Hollywood Finds a Gold Mine in Foreign Markets

For suppliers of American movies and television programs, the Old World has begun to resemble the legendary golden streets of El Dorado in the New World.

A revolution in European TV broadcasting in the past several years has escalated foreign revenue for America’s dream factories. Some in the industry see it as a bonanza, a regular gold rush.

The transformation, largely unheralded in this country, became the backdrop for the Writers Guild of America’s 22-week struggle for a bigger slice of Hollywood’s pie.

Residuals--the additional payments that writers and others receive when programs are sold after their network run--were a major issue of the strike, but writers came away from the bargaining table with mixed results. The union gave ground on domestic residuals and in return got an optional formula for foreign payments that might mean bigger money--if and when overseas licensing fees rise substantially beyond the present level.

Meanwhile, statistics show a rosy picture of the international market:

Total foreign revenue for U.S. distributors rose 34% to $2.344 billion between 1985 and 1987, with television alone leaping 53% to $480 million in that period. That’s for the group as a whole. Some firms reported a 50% increase in 1987 alone.

The good times--and dollars--seem likely to roll on. Paul Kagan & Associates in Carmel, which compiled the industry figures, projects a $600-million harvest in foreign television revenue this year, 91.7% above the 1985 level.

Television has increased its part of total U.S. distributors’ overseas revenue to 34.2% last year from 26.6% in 1985 and is forecast by Kagan to go to 40.1% this year.

Deregulation Cited

A number of executives for U.S. production companies said in recent interviews that they expect the upward trend to continue. The most optimistic of them foresee a time when international revenues will outstrip those received from TV in this country, where the declining audience of the traditional networks has led to whittled-down licensing fees to programmers.

What is behind the transformation?

Industry executives point to the accelerating deregulation and growth of commercial television broadcasting in Europe.

Proliferation of direct-broadcast, cable and satellite-based channels has multiplied the demand for TV programs. That, in turn, has increased competition, bringing higher prices for what the industry unromantically calls “product” and “software.”

European television is being made more like its American counterpart today.

Governments of Europe used to run the whole show--quite literally, since they controlled the program content as well as the facilities.

The range of American TV fare that is finding popularity around the world is getting broader and now even includes comedy and franchised game shows, which formerly did not “travel well.”

The privatization of European television, which began rather quietly a few years ago in Italy, has accelerated to a revolutionary pace in the past couple of years in France and is moving rapidly in Britain, West Germany, Spain and Scandinavian countries. For example:

- France alone has gone from three to five television networks in less than two years. The government took the unprecedented step of turning one of its channels private. Two networks remain state-owned, and three are commercial. France also established Europe’s first pay-cable service, Canal Plus. Now three years old, the successful channel goes into an estimated 2.5 million homes.

- Britain is to have two direct-broadcast satellites in service within a year. Media baron Rupert Murdoch, who pioneered pan-European satellite transmission with his Sky Channel in 1982, is readying another satellite that will add four commercial channels to Britain’s present four. The other owner, British Satellite Broadcasting, expects its pay service to use American product for 50% of its programming, with a $30-million-a-year budget for movies.

- In Italy, TV tycoon Silvio Berlusconi is credited with starting the commercialization of European television back in the mid-1970s. He now owns three Italian networks and a big slice of a French channel, La Cinq. Italy also has three state-financed networks, whose fare is less popular than the American serials and soap operas put on by the man who the French press call “the pope of tele-pizzeria.”

- Spain is expected to have two advertising-supported networks within the next year or two.

- Sweden has two new competing pay-cable services, in addition to the two state-owned networks.

Rising demand abroad is not limited to television series.

Film libraries are doing a big business in licensing pictures for use in a burgeoning home video market (up 13% to $982 million during 1987). By comparison, the foreign theater market for feature movies is growing only modestly.

Some of the same companies that make theatrical movies also are big producers of TV fare. And film libraries are prime sources for much television programming abroad.

MCA Inc., parent of Universal Pictures and one of the biggest television producers, is an example of just how lucrative the foreign markets can be.

Sales Are Booming

A just-completed Wall Street study shows that MCA’s television revenue from abroad leaped by 50% to $135 million in 1987, compared to the the previous year. The analysis by Lisbeth R. Barron of Balis Zorn Gerard, a New York securities firm, forecasts that the figure will hit $200 million a year by 1990. Separately, Barron expects the company’s home video revenue this year to be bolstered by $85 million from just the foreign sales of its widely anticipated “E.T.” videocassette, which is to be distributed at the end of October.

Another top TV producer, Lorimar Telepictures, took in $95 million from international sales in the fiscal year ended last March 31, or 53% better than the $62 million of a year earlier, according to another study by analyst Barron.

A review of the swiftly changing European television broadcasting scene, and the repercussions for Hollywood, was published last December by Channels magazine. The article apparently had a major impact on the Writers Guild of America as it prepared for this year’s bargaining with the Alliance of Motion Picture & Television Producers.

During the strike, bargainers for the producers took the position that gains abroad did not make up for their escalating production costs.

In interviews during the last days of the strike, American movie and TV executives involved in international sales said they are intrigued and impressed by the changing face of European television and talked enthusiastically about the benefits to American producers.

“It’s a whole new world,” effused Michael Jay Solomon, a top executive of Lorimar Telepictures and TV marketing maven. “International is the fastest-growing (part) of our industry--and the most exciting.”

