Too Costly for Prime Time : Television: Plunging profits are forcing Hollywood to chop paychecks and rein in production costs.

Raymond Burr took an unaccustomed pay cut on NBC’s “Perry Mason” movies.

On “Quantum Leap,” the fantasy drama about a scientist traveling through time, pop tunes from the ‘50s and ‘60s no longer are heard. The rights fees cost too much.

Twentieth Television, producer of “Anything But Love,” made the supreme sacrifice: It pulled the plug on the Jamie Lee Curtis sitcom.

Although Hollywood producers have wailed for years about the need to control spiraling production costs, in fact very little was ever done.

Until now.

Squeezed by shrinking profits in the rerun market, the studios are telling actors, writers and producers that their paychecks will be smaller than in the booming 1980s. And their shows--where cost once was no object--will have to be made more cheaply.

“A hit show used to be a cash cow. You made a fortune!” exclaims “Quantum Leap” producer Don Bellesario. “That isn’t happening anymore. Profits have plunged.”

He should know. The economics of television have changed radically since reruns from Bellesario’s early 1980s hit “Magnum, P.I.” grossed nearly $300 million. The record was set a few years later, when “The Cosby Show” gushed $800 million for its producers when it was sold to local stations.

But in the past two years, only three network series--”Roseanne,” “Golden Girls” and “Married with Children”--have broken the $1-million-per-episode barrier--a benchmark that only a few years earlier was considered the floor in the rerun market.

Compounding that weakness, producers are also being hit by the financial crunch at the established networks, their principal customers.

Battered by eroding audiences and soft advertising revenue, ABC, CBS and NBC no longer are so eager to pay for the slick prime-time shows that the Hollywood studios are used to churning out. That has forced the studios to ferret out new business markets, such as selling first-run shows directly to local stations or overseas broadcasters.

To be sure, working as a TV producer is still lucrative, as financially rewarding as becoming a Wall Street investment banker or downtown Los Angeles lawyer. But economic pressures are now changing what viewers see on TV.

Increasingly, the networks are choosing cut-rate, quasi-news shows such as “Rescue 911” on CBS or ABC’s “FBI: The Untold Stories” over costly dramas. Once dominant in prime time, dramas account now for only about 30% of the program schedule.

And when dramas do make it on the schedule, producers find they can no longer afford fancy stunts or the big-name stars who command up to $100,000 an episode.

“It used to be in my 60-hour week, four hours a week was taken up with budget matters,” says David Jacobs, executive producer of the CBS potboiler “Knot’s Landing.” “Now it’s close to four hours a day.”

Jacobs says that if “Knot’s Landing” is renewed for next season, $400,000 may have to be slashed out of its $1.6-million weekly budget, reducing appearances by the 13-member cast.

For Bellesario, the budget crunch means fewer of the $20,000 special effects that allow actor Dean Stockwell to appear as a hologram. Producers of ABC’s “The Young Riders” were strictly held to their $1.2-million weekly budget this season, forcing them to use fewer extras, cut back on costly night work and trim shooting days.

With half-hour comedies, the most popular form of prime-time entertainment for nearly a decade, the changes are less perceptible to the viewer. But behind the scenes, writing staffs--the costliest element in comedy production--are being pruned by a third or half.

“We always assumed the money would be there from the network,” says Paul Junger Witt, a partner in Witt-Thomas-Harris and producer of such shows as NBC’s “Golden Girls” and “Empty Nest.”

Indeed, when it came to producing prime-time shows, the seven major Hollywood studios--indulged by the networks’ big-spending ways--often operated like Detroit’s Big Three car manufacturers. Bloated and inefficient, they took a casual, even cavalier, attitude toward costs.

“There is and has been a lot of waste,” says James Keach, a producer of “The Young Riders.” “The attitude has always been if we went over budget 10% or 15%, so what? With a $1-million-per-episode budget, it’s chump change.”

But now, with the downturn--some would say crash--in the rerun market and persistent network belt tightening, Hollywood is scrambling to cut costs.

