acclaimed documentary series Welcome to Lagos in return for a more favourable rights position.

Foundations such as Channel 4’s Britdoc Foundation will also invest in documentary projects, while The Wellcome Trust have backed docs including the award-winning The English Surgeon. Foundations in the US, such as the Sundance Documentary Fund, the Ford Foundation and ITVS will also back international feature docs.

Rachel Wexler, producer at doc indie Bungalow Town, which has just made BBC4’s Outside the Court by Marc Isaacs and feature doc Guilty Pleasures, says: “When we consider a project, we will always think in a very specific and bespoke way about what funding routes will be right for that project. I think it helps if you’ve done proper research and know the funders’ needs before wasting everyone’s time by submitting something really inappropriate. Like sending a film about hard hitting social issues to an arts programmer.” Arturi Films' David Pearson says that relationships are important in trying to attract private money to projects. “Private financiers can be a great help – but I won’t be providing a contact list for them... Rich aunts could be key, but I don’t have any!”

10. Plate spinning

Last, but certainly not least, it’s crucial that producers can not only raise money but can also pull the various sources of finance together at the same time so that a show can be made. “It often comes down to cash flow,” advises Industry Media’s Vyvyan. “It’s more to do with constant plate spinning to make sure that you can make the money come in when you need it. It’s all very well finding the money, but the important thing is stitching it together…”

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