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01 October 2010

As the indie business becomes ever more complex, indies are turning to the advice of professional service providers – from lawyers to financiers to insurers, PRs and distributors. David Wood reports

Meet the professionals

The significance of the decision to grant independent producers ownership of their intellectual property – a right enshrined in 2003 Communications Act – is hard to overestimate.

It has transformed the UK’s indie sector from a collection of producers once pejoratively called ‘lifestyle businesses’ by business expert Sir John Harvey-Jones into a thriving entrepreneurial sector of the UK economy worth £2.2bn in 2009.

The emergence of larger consolidated groups such as All3Media and Shine, which have subsequently bought up production companies in the UK and overseas has created an active market for programme making businesses and inspired a new generation of producers to spring up to create their own intellectual property.

The next generation
This newer, second generation of indie entrepreneurs, typically the executive producers who watched their bosses get rich, tend to be much more business focussed than their predecessors.

That’s the opinion of Medwyn Jones, partner at law firm Harbottle & Lewis’ film and TV group. “I’d say the emergence of this second generation of indies is one of the biggest trends in the indie sector as a whole. In the late 1980s there were lots of kitchen sink, lifestyle-type businesses which grew slowly and organically. But the more recently emerged second generation is much more business savvy and much more internationally focused than their peers 20 years ago.”

No surprise then that this business savvy generation of independent producers are prodigious users of professional services, from the traditional lawyers, production accountants, insurers and banking services which have always been required to get programmes made to the more strategic services of business affairs, corporate finance and PR consultants.

Outline Productions joint MD Laura Mansfield says her company uses the “full range” of different professional advice, from lawyers to bankers and corporate business advisors.

It’s particularly handy to have experts on tap when you are a small or mid-sized indie, she explains. “While superindies might have a team of in house lawyers with different specialisms, we tend to use third parties, which can be good as it gives you flexibility. “At the moment we work with five different lawyers which we use for different things, from contract law to property to specialist US lawyers for US contracts. The advantage is that you can play the field. The disadvantage is that you pay an hourly rate - so it’s expensive.”

A dramatic business
The TV genre which is probably the heaviest user of professional services is drama. Says Harbottle & Lewis’ Medwyn Jones: “Typically drama producers have small permanent staff developing new ideas and keeping the company going in between projects, but [when pre-production or production is underway] it makes sense for them to use third party rather than in house legal or business affairs.”

“For drama producers we will do everything from negotiating the option for a book, to commissioning a script to raising development funding right the way through to contracting the artists and location agreements.”

For bigger producers with an in house legal team, outside expertise is usually sought in specialist areas outside the producer’s experience, adds Jones. “The producer might be doing its first kids show and want advice on licencing, trademarks or merchandising.”

“In-house legal teams often send out on negotiations with talent. For instance if a drama is based on a novel with a high profile writer they may want lawyers to make sure the deals they get with the writer/author enable them to exploit other connected rights such as the first option to do a film. It’s all about ensuring they end up with the strongest set of rights.”

Simon Vyvyan, founder of Industry Media, a specialist business affairs advisor to the indie sector, confirms: “Drama has always been a heavy user of business affairs, but the situation has changed a lot in the last couple of years making business affairs advice even more important. TV production has become more complicated - basically because few dramas these days are fully funded by the commissioning broadcaster.”

Representing some of the biggest names in drama and comedy including Baby Cow, Clerkenwell Films, Left Bank Pictures, Mammoth Screen and Impossible Pictures, Industry Media was part of the team behind the resurrection of Impossible’s Primeval who came up with a new funding mechanism based around a new windowing structure involving UKTV’s Watch, BBC Worldwide and Germany’s ProSieben. Left Bank’s Wallander involved seven different sources of finance, says Vyvyan, who adds that dramas always have more than three sources these days. “We perform a crucial role where producers either don’t have the ability to bring all this together or, if they do, they may not have the time.”

Vyvyan takes the view that his specialist TV business affairs advisory service is unique, certainly compared to what a traditional law firm offers. “The law firms tend to say that they do lots of TV production work but, in reality, they don’t because producers can no longer afford their big fees - particularly during the recession. They have effectively priced themselves out of the independent production sector leaving a big gap for us,” insists Vyvyan, who has staffed his company with City trained lawyers. “We now have 10 TV specialists most of whom have worked in-house and all of whom focus exclusively on the development, financing, production and distribution of television programmes.”

Another key area where professional business affairs advice is crucial is in negotiating terms with broadcasters. The rights of indies are supposed to be enshrined in the Terms of Trade agreements but these have been “revised” by cash-strapped broadcasters seeking a better deal, as Vyvyan knows only too well. “Since we set up in 2004 we have seen the old Terms of Trade replaced by new ones which have been subsequently adapted or ignored by ITV, amended by C4 and the BBC and re-created by Sky. There are all sorts of ways in which real value exists for the indie and our job is to negotiate our way into those places to find pots of money for the producer. For example, we have negotiated eight production agreements with Sky in the last six months and each one has been different. Sky will often recognise an indie’s development costs but a lot of indies find it difficult to make other broadcasters acknowledge the cost of developing a show prior to its commission. There are mechanisms to recoup that outlay. Our job is to make sure all our clients benefit.”

