Turning the Volume Down : Hollywood Nervous Over Possible European TV Quotas

When Italian television entrepreneur Silvio Berlusconi was scouring Hollywood in the late 1970s in search of programs, he was neither free-spending nor discriminating. Had he been either, he certainly wouldn’t have purchased that legendary piece of Reaganalia, “Death Valley Days,” for $500 a half-hour.

But Berlusconi’s shopping spree laid the groundwork for a generation of broadcasters struggling to fill the huge demand for programs created by the introduction of commercial television in Europe. By the mid-1980s, one of Berlusconi’s competitors was reportedly paying $70,000 an episode for the Italian rights to “Dynasty.”

Today, sales of movies and television programs to European TV channels are worth more than $800 million annually, according to market researchers Frost & Sullivan, a fivefold increase since 1980. In an era of network cost cutting, these sales represent a key source of revenue for the major Hollywood studios and independent producers alike.

But some fear that this bonanza is about to end. As part of an effort to achieve full economic unity by 1992, the 12-nation European Community is considering a law that would impose quotas on American programming. And even if the proposal is ultimately defeated, U.S. companies will have to move aggressively to maintain their position in a rapidly changing market. The challenge of competing overseas was repeatedly cited as a key factor driving Time’s acquisition of Warner Communications.

Limits on U.S. programming in Europe are nothing new, but the prospect of European-wide quotas has jolted Hollywood lobbyists into action. “A blanket restriction that lies across 12 countries, that’s a frightening prospect,” said Jack Valenti, head of the Motion Picture Assn. of America and leader of the anti-quota fight. “And with the single market, we don’t know if this is just the floor. We’re in uncharted territory.”

The studios, striking at a time of hypersensitivity on trade issues, have received a sympathetic hearing from U.S. government officials. U.S. Trade Representative Carla A. Hills told Congress in June that the United States has registered “very sharp and strong objections to local content in broadcasting” and that it was prepared to retaliate if the quota proposal were passed. The House telecommunications and finance subcommittee will look at the issue in hearings scheduled for this week.

Television industry lobbyists have also been stalking Europe, buttonholing friendly broadcasters and hostile politicians. Although their efforts have not always been appreciated--they apparently raised some hackles at the European Parliament in June with a high-pressure presence that was resented as too loud and too late--they may have had some impact. The European Community’s Council of Ministers failed to agree last month on even a watered-down version of the so-called “Television Without Borders” program, which seeks to establish European standards on a variety of broadcasting issues.

The defeated draft demanded that broadcasters show a “majority” of Community programming “where practical.” A new vote on the matter, or possibly a decision to split the program into several components for separate votes, is expected in September.

Most U.S. television executives assert that France is behind the quota drive, and they conjure dark images of a socialist conspiracy. “The people making these decisions are essentially bureaucrats and politicians influenced by left-leaning journalists and film makers,” declared Michael Jay Solomon, president of Warner Bros. International Television. “The French government is anti-commercial television, and they’re trying to inflict their opinions on the rest of Europe.”

In fact, Spain--which fears an influx of Latin American programs--Italy, and several smaller states also favor restrictions. They claim that because Hollywood benefits from such huge economies of scale, the only way to support home-grown production--and by extension, European culture--is to impose restrictions. And that case is given further weight when new commercial channels roll out lineups featuring daily doses of “Kojak,” “Get Smart,” “Green Acres” and “Mr. Ed.”

Even without an EC quota, Hollywood’s battle to maintain its European market share won’t be over. That’s because national quotas will remain in place, European audiences will continue to become more discriminating and local producers will become stronger. And much of the easy money in recent years has been generated by bidding wars that won’t be repeated.

French Revenues Down

“When competition comes to a particular market, the tendency is to overbuy,” noted Solomon. “Everyone is trying to make deals and paying high prices, but after a while they’ve had enough.”

Revenues from the French market, he said, are down 50% this year following last year’s frenzied auctions. Solomon attributes a significant chunk of that drop-off to local programming requirements contained in the licenses of French broadcasters.

While quotas may not ultimately affect the amount of American television on European screens, they depress prices by dividing the market into local and imported segments. Colin Davis, president of MCA Television International, noted that “if a show is made in Germany, it will be worth more than a U.S. show, because it will qualify as (local) production.”

For that reason, one of the key Hollywood responses to the quota threat will be to produce more programs overseas, a strategy that fits neatly with a desire to tap lower-cost locations. “In preparation for the 1990s, we need to be global producers,” said Mel Harris, president of Paramount Television Group. “We need to have more than one primary market. We are going to attempt to do a television series in the United Kingdom and on the Continent, and we will be attempting this within the next year.”

David Evans, head of Qintex America and president-designate of United Artists, said the company plans to set up at least one production base in Europe, and possibly two--one for television and one for movies. “Series production, by and large, will still be in the U.S., but long-form programming (TV movies and miniseries) will be finding their way to locations outside the U.S.,” Evans said.

Effects on Small Firms

Still, the major studios have not been as aggressive as some expected in establishing a European presence. “It’s a surprise that you don’t see more American production companies investing in Europe,” said Alastair Tempest, secretary general of the European Advertising Tripartite, a Brussels trade group. He cited the example of Studio Roma, a prestigious Madrid production house that was purchased by Berlusconi rather than by an American company.

Frank Agrama, president of independent producer and distributor Harmony Gold (and Berlusconi’s buyer in Hollywood), is deeply pessimistic about how current trends in Europe will affect smaller production companies. “If there are quotas, who gets in? The majors--and it’s killing the small producers,” said Agrama. The large studios, he added, can use big-time films as the “locomotive” for television sales by packaging them with serials.

Harmony Gold has been active as international co-producers, but Agrama said this was out of necessity, not choice. He cited the example of a current miniseries co-production called “The Confessional,” in which Harmony gave up artistic control to British co-producer Grenada and retained only distribution rights because the show had to qualify under British quotas.

“The more they need the quota rights, the more you have to give up,” Agrama said, adding that his company would have produced the movie alone if possible.

European producers, meanwhile, are benefiting from an infusion of government funds and are likely to be more formidable competitors in the future. But with the soaring number of channels, there should be room for all. Spain and West Germany are thought to be the next boom markets, and pay television may play an important role.

Programs with at least the imprimatur of Hollywood, in short, will continue to sell in huge volumes in Europe. But the good old “Death Valley Days” are likely gone forever.

PROGRAM EXPORTS Estimated exports of U.S. TV programs in millions of dollars.

1987 1988 1992* W. Europe $675 $844 $2,691 Japan 265 318 715 Canada 65 67 74 E. Asia/Austrl. 35 42 87 Latin America 40 40 40 Arab Countries 32 32 35 Africa 20 21 22 Elsewhere 20 20 20 Total 1,152 1,384 3,684

* Projected figures

SOURCE: Frost & Sullivan Inc.

TV IN WESTERN EUROPE

Programming Hours in Thousands year 110 1983 120 1984 150 1985 200 1986 250 1987 270 1988 projected 440* 1992

Number of Stations year 37 1983 44 1984 55 1985 60 1986 61 1987 64* 1988 projected 86* 1992

*estimate Source: Frost & Sullivan