Fueling Demand

“All of a sudden, Europe dwarfs the U.S. in the changes going on,” said William A. Shields, chief operating officer of New World Entertainment and chairman of the American Film Marketing Assn., which represents nearly 100 independent producers in promoting English-language films abroad.

Thomas E. Palmieri Jr., executive vice president of prestigious MTM Productions, which recently agreed to merge into a British concern, said the “huge proliferation” of TV channels abroad is fueling a tremendous demand for programming.

Weintraub Entertainment’s new television chairman, Barney Rosenzweig, said he is “astounded by what I call the Rip Van Winkle effect” since he began producing the award-winning series “Cagney & Lacey” in a downtown Los Angeles warehouse seven years ago.

“Guesstimates” then were that an episode might fetch $100,000 overseas, he said, adding: “Today it has escalated to $250,000-plus, mostly in the last couple of years.”

Arthur Cannon, who heads worldwide distribution for giant Viacom International, which syndicates “The Cosby Show,” said his company is among those actively co-producing programs with broadcasters and producers abroad. This is a result of the feverish changes in European broadcasting, Cannon said.

Cannon said the changes are “very good” for U.S. suppliers, noting that they have “a ready product that is first-class, well made, commercial and entertainment-oriented.”

Bert Cohen, executive vice president and chief operating officer of Worldvision Enterprises, which is merging with Aaron Spelling Productions, is among those who expect that the trend will not be stemmed by continuing talk in some countries about putting more quotas on American TV product.

Not Selling Culture

American producers generally have little regard for a frequent complaint of European politicians and others: that U.S. taste threatens their culture.

American television suppliers are “in the business of selling entertainment,” Cohen said. “We’re not selling culture.”

Among the product his firm has distributed most successfully around the world for other companies is “Dallas” (97 countries), “Little House on the Prairie” (110 countries) and “Love Boat” (86 countries).

And Lorimar’s Solomon, whose firm produces such fare as “Knots Landing” and “Alf,” scorns the European custom of stressing the educational content of state-run television: “The public doesn’t want to be educated; it wants to be entertained.”

Hollywood’s booming revenue from the privatization of European television broadcasting is “a geometric trend,” said Jeff Wald, president of Barris Industries, purveyor of such Americana as “The Gong Show” and “The Newlywed Game.”

Industry executives agree that taste in programming has been changing in international film and TV markets.

While action-adventure is still winning the popularity derby, overseas fans have developed some taste for American comedies and other art forms native to these shores.

“The traditional wisdom is that we have to (produce) one-hour action programs that are visually exciting and do not require tremendous sophistication,” said Tony Lynn, an MGM/UA executive.

Soap Opera Popular

While that type, including “The Dirty Dozen” for the Fox network, have been the easiest to sell in the world market, Lynn said, “talky” shows and half-hour situation comedies are now much easier to sell than they were. For example, he said, “thirtysomething” has been quite successful in France, Italy, Australia and Canada. The new half-hour sitcom “Baby Boom” also has been selling well overseas, he said.

Shields of New World cited the case of the daytime NBC soap opera “Santa Barbara,” saying it has won a top rating for a weekly series in France, where it is aired during prime time.

Lorimar’s Solomon said ‘Alf” became the first American comedy series to be sold successfully in every European market. American quiz shows, which he said used to be looked down upon by the “bureaucrats” who ran broadcasting on the continent, are becoming popular on the new commercial stations.

Barris now finds itself doing a brisk business licensing the format of “The Dating Game” and “The Newlywed Game” in France, England and Australia, where they are produced under other names with local hosts. “The Gong Show” also has become popular overseas, according to Barris chief Wald.

Asia, too, is a growing market, especially for theatrical films, according to Jonas Rosenfield, president of the American Film Marketing Assn. As battles for copyright protection go forward, he said, Pacific markets are expanding. In addition, the introduction of home video has helped to swell demand for U.S.-made films.

While Japan is a major consumer of American theatrical films, Hollywood has found Japanese television very difficult to sell to, a problem widely attributed to cultural differences. However, “Little House on the Prairie” rang the bell in Japan, which Worldvision’s Cohen attributes to its family-oriented treatment of a subject that fascinates the Japanese, the old American West.

Ramifications Enormous

As for the future, some Hollywood executives prophesy far greater effects on the U.S. industry than have already occurred.

MTM’s Palmieri said the firm’s marriage with the British firm Television South is a means to get in on the ground floor of “true international co-productions” and maintain its high-cost, high-quality programs.

International joint ventures will design the competitive programs for a “heavy” international audience that he sees as necessary to succeed in gaining full access to European markets in the coming years.

Weintraub’s Rosenzweig expressed what seemed an almost apocalyptic view of the changes coming for Hollywood.

“The long-term ramifications are enormous,” Rosenzweig said, adding that eventually the film capital might evolve from Hollywood to “various home bases abroad.” With network audiences and fees eroding and foreign markets expanding, he said the TV shows of the 21st Century may “be shooting on the Appian Way” in Rome instead of on Los Angeles streets.

Besides the economic blow to Los Angeles and the nation’s economy, Rosenzweig worries about what will happen to “the impact of the American dream . . . the American vision of the world promoted by Hollywood.”