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American TV Rebounds Worldwide

When Sony Pictures Television started shopping new NBC series Kidnapped to networks around the world, the studio was optimistic. After all, such taut dramas typically play well internationally.

But the studio had no idea the ransom for Kidnapped would be so huge. The studio has cut deals with international networks approaching $2 million an episode—triple what the series would have generated a few years ago.

Producers and network buyers say the international market for American TV shows is roaring back. After years of cutting back on U.S. TV programming, British, French and Italian networks have recovered their appetite and sharply increased the prices they’re willing to pay for imported product—even new, unproven shows.

Buyers are paying 50%-75% more for strong hour-long dramas than they did two or three years ago, according to studio sales reps and foreign buyers. Prices have risen sharply for shows debuting on U.S. networks this fall, such as Touchstone’s Ugly Betty and CBS Paramount’s Jericho.

The bounce-back has given studios a boost as other parts of their international TV business slow, such as licensed theatrical movies, whose TV ratings are undercut by the popularity of DVDs. For broadcast and cable networks, a stronger international market can translate into more-ambitious projects in anticipation of lining up overseas partners.

What’s driving the market? For starters, U.S. networks are substantially increasing programming quality, particularly with strong dramas, which have always played best overseas. Audiences throughout the world quickly grasp police procedurals like CSI and sci-fi/fantasy shows like Ghost Whisperer. Comedies, however, tend to hinge more on pop-cultural references, which don’t travel as well. Major exceptions are Friends and Sex and the City, both of which scored internationally.

When international networks see American hits like Lost and 24 score abroad, they’re willing to pay up for more. Moreover, there are simply more new TV outlets in key markets, both cable/satellite networks and new digital channels from “terrestrial” broadcasters. Those networks are healthier, rebounding from a weak European ad market.

Finally, like American manufacturers, studios benefit from the steady decline of the U.S. dollar. American prices now seem 20% cheaper to European buyers than they did in 2003.

Studio executives welcome the change. “It was a buyer’s market for a very long time,” says Warner Bros. International President Jeff Schlesinger.

“There’s madness,” says Jeff Ford, director of acquisitions for Britain’s Channel 4. There’s so much U.S. product that he can still find some shows at reasonable prices, but typically, the hottest U.S. titles sell fast and garner top dollar.

The recovery is important to U.S. studios. Producers generally sell primetime shows to U.S. networks at a loss, hoping to offset part of the deficit with overseas deals. An hour-long drama might run up to $2 million per episode in production costs and up to $1 million more in allocated studio overhead and financing costs. That adds up to $45 million-$55 million per season, plus another $15 million-$20 million in studio overhead. The initial sale to a U.S. network might cover only 75% of the production costs.

The studio then shops the show abroad, most notably at the annual Los Angeles Screenings immediately after U.S. networks set their fall schedules each May. A new strong series might sell for several hundred thousand dollars in the UK, half that in Italy and Spain. In countries with greater cultural and government barriers and an undeveloped ad market, prices will be far less, perhaps $50,000, even in a country as large as China.

If the show lasts several years, the real profits for studios can come from syndication to cable networks and TV stations, plus—in recent years—DVD sales. The BBC initially bought 24, 20th Century Fox’s suspense thriller, on the cheap. When it came up for the third season, Fox sold it to corporate sibling Sky One for what British press reports pegged at a big premium: more than $800,000 an episode.

Last week at Merrill Lynch’s media investor conference, Disney/ABC chief Anne Sweeney boasted that the company’s Touchstone Television is generating $2 million overseas for each episode of Desperate Housewives, which was initially sold abroad two years ago.

Kagan Media analyst Deanna Meyers estimates that foreign networks paid $2.8 billion to license U.S. TV series last year. (They bought an additional $5.5 billion in rights to air theatrical films). That same year, studios generated around $23.5 billion selling shows in the U.S. broadcast, basic-cable and syndication markets.