Most prime-time network TV shows initially lose money for the studios, because the networks pay a license fee less than their actual production costs--a practice known as “deficit financing.”

Over a four-year period--the time it takes to produce the 88 episodes regarded as the minimum for breaking into syndication--a network sitcom can run up a deficit of $12 million. Losses on a one-hour drama can hit $30 million.

The profit is supposed to come when the reruns are syndicated to local TV stations or sold to cable.

In the past few years, however, network license fees have been holding firm or falling, prompting deficits to balloon.

And when a wave of half-hour sitcoms, inspired by the success of “The Cosby Show,” poured into the rerun market, the supply far outstripped local stations’ needs, driving down the prices paid by debt-laden broadcasters.

Whereas the “Golden Girls” in 1990 grossed nearly $300 million in syndication and “Who’s The Boss?” pulled in even more, today similar shows earn half as much.

“This has awakened people to the fact that, even with the most successful half-hour shows, maybe that huge gold ring doesn’t exist anymore,” says Arthur Stolnitz, executive vice president of Lorimar Television.

The bottom line is that studio bosses are telling producers that they must bring down production costs--or risk having their shows canceled by the networks.

“When we went to sign a new contract with NBC for the ‘Perry Mason’ movies, it was predicated on a lower license fee,” notes executive producer Dean Hargrove. “All the regular talent and producers are doing the show for less money.”

Raymond Burr isn’t the only star who has suffered pay stub shock.

When the producers of the hit ABC comedy “Perfect Strangers” negotiated next season’s renewal, ABC cut the license fee. Stars Bronson Pinchot and Mark Linn-Baker accepted freezes on their $70,000-per-episode salaries.

Walt Disney Studios, meanwhile, adopted a new policy last week of not paying lead performers more than $25,000 an episode in new series.

Freezing paychecks is one way to save costs. Another is to cancel a show all together, as Fox’s Twentieth Television did in January when it shut down production on ABC’s “Anything But Love.”

The decision reverberated through the cloistered production community. It was the first time a studio had asked to be released from a network commitment.

“We couldn’t afford to keep funding deficits when a series has limited value in syndication,” explains Lucie Salhany, chairman of Twentieth Television--a former syndicator whose get-tough approach is emblematic of a new wave of studio executives.

Such decisions scare some Hollywood TV producers, because it suggests that even when a show is within striking distance of syndication--”Anything But Love” had taped 56 episodes--studios will opt to bail out early.

But hanging in is just what the studios say they no longer can afford. They lost $353 million producing prime-time network TV shows last year, according to the Alliance of Motion Picture and TV Producers. Much of that money will never be recovered.

“We’re all to blame,” acknowledges former NBC Chairman Grant Tinker, now an independent producer. “All those times I sat in the Beverly Wilshire Hotel at Hollywood Radio-TV Society lunches and heard how deplorable it was that costs continued to rise. Everybody just dozed off.”

It now costs an average of $1.4 million to make a one-hour drama. The tab is $844,000 for a half-hour comedy on film and $698,000 for videotape.

About 40% of a prime-time show’s cost represents “below-the-line” expenses: the camera crew, set designers, carpenters, transportation, wardrobe, lighting and art directors. Growth in those costs slowed in the 1980s as the studios and networks won concessions from the unions.

The other 60% of a show’s cost is “above-the-line”: cast, producers, writers and directors. It is here that salaries have mushroomed to unprecedented levels.

“The actor’s last fee becomes the floor for the next project,” complains Stephen J. Cannell, the prolific producer and writer of such shows as “Hunter” and “The Commish.”

At the high end of the scale is “Cheers” star Ted Danson, who earns about $250,000 an episode, or $6.5 million a season--and nearly double that, counting the advances from syndication. NBC cut “Cheers’ ” license fee for next season by 10% last week, but Danson’s pay apparently is unaffected.

And stars aren’t the only ones whose salaries have skyrocketed.

