Factors That Have Promoted the Success of Independent Production Companies in the UK - Coursework Example

Topic: Factors that have Promoted the Success of Independent Production Companies in the UK Name: Registration No.: Tutor’s Name: Date of Submission: TABLE OF CONTENTS 1. Introduction 3 2. Background of Independent Production Sector 5 Table 1. A comparison of top 10 independent production companies turnover in the year 2007 6 3. The current factors that promote independent sectors 7 a.Rapid implementation of multi-channel services 8 b.Overseas program sales 9 c.New platforms 9 d.Regulatory changes 11 e.Commissioning trends 12 f.Broadcaster strategies 13 g.External funding and Market Consolidation 14 h.Factors that drive linear TV are still considered relevant in the future 15 6. Conclusions 16 References 18 1. Introduction Independent production sector in the UK refers to the 800 broadcaster companies in the UK that have contributed towards the supply of television programming to the UK and international broadcasters (Zhu, 2008). This sector has undergone considerable evolution in the recent years, and is expected to enter a more profitable development. Since its introduction such as during the unveiling of Channel 4 in 1982, it has been observed that the growth of the independent sector has improved from a simple “cottage” industry of skilled creative to major broadcasters where a number of companies have generated high revenues and profits to attract new interests in the City. Generally, the sector cannot be considered as a cottage industry despite the increase of operations of the bulk of independents as “lifestyle” businesses. It is expected that consolidation will result into more acquisition of companies such as All3Media by other production companies while others will seek to acquire influence through mergers. By 2000, there was a substantial growth of the independent production sector with the beginning of the Independent Film Association (IFA) during the 1960s. The independent production sector was supplying more than three times the number of programs to the Channel Four in comparison to ITV companies, and covering 20% of the news aired by BBC and 20% of most of the programs to Channel Four (Redvall and Eva, 2010). The total number of non-news programs aired from independent programs in the UK accounted for 30 per cent of all the programs. There are also a number of awards that have been won by independent sector such as the American International Emmy awards in 1999 where founders of independent sectors such as Alex Graham, Phil Redmond and Tom Gutteridge had attained millionaire status. Most of the independent production sectors moved from the “cottage” status as a result of subsequent developments such as following the launch of the digital television. In addition, there has been an alteration of the regulatory market particularly following the launch of digital television. There have been questions whether these achievements are in line with the initial anti-establishment projects of the independent film movement in the 1970s and 1980s (Mittell, 2001). It was argued that rather than focusing on delivery of a wide access to mass media production, more entrepreneurial activity was practiced in the independent sector. Initially, the independent sector was characterized by “one-man bands” of competent program makers, aimed at winning a few commissions from broadcasters every year and to cover expenses. Presently, there exist seven companies with revenues that total to an excess of £30m, and four major companies with market listings. Thus, it is illogical to regard the sector as a cottage industry even if bulks of independents operate as “lifestyle” businesses. The other factor that is considered to have resulted into improvement of independent production companies is the regulatory and commercial environment that has been altered on three fonts since early 1980s (Mathijs and Janet , 2004). For instance, the introduction of the independent quota in the 1990 Broadcasting Act, that required 25% of the qualifying hours of broadcast television to be sourced from independent companies, created huge contribution to the sector. This paper provides an examination of factors that have led to the success of independent production sector in the UK. 2. Background of Independent Production Sector Independent production sector is regarded as an area of production where programming for the UK and international TV markets results into a revenue of just over £ 2bn where £ 1.35 bn relates to primary commissions of broadcasters. With the exclusion of premium sports and movies market, the independent sector has been responsible for 22% of programming and an estimated increase in number of hours spent on the screen has increased by more than 30% (Kim, 2009).There has been an impressive growth of the sector since the original quota was established in an effort to enhance plurality of source for TV broadcasters and to enable the nurturing of the creative industries in the UK. While there exits independent producers in the UK since the launch of commercial vision in 1955, the main factors that have facilitated the growth of the independent sector has been the launch of “publisher broadcaster” Channel 4 in 1982 and the introduction of the indie quota in 1992. In recent times, there have been multilateral agreements between individual broadcasters and the indie sector on strategies for