If the financial model for network television is broken, the lucrative international marketplace has served as a crutch helping to keep the mess on its feet.
But the major studios are now getting downright petrified that the strike could snap that crutch in two. And that could cripple the model further. Production and marketing costs are spiraling out of control.
Most big budget broadcast premieres launch at the exact same time. The counterintuitive development cycle keeps hammering network television.
Luckily, the international marketplace for U.S. shows has been on fire.
“We keep spending hundreds of millions of dollars on pilots that mostly don't see the light of day,” says one studio senior executive. “Foreign money has made us able to support this broken system.”
But industry executives are starting to fret that if a prolonged strike keeps them from delivering U.S. shows, foreign broadcasters will get used to life without American product, and that crucial revenue stream could dry up.
“We are all worried that they will produce more themselves or buy from elsewhere,” says another high-ranking studio executive. “We're really shooting ourselves in the foot here.”
Take a typical big network drama from a studio perspective. Let's say production costs are $3 million per episode. A license fee from a network might be in the neighborhood of half that. So the studio has to make up $1.5 million on the back end from revenue streams like international sales, domestic syndication to stations or cable, DVD and Internet.
That's where the foreign sales can be a big help. A $1 million per episode international sale quickly makes things look better.
That money is crucial, especially for serialized dramas like Heroes, which do well overseas but usually have relatively little value in domestic syndication compared to a close-ended series like a CSI. Because heavily-serialized shows are trickier for viewers to watch out of pattern, they often tend to bring in low six-figures per episode in the U.S., compared to well over a million dollars per for procedural hits.
And while DVD sales tend to be stronger for serialized dramas, it nowhere near offsets the huge syndication difference compared to a close-ended hit. And it remains to be seen how the new technologies such as iTunes that give viewers more immediate ownership will affect the DVD marketplace.
Forget Internet revenue. Even most WGA members admit quietly there is little short-run money in it.
Comedies will be much less impacted simply because they command less money abroad. Because humor tends to have less of a shelf life and is more cultural, comedies might bring in $150,000-$200,000 per episode from overseas.
Last but hardly least, many international deals are structured based on delivering a minimum of 13 episodes. One studio executive talks of a current show that would command $850,000 per episode on the foreign market with 13 episodes, but only $150,000 per for anything less.
“This probably strengthens the writers' position,” says the executive. “Foreign buyers are already nervous and are calling me and asking how many episodes we can deliver this year.”
True, not everyone agrees the international sky is falling, as one European-based studio executive says that foreign broadcasters will wait for popular favorites like Heroes and Lost to return, because they are major pieces in their primetime lineups. Plus, replacing them is easier said than done.
“That way of thinking assumes there is sufficient local programming to offset the loss of the American shows,” the executive says. “That's not true.”
But suffice it to say plenty of people in high perches are nervous, as the international market drying up would be another blow to a business model that may be heading for a fall.