It’s moment-of-truth time for the television syndication business.
As the National Association of Television Program Executives (NATPE) gathers in Las Vegas for its annual conference this week, studio and station executives face an industry in crisis and a supply model in shambles.
Stations are clamoring for quality first-run programs but offer few desirable time periods for them. Studios, meanwhile, are largely striking out this season with expensive new talk shows that have struggled to break a 1.0 national rating. While stations look to fill their holes with acquisitions from a meager supply of off-network product, studios are churning out inexpensive, cookie-cutter court shows and costly talkers with little-known hosts.
Although revenues generated by syndication studios hit a five-year high last year—$4.2 billion, according to TNS Media Intelligence—ratings have dropped precipitously. Only three years ago, a rookie first-run strip could expect to average a 1.4 rating. This year, many have plummeted to the 0.8-1 range—a far cry from the 1.6 rating that most shows need to break even.
Not everyone thinks the sky is falling. Mitch Burg, president of the Syndicated Network Television Association (SNTA), points to TNS projections indicating that syndication is “a very healthy segment of the national television landscape” and “will enjoy the greatest increases in all of television this coming year.”
But the dismal ratings for this season’s first-run rookies and the tepid greeting for new shows teed up for next season suggest otherwise. Just six or seven new shows from the major studios—a mix of court, talk, game and magazine genres—are expected to be vying for spots this fall. That’s about on par with the handful that studios brought to the market a year ago, when talk show Rachael Ray (the only freshman to have reached a 2.0 rating this season) set the pace.
Meanwhile, the abrupt cancellation this month of expensive chat show Megan Mullally (produced by NBC Universal at an estimated cost in the mid six figures per week) and magazine show Geraldo at Large (produced by Twentieth Television at north of $800,000 per week) have left stations scrambling. With off-network sitcoms in short supply, they’re grabbing reruns of Law & Order: Criminal Intent, Baywatch and Canadian imports. Others have resorted to airing as many as four daily runs of proven shows like Judge Judy.
Former syndication executive Gary Gannaway, whose Genesis Entertainment sold first-run series such as The Whoopi Goldberg Show, says the studios are in denial about the state of first-run syndication, which accounts for 40% of industry revenues. “The major studios know that first-run syndication is a lot like smoking,” says Gannaway, who now helps local media companies build business online as head of WorldNow. “They can’t keep launching shows at a 0.8 rating. But yet they are still smoking.”
Says Ken Werner, president of Warner Bros. Domestic Television Distribution, “In this dynamic, everything is possible.”
Let’s hope so. As the final pieces of the 2007-08 puzzle are still falling into place, the industry stands at a crossroads. Stations and studios can either cling to the old first-run system or kick the habit and adopt new business models in order to survive in a fragmented TV universe.
B&C spoke with industry executives about ways to fix syndication and jump-start the flow of original programming. Here are five ideas that are gaining traction.
With decent time periods tough to come by in the crowded New York, Los Angeles and Chicago markets (which together constitute 15% of all U.S. TV households), most syndicators have been reluctant to commit to expensive new first-run projects for fall. For stations outside those markets, the shortage of original programming is disastrous—and will only get worse with the proliferation of digital channels that need to be filled.
Bill Butler, VP of group programming and promotion for the Sinclair Broadcast Group, has a solution. He proposes that the top Hollywood suppliers sell their shows to only 100-150 markets, rather than the requisite 200-plus, and skip the top three altogether—a radical departure from the current formula, in which syndicators seek to get the required minimum 80%-90% clearance for their barter shows entirely through broadcast coverage.
“If the New York station marketplace is such a roadblock,” Butler says, “how do we figure out a replacement quotient in that model?”
He proposes that syndicators fill in the gaps in the largest and smallest markets by selling their shows to midlevel cable networks willing to give up exclusivity for original programming, an approach previously used to cover only the bottom markets.
Although the idea would result inevitably in lower overall ratings, it would substantially reduce production budgets and force programmers to rethink what has been their primary goal thus far: scoring a breakout first-run hit on the order of Wheel of Fortune or Entertainment Tonight.
Rather than risk losing $6 million-$9 million annually in the hope that their shows will become $1 billion-plus Oprah-esque franchises after a few years, studios could make modest profits or at least break even with the new model. Midlevel station groups, meanwhile, could be assured a steady stream of new programming.
John Nogawski, president/COO of CBS Television Distribution (CTD), isn’t sold, however. He calls the concept a “regurgitation” of the models used previously by Superstation WGN and netlets like The WB.
With eight of the top 10 shows in syndication, CTD has no urgent need for such experimentation. Says Nogawski, “We’re unwilling to throw spaghetti up against the wall.”
Indeed, the three most successful first-run series launched in the past five years—Dr. Phil, The Insider and The Rachael Ray Show—feature talent and formats incubated on CTD’s own Oprah Winfrey Show and ET.
But CTD faces the same time-slot bottleneck as every syndicator. This year, it declined to commit to game shows The Joker’s Wild and Combination Lock after failing to secure plum time periods.