exploiting rights in defined windows that have resulted into additional exogenous force of growth that act as engines for increased revenues, specifically at the top tier. There has been the growth of the size of independent market by nearly twenty fold since 1982 from a turnover of £ 110 m to £ 2026 m of total market value in 2007 (Guo, 2012). In the previous 15 years, there has been a transformation of the size and shape of sector out of recognition. Once identified by a very small number of strong brands and long tail of micro-companies, there are currently more qualified professionals and it is also highly consolidated. Initially owned by “refugees” from main broadcasters such as the BBC, there exist a number of senior program makers who have high experience in the independent sector. High growth of revenues has been contributed in large measure by top tier of independents, which have also resulted into growth of total market share. A total number of 10 companies with incomes of more than £ 50 m, where 6 have revenues of more than £100m (Great Britain, 2010). The table below shows a comparison of top 10 independent production companies turnover in the year 2007. Rank Name of Indie Turnover (£m) % of indie sector 1 IMG 222 11% 2 All3Media 203 10% 3 Endemol UK 160 8% 4 Shine 146 7% 5 Hit Entertainment 143 7% 6 Talkback Thames 140 7% 8 RDF 99 5% 9 Shed 72 4% 10 Entertainment Rights 68 3% Tinopolis 66 3% Total Top 10 1319 68% Table 1. A comparison of top 10 independent production companies turnover in the year 2007 High performance of the top 10 independent production sectors have been attributed to a more professional approach towards the needs of clients and shareholders. They have also been focused on profit generation. This has resulted into the top 100 independent companies accounting for 98% of the sector’s revenues. Market development in the previous five years has been attributed to increased consolidation of ownership as well as injection of external capital. Thus, two companies have produced revenues of more than £ 100m (Ellis, 2004). Furthermore, private equity has played a key role in driving the success of the top 10 private equity or indirectly quoted companies. The total number of UK listed companies in the top 10 is three i.e. Ten Alps DCD Media and 2WayTraffic, owner of Celador. 3. The current factors that promote independent sectors The main factors that that drive the change of the independent sector have contributed to the increasing possibility of companies that supply independent programs. This has resulted into a new interest of the financial stakeholders in investing into the sector (Davies and Morris, 2008). These factors include increased take up of multi-channel services, the intentions by the BBC to increase independent commissions (WOCC), overseas programs, creation of new platforms and regulatory changes. Other significant factors include demand side developments such as multi-channel expansion, upcoming media distribution, confirmation of the indie quota as well as the inclusion of indie-friendly terms of trade. Other factors include an increase in reliance by broadcasters in a number of suppliers, improved commissioning of reality programs and the role of external investors in seeking top-line growth and improved margins (Curtin, 2007). In the previous 15 years, there has been the growth of “pure” multi-channel pay market despite the stagnancy of programming budgets. There have been increases of budgets in channel 4. There have also been continued proliferations of overseas and new media opportunities. Most independent production companies derive their incomes from the US market where there is a high demand for UK-developed formats such as RDF’s “Wife Swap”. There are also high possibilities of growth in broadband, video on Demand as well as Mobile platforms. Despite the recent emergence of these factors in the UK market, there is continued exploration of emerging markets, with those having popular formats mainly aimed at creating additional revenues. a. Rapid implementation of multi-channel services With the increased popularity of Sky Digital and free view in recent years, there has been a dramatic growth of multi-channel television, its reach and viewing and the resulting increased share of its revenues. This has resulted into an increase in programs expenditures that have mainly been spent with PICs. The development of multi-channel television in the UK has occurred as a two-tier system that does not involve high amounts of investments in the independent production (Curtin, 2005). Premium programming that involved movies and sport have involved high investments in the Hollywood products and in sports rights, specifically football. The commissioning budget of multichannel broadcasters such as UKTV and Discovery have escalated with the Fletch-owned Bravo currently spending at least half of its budget on initial programming and is speculated to continue. In 2004, it was announced that BBC would extend its external program supply from 15% to 50%. This has resulted into an increase in volume of work for the private sector that has a dramatic effect on the growth of revenue over the next few years (Zhu, 2008). This factor has been incorporated into the projections of the UK independent sector. While it is not easy to predict the overall benefit of the sector, due to the possibility of competitiveness of the process there will be a variation in suppliers outsourced by the BBC (Redvall and Eva, 2010). Generally, it appears possible that drama, entertainment and low-end factual will be obtained continuously from the independents, and those organizations with specialization in areas that should benefit. b. Overseas program sales In the previous decades, external suppliers such as IPCs have had a remarkable success in provision of overseas program sales that have resulted into a rise in UK program exports by 12.8% between 1998 and 2003. This has been contributed by more popularity of the British Formats such as Wife Swap (RDF Media). On the other hand only the larger and well-funded IPCs have been able to retain high amounts of profit shares. 