In the 1980s, foreign sales were a pittance. Many TV networks were generally private monopolies, sometimes owned by governments. Many carried little or no advertising. No one was willing to write big checks for imported programming.

That changed in the early 1990s, as restrictions loosened in many countries. Government-owned broadcasters were “privatized.” Cable and satellite companies were born and created space for at first dozens, then hundreds of new channels. Restraints on advertising eased, both strengthening networks’ ability and giving them incentive to bid up strong programming to draw audiences.

Local producers couldn’t gear up quickly enough to fill the new channels with strong programming, so networks scrambled for polished U.S. shows, whose production values were generally far higher than a network in, say, Italy or Brazil could consistently muster.

The new millennium brought a stall. The economies of both Europe and Asia stumbled, crunching advertising spending. Digital broadcasters flamed out in Britain and Spain; satellite companies merged in Germany, Italy and Poland. The European Audiovisual Observatory estimated that European Union TV programmers lost $5.3 billion in 2001 and $3.3 billion in 2002.

At the same time, the hot product on U.S. networks wasn’t dramas but reality shows. Not only did they not sell as well overseas, but many were retreads of shows that had originated in Europe to begin with, including Survivor and American Idol.

U.S. series weren’t generating the strong ratings they once did, and buyers felt burned by expensive misfires. (For example, ABC legal drama The Practice lasted just two weeks in primetime on Britain’s ITV.)

Political and cost pressures combined to prod programmers to increase their use of cheaper local shows and reduce their bids for U.S. programming. The New York Times crystallized the bleak picture in January 2003 with a Page 1 headline: “U.S. TV Shows Losing Potency Around World.”

After a few years of police-procedural overload, U.S. networks have increasingly scored with shows that broke out of the mold. Fox was early with 24, and more recently, ABC’s Lost and Desperate Housewives and Fox’s Prison Break have caught fire, both here and abroad.

“It’s unusual for an American show to crack the top 10 in Europe,” says Armando Nunez, president, CBS Paramount International Television. But the USA Network series The 4400 (produced by Paramount), about alien abductees, “is the number-four show in Germany and one of Sky’s top shows in the UK.”

U.S. shows don’t always work. “24 was a success almost everywhere in the world,” says Rudiger Boess, head of acquisitions for German satellite programmer ProSeben. “But here, we were a little disappointed with Nip/Tuck.” And, of course, sitcoms “are very, very American; we cannot translate them well here to our audiences.”

Programmers also have more mouths to feed. In the most important export market, the United Kingdom, all the broadcasters have created channels—such as BBC Four (2002), ITV2 (2002) and Channel 4’s E4 (2001)—that buy fresh American product. Programmers in England are exploiting capacity created by digital broadcasting to create channels through a jointly owned platform called Freeview.

And, of course, satellite-TV networks across Europe, led by News Corp.’s Sky One and France’s Canal Plus+, are financially stronger buyers that are increasingly willing to pay more. All of this could be seen in the sale of Kidnapped. The series—airing in the States on NBC—focuses on a private kidnapping negotiator helping a wealthy New York couple free their teenage son.

The project is expensive to produce. The talent is strong—Timothy Hutton, Dana Delany, Jeremy Sisto and Delroy Lindo—and the series is shot in New York. An executive involved in the negotiations says the pilot cost $4 million and each weekly episode runs around $2.4 million, not including an allocation for studio overhead.

Sony executives screened the series for the major British outlets, then ran an auction by phone. The victor was Channel 4, a government-controlled station that is nevertheless ad supported. The price: $800,000 an episode. That pattern was repeated in other countries, with $300,000 coming from a larger package sold to Canada’s Global network and several hundred thousand more from other countries. Global and Channel 4 wouldn’t discuss the prices.

Keith LeGoy, Sony Pictures Television International’s executive VP of distribution, would not detail the pricing, saying only that the studio has received “a very full fee for the show.”

How long this rebound continues depends largely on how long U.S. shows can hold the attention of foreigners. Says Channel 4’s Ford, “The bubble might burst if they don’t bring in the ratings.”