The new deal in acquisitions
By Kate Bulkley
For Broadcast January 30, 2014
It’s about forming partnerships to secure talent, says Kate Bulkley
We may be at the end of the January sales, but there’s every chance buyers of independent production companies will continue to look like manic bargain hunters for the whole of 2014.
However, the money that the buyers are willing to lay out has changed – its seems there’s a new way to do a deal and the next 12 months could see it blossom, particularly in the US.
Consolidation of the indie market picked up last year, with ITV, Tinopolis and Red Arrow among the main purchasers. ITV led the way, picking up five indies: two British and three from the US.
The US is where much of the action is now taking place and the creation of the Tollbooth Group this week is a good example of why. Tollbooth is not so much the purchase of an indie as the creation of one. The producer of US hit The Real Housewives Of Orange County, Kevin Lee, is teaming up with UK superindie Tinopolis to co-own the new company.
Partnering with a successful producer/showrunner seems like a new way forward rather than the traditional formula of a big indie swallowing up a smaller one, based on a deal that combines an up-front payment with some kind of complicated, multi-year earn-out structure.
The US is increasingly attractive, due to higher production margins and bigger growth prospects because of the fierce competition for hits between cable and network broadcasters. This has allowed the US indie market to “wake up”, according to Thomas Dey, chief executive of broker About Corporate Finance, which is paying particular attention to the market.
A new way of securing indies and talent is overdue because the traditional earn-out model is broken, says Charles Corwin, co-chief executive and chairman of Endemol’s North American operations. Corwin admits he did “quite well” under his own earn-out, when Original Media was purchased by Endemol in 2007, but he believes the landscape has changed.
“I don’t think the structure of those deals makes sense for Endemol anymore,” he says. Not only do the deals “skew incentives” for those who signed them, but in most cases, US indies don’t own a lot of their own IP, so the deals are really about “investing in the principals”. Once the earn-out is over, the relationship usually is too.
There are also meta-changes in the TV market that are blurring the lines between broadcaster and producer. Endemol’s purchase of a 33% stake in Israeli broadcaster/producer Reshet in December 2013 underlines the change. “I’ve grown up with the idea that there are broadcasters and there are producers,” says Endemol president Tim Hincks. “But that is where Reshet is very different. We’ll be taking risks both as a broadcaster and a producer in backing our own IP.”
Corwin says the future is about creating a “hybridised studio model” to attract and keep creative talent. This could include some elements of how the studios structure deals with showrunners, but have more of a strategic partnership element to it.
Not that Endemol won’t do traditional deals if it makes sense to, but Corwin says “smarter deals” must be found. Creating new financial models for talent is a script begging to be written.