Reality TV producers couldn't have scripted this any better.
Over the last 18 months, there has been a tremendous wave of consolidation among production companies that specialize in reality shows such as
Much of Hollywood is already consolidated. Most sitcoms and dramas are made by the big Hollywood studios and TV networks. But the reality sector is populated by dozens of independent production companies. Reality TV is typically a lot cheaper to make than a scripted show, can be enormously profitable and travels well abroad, characteristics that have made these companies appealing.
Now the big guys are getting in on the act. Doing most of the buying are British media giants ITV, FremantleMedia and Tinopolis. While they have been busy gobbling up U.S. production companies,
And last month
"Gold rush" is the term most often used by industry insiders when describing the flurry of activity and escalating prices. Companies that once might have gone for seven or eight times their cash flow are now being valued for as much as twice that amount.
"The multiples have increased substantially in the last 30 months," said Thomas Dey, president and chief executive of ACF, a boutique investment bank that has been involved in dozens of sales of independent production companies over the last few years.
But some caution that the numbers in these deals are getting so high that there is a danger "fool's gold" might end up the phrase that sums up this era.
"The market has gotten overheated," said the head of one production company who requested anonymity because he didn't want to publicly bad-mouth the business. This executive said the multiples have gotten too high for companies that typically have $5 million to $10 million a year in earnings before items like interest, taxes, depreciation and amortization.
ITV has been the most aggressive buyer. It paid $360 million for 80% of Leftfield Entertainment, whose shows include "Pawn Stars." It also spent $40 million for 61.5% of "Duck Dynasty" producer Gurney Productions and $30 million for 65% of Thinkfactory Media, whose shows include "Marriage Boot Camp: Bridezillas" and "Preachers' Daughters."
Overall, ITV now has six companies in the U.S. with more than 100 shows in production and describes itself as the nation's largest producer of unscripted shows.
Part of ITV's motivation is to get access to content and formats that it can use to feed its pipes in Britain and elsewhere including Australia, Germany, France and the Nordic nations. Conversely, ITV can bring formats for reality shows to the U.S. and farm the production out to one of its new acquisitions.
"If you are being acquired by ITV you have access to a first-rate distribution network," said one executive who works closely with the company, but was unauthorized to speak about its strategy. ITV declined requests to comment for this story.
Fremantle, whose shows include
"I hope we can buy more, I love that idea," said Thom Beers, FremantleMedia North America's chief executive. Like ITV, part of the motivation is product for pipelines overseas. Fremantle is owned by RTL Group, which owns almost 50 channels in nine countries. "If we have an idea here that we can produce in another country, it enhances our negotiating power," Beers said.
Most of these deals are for partial control of the companies. Part of the reason for that, Beers said, is to make sure the creators are still motivated and not just employees watching the clock.
"I don't want to buy 100% of anybody," Beers said. "What an easy way to check out."
Beers himself still owns 25% of Original Productions, which Fremantle acquired in 2009.
495 Productions head SallyAnn Salsano agreed.
"I can't have anyone in this town say I was a bad deal," she said. "I need to take every dollar Fremantle pays me and earn it back."
For many suitors, content isn't the only play. These companies are small but generate a lot of cash. That is appealing to ITV, Fremantle and others.
"They are just buying revenue," said
Many production companies don't own the shows they make. Instead, the network owns them and often also has the international rights. That also has some wondering about the prices being paid for these companies.
"The reality is you are often buying limited assets," said Russell Kagan, an international programming consultant.
One hope is that a bigger company will have more leverage when negotiating with TV networks.
"The more shows you have, the better the deal," said JD Roth, chief executive of Eyeworks USA, producer of
"It's not like you are buying a widget factory. You're buying the space between someone's ears," he said.
At the same time, he acknowledged that the prices in some of these deals have him salivating a little.
"It's hard to look at some of the numbers these companies are getting and not think, 'Wow, can I have another bite at the apple?'" he said.
While ITV, Fremantle and others plant their flags in the U.S., Warner Bros., Discovery and other American companies are doing the same abroad.
"What is essential for financial success is being able to properly execute the formats you have in the United States around the world," said Warner Bros. Worldwide Television President Jeffrey Schlesinger. This year, Warner Bros. paid $273 million for the international operations of Eyeworks Group, which makes TV shows for 16 territories including the Netherlands, Spain and Australia.
Because most unscripted shows have little rerun value, exploiting the content abroad is even more important. "These shows all have a short shelf life," Schlesinger said.
Producers who have stayed independent say they are not worried about consolidation hurting their chances to get shows on the air.
"A good idea will find a home," said Phil Gurin, head of the Gurin Co., whose credits include "Oh Sit."
But Warner's Schlesinger countered that bigger is better and was doubtful about companies that are wallflowers at the consolidation dance.
"If you are a minnow swimming among sharks you better be looking over your shoulder all the time," he warned.