19 c. New platforms The popularity of new platforms such as broadband, interactive television and mobile is resulting into creation of new business models. There is uncertainty how consumers will behave when new services are introduced. However, creation of the right content take will be important and IPC is considered an important source of this content. Interactive television is currently an important and improving sub-sector in broadcasting revenues (Mittell, 2001). According to Mediatique forecast, iTV revenues are expected to increase from £ 580 m in 2004 to £ 2 bn in 2009. These increases are enhanced by a number of categories within the iTV markets such as sports gambling, pay-to-play gaming, voting, competitions as well as personalized contents such as horoscopes and shopping (Mathijs and Janet , 2004). With no regards for the expectation of an increase in revenues of iTV to broadcasters, IPCs can result into an increase in iTV revenues since they play a more important role in the commissioning process with broadcaster and they try to ensure a retention of the rights of interactive formats. Until present, the iTV market has been dominated by present broadcasters such as BSky, the BBC and iTV Channel 4. Thus, the production sector has largely been dependent on iTV commissions from a small number of broadcasters who have been more dependent on tested formats that can result into delivery of revenues or improve viewing experience. As digital penetration increases to divide the television landscape, present broadcasters will experience high competition for the share of the market from upcoming channels and as a result of increase in investments in iTV sector, there is a high possibility of an increase in competition formats. There has been a high success of IPCs in creation and syndicating interactive formats in the UK. Increased rivalry for similar formats can ameliorate the position of IPCs in attempting to retain the rights for similar formats. In the improving market for voice services in the mobile industry, there is the projection that mobile operators will launch a 3 G service that will attract additional customers and ensure the loyalty of existing customers. The provision of 3G services provides an increased data rates and enhances broadcasting functions (Kim, 2009). This is expected to increase to over £950m in 2007 as content revenues in comparison to mobile revenues are expected to double fro 3.2% to 6.4% over the period. In addition, for the first time operators will be able to offer high-quality video services to enable creation of attractive TV-to-mobile offering either in terms of retransmission of current linear narrative programming or more likely the emergence of a more friendly mobile video content. Globally, it is viewed that 270 m subscribers will have TV functionality on mobile phones in 2010. Such improvements create additional opportunities for IPCs to benefit from increased revenue streams. Mobile operators do not have the experience of creating content and IPCs have major role to play in improving the mobile content (Guo, 2012). This is specifically true in the mobile-TV sector as the most successful content is expected to be bespoke mobile applications that contribute to variations in viewing behaviors during television watching process. The graph below shows a comparison of Independent market turnover in 2004. Figure 1. Independent Market £m turnover in 2004 20 d. Regulatory changes The initial ‘ cost-plus’ revenue model for IPCs that was standard for most of the independents is now expected to change, driven by the improvement of the regulatory system that controls the broadcasting sector. The new policy implemented in 2003 Communications Act has resulted into a reform of the ownership rules and introduction of new regulatory regimes for communication and media by creating Ofcom (Great Britain, 2010). The inclusion of new rules and powers that cover the relationship between commissioning broadcasters and independent production organizations has provided transparent acquisition of non-trust rights and broadcasters have to pay a license fee for transmission of the program and have the liberty to negotiate for further changes in rights. It is also possible to impose sanctions against the independent production industries when broadcasters do not behave appropriately and supports for production in the Nations and Regions Act of 2003 requires that broadcasters have to make certain proportions of programs in a range of centers that exist outside M25 and there should be stronger commitment has been made towards training across the sectors y reviewing issues such as operation of the commissioning systems of the major broadcasters, the effects of new codes of