The big money start up
One classic heavy user of professional services these days are the well-financed indie start ups which have ambitions to grow quickly. Jill Franklin, founder of PR agency FranklinRae, explains that what is significant about these companies is that they have been set up with the help of investors, private equity or venture capital to grow a lot more quickly than they could otherwise. “With that comes a clearer business sensibility,” argues Franklin. “Their investor’s goal is to make money – with an exit strategy at some point – and they will expect a certain discipline. This means that these businesses will need to be on top of figures, future developments, how they are going to get from A to B.”

One of the fastest growing indies has been Liz Murdoch’s Shine, which has grown into a £265m 25-company strong international superindie in the space of just nine years. Says Shine Group president Alex Mahon: “We use Deloitte’s to do our audit work – which was tiny – but now with 25 companies it’s a massive audit. Now Deloitte’s helps us value our catalogue, plus it advises on tax planning.”

In Shine’s early days law firm Olswang did every production contract - which was very expensive, adds Mahon. “Now we have our own in house legal department, Olswang helps with big contracts, global deals, and all due diligence when we make acquisitions. They have really helped us go global and when you are growing fast you need them a lot.”

Meet the press
A key professional service strongly connected with fast-growing companies is PR. Franklin Rae’s Jill Franklin insists that there is a much greater emphasis on the importance of getting the right PR in the sector than there was a decade ago. One question Franklin frequently asks prospective clients is: “How will somebody who wants to do business with a company just like you, find you?”, which often proves one of the trickiest business questions to answer for indie business owners.

“No longer a service you bring in at the last minute, PR works best where it's a full commercial partner in the business,” declares Franklin. “If you want to grow and achieve your commercial ambitions to make content the world wants to watch you have to communicate to the market globally. You need the right PR coverage to help you achieve that leverage – and that’s something that can’t be done as a last minute bolt on service.”

Whilst financial pressure on companies during the recession has led many to cut back on areas such as publicity, Franklin argues: “If it’s quiet and you want it busier it’s vital you are out there getting noticed and shouting about what you do.” Another reason for continuing with PR during tough times is that you can put out a ‘business as usual’ message – which can reassure clients.

Shine’s Alex Mahon adds that PR has played an important role in the success of her indie in two ways. By helping limit the damage that can be caused by negative publicity, and by amplifying positive things. “Freuds have really helped us with our reputation and how we position ourselves in the market in the trades,” confirms Mahon. And in a world where broadcasters might not have the time, money or inclination to prioritise the promotion of your key shows, the services of a PR agency can help fill the gap with B2C and B2B promotions.

“Freuds really helped us with Merlin in making sure there was enough press for it as broadcasters often have different priorities,” she reveals. Shine’s proactive stance on Merlin has certainly been a factor contributing to its recommission by the BBC.

Third party as opposed to in-house publicity is also important when you require the services of specialist types of promotion beyond the skillset of your in-house publicist, or when the internal PR is overloaded. “We are using Freuds to promote MasterChef on Twitter feeds and Facebook, because we think that using social networks to get the message out there is going to be increasingly important.”

Sell sell sell
One key relationship whose importance is often underestimated is a producer’s choice of distribution partner. “Smaller indies often rely on their distribution partner to tell them how to market and sell their content, which is a crucial source of revenue in the early days,” insists Mahon.

At best a good working relationship with your distribution partner can pay dividends, as they can not only sell your shows for you around the world, they can also help find different sources of income. Says Outline’s Laura Mansfield: “With distributors it’s all about getting the best expertise - the distributor is out there all the time talking to people around the world about what’s rating whereas we aren’t. Plus they can advise on how to make shows more commercial, which is probably better than one person in-house doing distribution.”

Industry Media’s Simon Vyvyan issues one word of warning. “Distributors might be good at selling a certain kind of programming, so the inclination is to use them again. But they might not be so expert in all genres. You might be better served by not tying yourself down to one distributor although, to be fair, I have also come across some very fruitful long term relationships between producers and distributors.”

One useful specialist with a key business niche in tracking down dues for content owners is Compact Media Group, a collection society focussed on TV and film, which has 300 clients around the world ranging from broadcasters to indies. Producers who sign up find there’s an immediate impact on their bottom line, says Compact CEO John O’Sullivan. “For many it’s a whole new income stream, ranging from a few thousand pounds to hundreds of thousands.”

Rules of attraction
Perhaps the most important business advice for any indie will be in the corporate finance sphere, because it covers how to make the business more attractive to potential investors or buyers.

