TBI Distributors Survey 2018: part one

Distributors large and small have again revealed their views on the major issues that are impacting the international TV sales industry today. Kaltrina Bylykbashi reports.

The rise of SVOD is the single element that has had the biggest impact on the distribution business in the past year, according to survey results.

While platforms such as Netflix and Amazon are only deepening their stronghold on the TV business, a handful of potentially powerful SVOD services, such as that of Apple and Disney, have not even launched yet. This means that the influence of these players on the distribution business is only going to grow from here.

It is why 55% of our respondents believe that the rise of SVOD players has had the biggest impact on their business. This is 13% more than our respondents reported last year.

The rise of streaming products provokes mixed opinions among distributors, although a dominant 66% of participants believe that global deals with SVOD services are a positive development for their business.

“Currently, it presents a positive effect for a formats distributor in that many traditional broadcasters are responding to the SVOD threat by investing heavily in local production,” says Andrea Jackson, CEO at Magnify Media.

For every company that believes SVOD growth is a positive development, however, there’s another that feels otherwise.

Stuart Baxter, eOne’s president of International Distribution, breaks it down. “Audience fragmentation has put pressure on traditional linear players. To survive and thrive, we have to diversify in non-linear AVOD and SVOD propostions. As a result, SVOD wants more rights and means of distribution.”

He continues: “SVOD players and international broadcasters are also buying out worldwide rights, increasing competition.”

To ensure eOne lands content in this environment, Baxter says the company gets involved with projects at an earlier stage. “We invest as creative and financial partners as well as through first-look deals and other strategic relationships.”

Rights ownership, a result of the rising SVOD offerings, was voted as the most pressing issue to distribution businesses today. A majority of 52% noted it as something that they are concerned about in their day-to-day work.

The rise of SVOD has also led to fragmentation of the market. Over 38% of survey participants believe it has affected their business.

Karen Young, CEO at Orange Smarty Distribution, says: “A fragmented market is driving license fees down. Broadcasters are wanting to pay less for more and aside from FAANG, the majority of other platforms currently offer limited commercial return.”

Stacked: distributors notice holdback

Although research has shown that digital giants are watering down their box-set approach by series stacking – or releasing content gradually rather than as a full series – an overwhelming amount of distributor respondents say that buyers are demanding more stacking rights.

Linear channels, for example, continue to ask for more and more episodes that are stacked for their customers. It is partly why 72% of the distributors questioned believe that buyers are demanding more stacking rights than they did last year.

“This stems from drama and has spilt over into factual. Viewing habits have changed and broadcasters are being forced to provide for demand,” says TVF International’s division head Harriet Armston-Clarke.

Two concerns that continue to prevail when it comes to stacking include fewer windowing opportunities and whether distributors are getting the best value.

“As a distributor you need to ensure you are receiving the right compensation for the rights package sold,” says Endemol Shine International’s chief executive Cathy Payne.

“With increased requests for further exclusivity combined with the ability for non-linear viewing, we need to re-examine at the value that is being taken in the first licence. How will that affect the future second sales cycle if the title is so exposed in the first cycle? As a distributor you need to ensure you are receiving the right compensation.”

Emmanuelle Guilbert, co-CEO of About Premium Content, echoes the point: “For distributors, the aim is to have rights that are not part of traditional catch-up rights properly valued.”

Hiring excellent business people and finding new content at the earliest possible stage are some of the ways that distributors are tackling the problem.

TCB CEO Paul Heaney says: “We all need whip-smart business affairs people who can navigate and negotiate so we can sell to multiple platforms.”

Chris Bonney, CEO of rights at Cineflix Media, adds: “The increased demand for stacking rights, especially in the scripted genre, put linear broadcast and SVOD deals in direct conflict. So, it becomes even more important to work out the distribution model for new content at the earliest possible stage to ensure rights exploitation can be optimised.”

Meanwhile, Gusto’s senior director of international sales, Corey Caplan, believes that buyers are becoming less rigid when it comes to stacking as of late.

“Competition between platforms and broadcasters means longer negotiations, though most buyers are beginning to come around on loosening holdbacks and exclusivity requests,” he says.

Although stacking is a point of contention for the distributors surveyed, the majority think buyers’ budgets have remained relatively the same. Near 61% said that budgets have remained the same as last year, 27% believe they are worse than ever and 13% believe that they are better than ever.