practice such as trade, and the level to which there will be the need to evolve regulations in this area (Ellis, 2004). e. Commissioning trends Generally among mainstream broadcasters, more operators have opted for reliance on event and reality programming, most of it obtained from the independent sector. Most of these programs are obtained from top tier players, and there is a continued concern that broadcasters are not willing to provide complex and big-budget commissions to innovative independents. Innovation is a characteristic that is evident in both large and small-scale companies in the sector (Davies and Morris, 2008). On the other hand, those with external shareholders are likely to seek income, and additional program runs that put more emphasis on innovation and approval of counterparts. It is also generally agreed that the US leads in format creation-making it more popular than the US. In comparison with the UK, costs of developing programs are usually high in areas where cost effective purchase has gained favor. This is mainly true in “event” programming such as celebrity dance, talent contests that have proved popular for networks trying to keep audiences for more traditional drama or plays. On the other hand, factual entertainment is also gaining popularity, as major broadcasters such as the BBC puts their focus on drama and in-house soaps. Regional markets have also been driven by programs that create an appeal to the masses, and this has resulted into ‘me-too’ programming, specifically in terms of talent shows with celebrity themes (Curtin, 2007). This has resulted into enhancement of those production companies with close association to “event” programming- Endemol and Talkback Thames are examples of such companies. The other factor that has led to popularity of these programs is the requirements of broadcasters as by pitches made by independents. There are also logistical and conceptual skills required by these programs and commissioning editors prefer to seek the services of independents with proven track record (Curtin, 2005). Despite the source, the growing frequencies of contests and high-concept formats have resulted into a deepened relationship with broadcasters from specific production companies. f. Broadcaster strategies Each independent broadcaster has implemented a broadcasting strategy that ensures it is popular in its areas of specialization. For instance, the BBC spent £436m in 2007 in independent production in all channels such as the major terrestrials BBC1 and BBC2. I acquired 280 independents and top ten production companies in indies table and the company has strived to improve its relations with the independent sector. BBC also strives to seek to source up to 50% of its output from independent sector despite the fact that this condition has not been fully felt. However, there are early indications of positives from the sector (Zhu, 2008). Channel 4 contributes to the second largest commissioning of independent programming in the UK, with a total spending of £325m in 2007. The channel spends 75% of the BBC expenditure and has done so throughout the 25 years of its operation. There has been a shift in channel 4’s profile with the independent sector in the past five years, as a reflection of their inter-relationship of growing consolidation of supply and scheduling processes (Redvall and Eva, 2010). About half of Five’s budget of £210m is commissioned to the independent sector, but its growth is yet to be nurtured. Thus, it has not been targeted by the independent sectors. It does not provide expenditure totals, but only working hours. The budget allocated to programming was £ 210 in 2007 and its 50% output by hours has been acquired. g. External funding and Market Consolidation The significance of external shareholders and funders in the independent sector has been a contributor to the changing conditions of the industry. Due to the high value of content in the period of fragmentation and consumer promiscuity, most investors provide backings for the independent sector (Mittell, 2001). This has resulted into creation of more professional and effective ethos, upon which broadcasters have depended. The initial move towards consolidation seems to be complete following the Communications Act and recent reduction in share of specific companies and the moves by some to leave the public market is an indication that the City is taking a break. The main focus of this section is the changes for the externally funded companies, and how they have evolved. The top tier companies set the pace for the entire sector and indicate the methods of doing business out of supplying programs and the possibility of getting personal wealth by independent producers as well as methods of responding to changes in technology and media developments (Mathijs and Janet , 2004). There are distinct differences between externally-funded independent sector sub-set from ‘middle bulge’ and ‘tail’. Companies listed in this sector are determined by introduced flow and half-yearly financial performance and the share price indicates these judgments on an ongoing basis. There are two examples that have been used to make the point clearly. There has been a depression in the shares of RDF and Shed through adverse news flow. Organizations that are not listed but answer private equity owners equally discover that they have to account for operating performance on regular basis. h. Factors that