The market for quality narrative television has heated up globally over the past few years. Fueled by the emergence of new digital platforms and business models, the reliance of multiplexes on blockbuster genre films, and the growth of “binge viewing” of TV content, audiences have become increasingly hungry for high quality, serialized content that they can consume across devices. Accordingly, an increasing number of distributors – broadcast and online alike – have sought to follow the lead of AMC (Mad Men, Breaking Bad, The Walking Dead) and Netflix (House of Cards, Orange is The New Black, Marco Polo) by using high quality scripted shows to build and distinguish their brands.
In light of the hot market (which is evidenced by the expansion of MIPCOM and similar events globally, such as Singapore’s Asia TV Forum), producers are increasingly thinking about developing, producing and distributing television (or, more accurately, “television type”) content for a global audience. For example, forward thinking producers are seeking to license English language shows for adaptation for the potentially massive Chinese market and its nascent but rapidly growing streaming video ecosystem, which has been rendered viable by the slowly increasing protection for intellectual property in China, and the maturation of e-commerce technology, which is permitting Chinese viewers to confidently pay companies such as Tencent and Alibaba for entertainment content for the first time.
With all this in mind, what do producers need to consider when importing – or exporting – television formats? Here are some deal points and issues to consider:
Obtaining necessary rights and a clear chain-of-title is a primary consideration when dealing with adapted television formats, when rights situations may be complex and underlying agreements may be written in foreign languages, or structured in a way that is inconsistent with, or legally inadequate compared to, customary practice in the U.S. Throughout the negotiation and contracting process, producers should repeatedly ask themselves “am I actually getting the rights that I want and need to acquire here?” It is always much simpler to acquire all necessary rights upfront where possible, instead of needing to go back and renegotiate at a later date, which may leave a producer susceptible to worsened financial terms. Accordingly, producers should take a cautious approach to rights and acquisition and must conduct thorough chain-of-title review, employing professional translators and local counsel if and as required.
On a similar note, producers must ensure that they obtain all necessary ancillary rights (e.g., merchandising, interactive, gaming, soundtrack, live stage, publishing, etc.) in order to be able to set up and finance the show most economically and effectively in the applicable market. For example, Canada requires that a show have “rich, interactive content such as games, interactive web content, on-demand content, podcasts, webisodes, and mobisodes” in order to qualify for funding through the CMF’s Convergent Stream program. In Asia, app rights and sponsorship/commercial tie-in rights are a prerequisite because many shows are distributed through free streaming platforms that are monetized through advertising, product placement, sponsorship and digital microtransactions. Producers should take heed of specific requirements and note that may be impossible to finance and produce a television show in a viable manner in certain territories without obtaining the correct ancillary rights.
Ownership, Entitlements and Economics
Format deals are typically structured as “option/purchase” arrangements, with the caveat that the “purchase” may not be an outright acquisition of rights but rather a license to produce a series and distribute it for a certain period of time. Adapting producers pay an option fee to the underlying rights holder for the exclusive right to develop an adaptation of the original series in their respective language and/or territory. If the show is “picked up” by a broadcaster or other distributor (or the producer has secured another form of distribution that makes financial sense), the adapting producer may “exercise” the option by paying a purchase price. This purchase price can be a flat fee payable upon exercise of the option, but it may also be structured as a “format fee” based upon a percentage of the production budget, with an initial installment payable upon exercise and additional installments payable upon the satisfaction of certain benchmarks during the course of pre-production and production.
When commencing negotiations regarding the importation or exportation of a television format, it is important to be transparent and achieve consensus early on as to which party will actually own the copyright in the newly produced series. This will typically be determined by negotiating leverage. In the event of a license arrangement, the duration of the applicable license period may be perpetual, or a fixed period (e.g., a period coterminous with production of the series, plus an additional five years from initial broadcast of the final episode). The duration of the license period could also be predicated upon the satisfaction of certain threshold conditions – for example, two years to produce a pilot/first episode, then an additional five year license period that may be automatically extended to ten years (from initial broadcast of the last episode) if a certain number of episodes are produced (typically 22). Naturally, it is to the advantage of an adapting producer to try to negotiate as long an unconditional license period as is possible in order to maximize time for development and shopping of the series, permit for “re-shopping” to another buyer if the show is canceled, and to increase overall foreseeability with respect to economic, business and creative matters.
It is also important to set forth the parties’ respective entitlements – any budgeted fees that the parties will receive (the adapting producer will receive producing fees, and the underlying rights holder may require some form of “consulting” fee, which the adapting producer should seek to cap), what kinds of costs and deductions are permitted, any entitlements to deferred amounts, the backend split and, if applicable, the duration of the license that the producer will receive. All of this must be negotiated in the context of the greater financing and distribution situation. The adapting producer needs to ensure that it is able to protect the rights and entitlements of its own investors, while also confirming that its license to distribute the new series is adequate in terms of scope and duration in order to be able to close a deal with a distributor. Additionally, if a deal is intended to cover distribution of the new series for a certain territory only (for example, if the deal is to import a U.K. format to the U.S., and the adapting producer’s distribution rights are limited to the U.S.), the agreement also needs to set forth which party will be responsible for selling the new series in other territories and what the applicable split of revenues from that distribution will be.
As ever, parties also need to determine their respective credit entitlements, which will be subject to regulatory restrictions and third party restrictions. For example, an adapting producer may need to accord a company credit to local broadcasters/distributors and will also want to take its own company credits – which may preclude it from offering a prominent company credit to the production company that originated the original format.
Part two of this blog will discuss approval and control mechanisms, trademark and branding issues, and regulatory concerns when importing formats.