Consolidation Boom

Just this year, we have seen acquisition talks progress for Fox and Disney, Time Warner and AT&T, and now Sky and Comcast. It is no wonder that consolidation is high on the mind of the distributors we questioned.

Around 88% of those surveyed said that they expect more M&A for the rest of 2018 and 2019. With the sale of Endemol Shine Group nearing its end, distributors know that there will be at least one major move coming very soon.

The impact that this will have on the distribution market is open to interpretation, however.

Ben Barrett, joint MD at Drive distribution group, thinks the trend will make it “harder than ever to get good shows to distribute.”

Gusto’s Caplan, adds: “Market consolidation means more partnerships of broadcaster and platform funds, in turn hurting smaller independent producers and distributors.”

Meanwhile, Armoza Format’s COO Amos Neumann believes that the continued growth of major companies will lead to a “risk-averse” TV industry.

Depending on the programming a company distributes and their business model, the attitude to consolidation varies. Those dealing with scripted content are still benefiting from the competition between SVOD and linear players. Those that distribute unscripted formats are less inclined to see these benefits.

TVF’s Armston-Clarke believes that further mergers between major companies will mean, “content makers and distributors will be more focused and specialist to stand out from the crowd. It will have a positive impact on programming.”

TCB’s Paul Heaney echoes this sentiment: “Consolidation at the top means a trickle down of new businesses. To be honest I feel the bigger companies are just so well run, it raises the bar for all of us.”

Cineflix boss Chris Bonney breaks it down: “Consolidation will create a more competitive environment across the whole sector with distributors pursuing fewer rights.

“More competition for rights means that distributors have to provide outstanding IP returns and quality of service as well as innovative financing models to win business from producers and maintain growth.

He continues: “Cineflix Rights has a competitive edge through our independence as a distributor in a sector which is increasingly consolidated, which means we can provide a tailored, focused approach for each producer partner, but at the same time we have the scale to give us leverage when dealing with large regional and global buyers.”

Alfredo Juarranz, director at Ikusi, sees further opportunity. He says consolidation will bring in “new business models based on software, data- mining and learning machines.”

Mid-sized firms are most at risk

The continuing rise of SVOD, fragmentation, M&A activity and stacking, are all issues that leave mid and small-sized firms most at risk, according to survey results.

Distributors think that small firms are 46% more likely to be at threat from market conditions, tying with mid-sized firms which received the same result. Only 18% of those surveyed think that large firms are threatened by market conditions.

The participants were most vocal about the future of mid-sized firms, however, with many questioning how the group will fare with these challenges at hand.

“Distribution is about the big and boutique and no one wants to be in the middle ground where it is hard to compete,” says Cathy Payne of Endemol Shine.

Magnify Media’s Andrea Jackson adds: “A mid-sized distributor is saddled by significant overhead, but doesn’t have the reach and leverage of a large distributor. The place in the middle is a tricky place to be.”

Participants’ perception of risk to mid-sized firms has also grown. Last year, 34% of those surveyed believed that these firms were at risk from market conditions, 12% less than this year.

Meanwhile, Natalie Lawley, MD at Escapade Media, says: “Different sized distributors face different risks.”

Getting in early: presales and copros

An overwhelming amount of distributors are investing in programming at an earlier stage than they have done in the past. A staggering 70% of those surveyed say that they are partnering with producers, sometimes as early as treatment phase.

“By being involved from the outset we can start to evaluate the likely appetite for the project from international buyers and work with the producers to establish the best way to put the project together, be that with a co-production partner or other financing models,” says Ruth Berry, managing director, ITV Studios Global Entertainment.

“We are all reinventing the way we work,” Orange Smarty’s Karen Young explains. “Increasingly commissioners want quality content, but it’s not aligned with the commissioning budget on offer. This leads the producer to become reliant on the distributor to bring in additional funds via copros, presales or advances.”

Some distribution houses have invested in development for some time, but they also see opportunity to further this in the future. Endemol Shine’s Cathy Payne says: “While the amount is confidential, our development investment continues to grow substantially. We are actively engaged in funding development for our in-house production units where that makes strategic sense, for example, a decision may be made to commission two scripts upfront as opposed to one.”

Cineflix Rights’ Chris Bonney is also expanding this element of the business. “Recent deals include Talesmith – where we have made a significant investment into its development activities, which includes financing a development executive who our team is working with to help deliver shows with maximum international sales potential.”

Read part two of the survey here