drive linear TV are still considered relevant in the future In spite of emergence of technologies that enable users make greater choices with regards to what to watch and when to watch, it is believed that linear viewing will result into mainstreaming of methods of consumption of content in the medium term. There are a number of factors that drive linear viewing despite the availability of non-linear delivery. These include the ‘water-cooler’ effect (Kim, 2009). This is a process where people discuss shows with colleagues and friends. This is because 50% of the time shifted viewing actually occurs on the same day as a live broadcast. The uses of sites such as social networks that enable instant communication have the capacity to enhance the significance of live linear viewing. In addition, some TV programs such as sports and entertainment shows are predominantly aired live. There is the possibility of expanding new methods of distribution through extensive airing of events or content from other providers who have managed to experiment with live broadcasts online (Guo, 2012). There is the possibility that TV will be the main method of consuming content in the foreseeable future, with the only incremental shift towards non-linear viewing as an increase of penetration and service devices continue to occur. 6. Conclusions With the recent existence of mergers and funding from external organizations and in the light of expanding multi-channel TV and the existence of new markets that facilitate broadband, interactive and mobile TV, the independent sector is likely to be highly developed and sophisticated in the supply of programs in both UK broadcasting companies as well as international channels and emerging platforms (Great Britain, 2010). According to the prediction of Mediatique, there is a possibility of a rise in expenditure by the independent sector to £ 1.5 bn by 2014 as a result of BBC’s commitment to ensure an increase of its reliance on external suppliers under its much fancied WOCC without the inclusion of overseas program and format sales. There is no equality among production companies. There is high possibility of an increase in the range of trends discussed in this paper with a small number of strong well-financed and professionally managed IPCs, a range of small, targeted and creative ‘ one-man bands’ in addition to mid-market players who do not hope to create critical mass in spite of efforts to break into the top league. This last category is expected to be most at risk with the development of trends described in this paper but the long tail too is that there may be a number of failures. On the other hand, a number of companies in each of the middle bulge and the long tail are likely to be based upon the more dominant company sector. It is expected that the top four qualifying independent producers-All3Media, Endemol UK, The Television Corporation and RDF Media will generate revenue totaling to excess of £ 500 m in 2013 compared with independent sector that is expected to yield a sectoral amount of £ 530 million (Davies and Morris, 2008). Additional consolidation will result into emergence of privileged independent companies that number at most five that will be more likely to be listed in the stock Exchange. It is also expected that these ‘ super indies’ will leverage their programming competencies to derive maximum value from their relationship with broadcasters to enhance media and international businesses and gather high amounts of revenues from a range of sources-that will lead to a more positive relations with the City this time. On the other hand, there is the possibility of a similarity in their outputs with published financial targets to meet, they may take fewer risks. However, most innovation is likely to take place among independent organizations but these sub-sectors are also likely to face high chances of risk failures. From a total number of 1000 companies in the UK in the 1990s and the present 800 it is expected that there will be a decline in the number of independent production companies further as the leading players continue to dominate the market (Curtin, 2007). This may demonstrate itself through merger with small organizations or talented creative who take up employment with high performers or through closing down of unviable IPCs. This will result into more pressure on the in-house production teams at the BBC and ITV to ensure that more innovative programs are made in the British market. These trends may result into attempts by broadcasters to be less concerned with first-run rights; due to the argument that the independent sector is more capable to exploit additional rights and that there should be no subsidies of independents’ share of the value chain. References Curtin, M. (2005) ‘From Kung Fu to Imperial Court: Chinese Historical Drama’ in G. R. Edgerton and B. G. Rose (eds.) Thinking outside the Box: A Contemporary Television Genre Reader, Kentucky: University Press of Kentucky, 293-313. Curtin, M. (2007) Playing to the World’s Biggest Audience: the Globalization of Chinese Film and TV, Berkeley: University of California Press. Davies, G. T., & Morris, N. (2008). Media in Wales: serving public values. Cardiff, Institute of Welsh Affairs. Ellis, J. (2004) 'Television Production' Television Studies Reader ed.Annette Hill, Robert C.Allen, Routledge 2004 pp.275-292 Great Britain. (2010). 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