BE LIKE MTV
Midlevel station groups like Sinclair have been encouraging syndicators to break out of the traditional selling season, which results in an avalanche of competing fall debuts. They would rather see a slate of low-cost shows, agreed on by both buyer and seller in advance, that could come and go throughout the season—a programming game plan used successfully by MTV in the past.
Some broadcasters are so enamored with the idea that they have offered time-period and financial commitments to cover suppliers’ startup programming expenses.
“Give it a shot, and hopefully, you catch a pulse,” Butler says. “If not, agree to move on and have something already cooking to make the switch.”
Such a scheme could face opposition. Similar program partnerships between suppliers and stations have been doomed by the competing interests of the broadcast groups, making consensus difficult to reach. To syndicators, such consortiums have only reinforced the adage that a camel is a horse built by a committee. And agents won’t be eager to watch their commissions shrink along with production budgets.
If syndicators prove unwilling to break with tradition, however, stations appear poised to proceed without them. Word in the industry is that conversations are under way between some midlevel groups and a major production entity to essentially cut out the middleman—the Hollywood distributors—enabling stations to get programming directly from the producer.
DO A HOLLYWOOD END-RUN
Some suppliers have already succeeded in bypassing the traditional Hollywood studio system. Last year, producer/director/actor Tyler Perry chose to independently finance his first-run strip comedy House of Payne to gain creative freedom and be free from studio interference.
Perry chose a small distributor, Mort Marcus and Ira Bernstein’s Debmar-Mercury, which was subsequently acquired by his film distributor, the large independent Lionsgate.
After a successful two-week on-air test in markets of various sizes last summer, Debmar obtained an upfront 100-episode commitment from cable and broadcast outlets in a deal that could fetch at least $200 million between license fees and barter revenue. TBS will begin stripping House of Payne this spring, stations in fall 2008.
If the show hits, it could provide a new sense of empowerment to independent producers and station groups pushed to the sidelines by the wave of media consolidation. And with the shortage of off-network comedies, stations may find a welcome alternative to the aging triumvirate of Seinfeld, Friends and Everybody Loves Raymond.
SHARE THE RISK
Stations aren’t alone in proposing greater partnership. Some studios are keen on an arrangement in which broadcasters would provide more of the startup costs for the typical, expensive first-run series. They would be compensated with limited, pre-negotiated license-fee increases if the show becomes a long-term hit.
Stations would also be asked to provide time-period commitments in profitable dayparts, such as afternoons, and a fair amount of promotion. In true Hollywood spirit, the studios are betting on a happy ending.
“Generally, the first-run business has become harder then ever due to the underlying economics,” says a high-level studio executive who asked not to be identified. “Many times, people walk away feeling either like winners or losers, as opposed to both parties’ feeling good about the deal. We hope in the future, suppliers and stations negotiate deals that recognize each party’s strategic interests, finding common ground on sharing the risks and rewards inherent in the first-run business.”
The idea hasn’t won over everyone in the distribution community. Another top studio executive grouses that negotiating limited fee increases upfront “would be like the producer betting against his project” and labeling it “a failure” before it can even prove itself.
But with stations increasingly complaining that syndicators have been deaf to their programming needs, some broadcasters may welcome the opportunity to play producer. “If they want us to help them more in getting these things produced, that is a fair conversation,” says Sinclair’s Butler. “Conversely, perhaps we would expect to have more input into what they show up selling.”
In December, NBC Television Stations launched the interactive daytime show iVillage Live, based on the iVillage Web portal for women, which NBCU acquired last year. Although the show has averaged only a 0.6 rating—less than what the station group’s cancelled reality strip Starting Over drew a year earlier—NBCU has renewed it for another season. Now airing on NBC’s 10 owned-and-operated stations and NBCU’s Bravo cable channel, it could expand to more broadcast markets.
The low ratings for the show—which invites viewers to participate online with live chats, votes and archived video—may never vindicate the $600 million NBCU spent to acquire iVillage. But the station group may be onto something.
Going multiplatform offers a way to engage viewers through interactivity and opens new revenue channels, such as product integration and merchandising.
Sony Pictures Television was ahead of the curve in 2004 with a show based on the online auction company eBay. But the unsuccessful pilot, hosted by Ahmad Rashad and former Daily Show contributor Molly Pesce, featured stories on items for sale on eBay, not actual transactions.
Now studios are looking for ways to build multi platform elements into new first-run shows. Last week, Twentieth Television unveiled its fall game show Temptation, from FremantleMedia North America, which will allow viewers to purchase online or by phone—at discount prices—the same prizes available to contestants.
At Warner Bros., a multiplatform magazine show built around AOL’s popular celebrity-gossip site, TMZ.com, is in the works. And CBS’ syndication operation may soon unveil a first-run show it has been developing with interactive Web and traditional broadcast elements.
Gannaway, who looked at ways to offer advertising and sponsorship deals incorporating non-TV platforms in the 1990s, says embracing new platforms may be just the thing to usher the syndication industry into the future: “Convergence could help foster the rebirth of first-run.”