Eleven Reasons Why ‘Preferred Producers’ Earn Repeat Commissions From Multiple Networks

The question came to mind after last week’s stunning announcement that ITV Studios acquired Leftfield Entertainment at a valuation of $450,000,000.

  • So why do networks concentrate their acquisitions on ‘preferred vendors’ like Leftfield?
  • The answers help explain the current boom in valuations of non-fiction production companies.

Following are my Takeaways from 20,000 feet.

The Rise and Rise of Leftfield Entertainment

Read about our unique Leftfield Case Study here. From $20,000 to $450 Mn in seven years: The big decisions. The Key Success Factors, and more…

Takeaways 

1.Reliability

  • Successful producers have earned a reputation for delivering programs on time and on budget. Why fool with that?

2.Efficiency

  • Each new producer brings to the table a supporting cast that includes outside counsel, talent and talent agencies, and staff from legal/business affairs, production, finance and other disciplines.
  • It’s a lot of bother to build trust with all these people.
  • It’s easier to work with proven production companies who you know.

3. Stability

  • Networks want their reliable producers to stay in business. They don’t want to ‘educate’ new production companies year after year.

4. Scale

  • Networks achieve lower costs when their producers can apply their staff and other overheads across multiple productions.

5. Access

  • Established producers and their agents enjoy day-to-day interaction with their commissioners.
  • They know the networks’ audiences. They can see where their channels are hurting.
  • They take advantage of the numerous informal opportunities to pitch solutions.
  • Success creates casual access and opportunity.
  • Their access also attracts independents to ‘marry up’ with them, which further adds to their scale.

Pacman2 6. Multiple Demo’s

  • Channel ownership is increasingly concentrated in fewer hands.
  • Each operator offers a portfolio of networks to target a diverse range of Demo’s: Men, Women, Young, etc. This makes for an efficient Ad Sales process.
  • The network development teams share ideas and resources, and they pass them on to their producers.
  • This process benefits producers who have the scale to successfully pitch and deliver concepts across the demographic spectrum.
  • Leftfield came out of the gate as a Male-targeted producer, building on the success of Pawn Stars. The acquisition of Sirens Media added renewing series on Female-targeted channels, giving Leftfield a ‘full house’ of adult demo’s.

7. International

  • Networks are global operations: 40% of Discovery’s ‘enterprise value’ and its fastest growth come from outside the US.
  • It helps a lot if the producers of a channel’s hit shows can successfully adapt to its international markets.
  • Leftfield’s Pawn Stars is a multichannel winner in UK, where a local version was created.
  • An Australian version is being filmed right now in Bondi.
  • It takes a sizeable company to employ the breadth of talent needed for a successful international business development effort.
  • And as the US channels business matures and margins tighten, channels will gravitate to producers who have the scale and quality to operate globally.

8. Digital is Coming! Digital is Coming!

  • Channels can feel OTT online video platforms beginning to erode their business plans.
  • The golden days of organic growth are over for the now mature channels business.
  • In theory at least, large-scale production companies have the depth to spot emerging talent, test concepts on digital micro-channels, and then take the digital winners up to the big time – a slot on network television.

9. Agents

  • Successful producers can engage higher-profile agents, thereby amplifying their access and success.

10. Boss Insurance

  • Few new progams succeed, much less become hits.
  • Bosses may not yell if a bomb comes from an established producer.
  • They may be less understanding if their development exec had championed a new producer who failed to deliver.

11. Credit Another big factor for networks to work with their preferred and ‘scaled up’ vendors is Access to Credit:

  • Networks used to pay producers 45+/- days, provided that the contracts, invoices, workflows and heavenly omens were all aligned.
  • Payment terms have since slipped.  And slipped. 120+ days is common.
  • Producers rely on crews of staff and freelancers, who tend to live from paycheck to paycheck.  Waiting for 4 months is not an option.
  • Producers cashflow all the other operating costs, including for large equipment purchases.
  • Banks are stingier in offering credit than in recent memory.
  • Only ‘preferred producers’ with scale enjoy the stability to qualify for the $1,000,000+/- line of credit needed to cashflow a series.

Producer: Networks do whatever they can to maintain control. They make sure that production companies’ payment milestones are actually behind so that they have greater leverage and can preserve their own cash flow.  Producers almost always start a production before the contract is signed and first money is received. They can front hundreds of thousands of dollars for a single project, and this doesn’t even include development costs. The whole system creates a disincentive for delay: If you start late, you will deliver late and make a worse product.   To fix that problem you will need to spend more. So you might as well get going and take the risk.

What’s Left for Independents?

  • Fortified by the stability of the preferred vendor model, the networks do freshen up their pipelines by trying out a handful of new producers each season.
  • They don’t want their preferred producers to hold all the cards.
  • They typically start newbies on Specials or on digital network projects.
  • And highly qualified, individual producers continue to earn commissions, particularly if they are award-winners and have developed a specialization.
  • Or have unique access, particularly to irresistible characters.

Soon

  • More thoughts on factors behind the boom in production company valuations.

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