One individual who has recently set up shop to take advantage of the opportunities that the have arisen from the increased interest in indies is Thomas Dey. A former partner at business advisor Grant Thornton UK, Dey’s new company, About Corporate Finance, offers indies strategic business advice and grooming services designed to make producers more attractive to investors or ready them for a corporate sale.

Dey has an impressive track record. He’s been behind some of the biggest deals in the indie sector over the last few years – a total of 16, including the sale of 12 Yard to ITV, which yielded the largest multiple ever achieved by the sale of an indie, as well as the sale of Carnival to NBC, a deal which had been struggling on for 18 months until Dey entered the fray and it was closed inside four months.

The businesses most attractive to buyers tend to be those with the right blend of talent at the top, says Dey, who points out that what works best is the right mix of creative and business nous. “Pure creatives don’t do so well unless they have a strong business influence. The really successful companies are the ones where there is some form of partnership between the two.”

Corporate finance is not an area that specialists such as Dey have all to themselves. Legal practices and banks are also in the market. Says Harbottle & Lewis’ Medwyn Jones: “We advise on the structuring of deals where a broadcaster or studio buys a stake in an indie. We can make sure that things such as distribution terms are right. If owners get that wrong the value of their company could end up redirected through the parent which only has a minority stake.”

Rob Stapledon, senior commercial banker at Coutts & Co, adds that he finds owners come to him for advice about financing options. “We talk to them about whether it is best for them to raise equity money from shareholders, in which case they will have to share ownership, whether it’s best to sign a first look deal with a distributor in exchange for finance – the advantage of which is you don’t lose any equity – or whether to simply borrow from us. If it’s debt they want to take on our next question will be: ‘What’s the risk?’ An owner’s track record will be assessed, as will the value of their connections in the industry. They will need to come to the table with something concrete in terms of a commission,” warns Stapledon.

The key piece of business advice from Dey is that running a successful business these days is all very much about the global picture. “The reality of production is that the dominance of broadcasters has been undermined by new ways of distributing content. As their business models are undermined they are cutting budgets meaning that indies have to work harder to finance production. One way of doing that is to make sure that content travels further. The harsh reality in today’s production climate is that if your ideas don’t have international potential they probably won’t get made.”

Case study 1: corporate finance
“Put simply, improving the value of businesses is 95 per cent of what we do,” says Thomas Dey, CEO of About Corporate Finance, a business consultancy targeting indies. As the former head of Grant Thornton’s media corporate finance team, Dey has been behind most of the biggest and most influential sales of production business over the last four years. It has taught him what buyers are looking for, which in turn enables him to advise producers about how to structure their businesses. Dey puts companies through what he calls the corporate gym, which includes ironing out potential problems such as over-reliance on particular broadcasters. “What buyers are looking for is stability, companies with repeat commissions from a range of clients and evidence of international format sales.”

Case study 2: Insurance

The rapid growth of the independent sector over the last decade has been good news for insurers such as Aon, Hiscox and Allan Chapman & James. But the downside is that most insurers in the broadcast sector,  which cover all eventualities that might derail a production from kit failure or theft to your top talent being stranded by a volcanic eruption, have faced a increasingly cutthroat market as rates have dropped by around 25% in line with falling production budgets. “Competition is pretty keen and brutal at the moment,” admits ACJ’s Simon Miller, who has recently provided cover for shows such as Inbetweeners and Gavin and Stacey.  “Where we can be a benefit to producers is in stripping out the costs of insurance, telling you what you don’t really need.”

Case study 3: Banking

Rob Stapledon, senior commercial banker at Coutts & Co, confirms that the last few years have seen a definite increase in indie sector clients, with Coutts’ 15-strong media team increasingly called on to provide core services such as managing production accounts, providing loans and financial advice. “A really big part of what we do is looking after clients who are creative programme makers; individuals who didn’t necessarily get into TV to spend their time managing the financial side of a business.” Part of the role of media banker is to act as a trusted advisors, adds Stapledon. “I’ve often have debates with owners about hiring producers to generate new business. Often it may be best to hire an assistant or finance director to free up the boss’ time, because we find that they are often the best at driving new business.” 

Case study 4: Leasing
Azule Finance’s core business is media leasing, although MD Peter Savage points out that while his nine-strong company covers the leasing of around £25-30m a year of kit to clients such as indies and freelance cameramen, his aim is to take wider outlook on business finance. One growth area is programme finance through tax breaks such as Enterprise Investment Schemes. Savage notes that indies are becoming every more creative about finding ways to get more out of their dwindling commissioning budget, hence the popularity of sale and leaseback schemes.  “With a lot of shows made on lower cost HDV formats where you know you have a certain amount of work, it’s more cost effective to buy it, rather than hire it, sell it on to us and lease it back.”


 
 


























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