From 1985 to 1991, the average executive producer fee for a CBS comedy series increased to $75,000 from $35,000 per episode. On top of that, producers earn another $14,000 for each comedy they write and $20,000 for each drama.

Production and writing staffs, meanwhile, have proliferated--especially on comedies. ABC’s “The Wonder Years” has as many as 10 producers per episode, in addition to a story editor and writer.

And writers don’t come cheap.

Studios such as Disney and Columbia, trying to boost their chances of getting more series on the networks, each spent well over $100 million contracting with writer-producers who they believed could give them an edge in developing new shows. If only one or two shows earned $100 million or more in syndication, the studios assumed, that would cover their losses on other programs.

“The hits made it back for you,” said Rich Frank, president of Walt Disney Studios.

That will be less the case in the future. In a pointed example of how studios are reconsidering the rich deals they made in the 1980s, Disney earlier this month let its production contract with Witt-Thomas-Harris expire, saying it no longer made financial sense. The producers moved to Warner Bros.

Yet slashing production budgets only goes so far. Increasingly, the studios must look to sell their shows to a new breed of customers with deeper pockets.

Paramount and Warner Bros., for instance, are no longer even bothering to pitch some of their most expensive shows to the networks, steering them directly to local TV stations instead. Paramount pioneered the approach with “Star Trek: The Next Generation,” showing it was possible to market costly drama series in first-run syndication.

Now Paramount is syndicating a spinoff, “Star Trek: Deep Space Nine,” and a remake of the classic series “The Untouchables.” At $1.5 million per episode, both are “network-quality” prime-time series.

“Given the heavy special effects and period-piece action in these shows, it would have been impossible to produce these shows at network license fees,” explains Kerry McCluggage, president of the Paramount TV Group.

Similarly, Warner Bros. is selling local stations two action series beginning next January: “Kung Fu: The Next Generation” and a science-fiction detective series titled “Time Trax.” The series are budgeted at $700,000 to $750,000 per episode.

The studios are able to pull off these ad-hoc arrangements because they have the clout to win commitments from client stations to acquire the reruns as well. In addition, they retain about half the commercial advertising time to sell themselves.

Beyond that, the studios sell the programs in overseas markets, which have become such important pieces of the financing puzzle that they now are shaping what TV shows get on the U.S. networks.

Overseas broadcasters are picking up nearly half the tab for “The Young Indiana Jones Chronicles,” produced by Paramount and George Lucas for ABC at a hefty $1.6 million per episode. Sony’s Columbia Pictures TV division is pitching the networks an adaptation of the Jules Verne sci-fi classic “Journey to the Center of the Earth” and a reprise of the cult favorite “Route 66.” The studio is also producing 22 episodes of an English-language series titled “Berlin Break” for exclusive first-run showing on German TV.

A Columbia official says the action-oriented nature of the series--and their familiarity to viewers--are big draws in overseas markets. In addition, the shows lend themselves to merchandising, which can provide another lucrative source of income.

The appeal of American-produced dramas in overseas markets--even as one-hour dramas vanish from network schedules--was amply demonstrated in the resurrection of “Baywatch,” a series NBC canceled after just one season.

“Baywatch” was relaunched into first-run syndication after the staff and star David Hasselhoff agreed to accept substantially reduced fees, bringing the production budget down to $750,000 per episode. Foreign revenue accounted for about $450,000 per episode, with the balance coming from domestic sources.

“The condition of the marketplace in the past few years forced certain genres of programming off the air,” Paramount’s McCluggage says. “Attempts in creative financing--at their best--are an attempt to bring back a form of entertainment that wouldn’t otherwise be available to viewers.”

Reruns in Retreat

Through the late 1980s, the boom in prices paid by local TV stations and cable networks for reruns of popular shows not only let the Hollywood studios make up their losses on producing the programs, but made TV production a profit gold mine. Prices generally have plummeted in the last three years, however, as a flood of programs has overwhelmed the market.

Average price per episode of half-hour and one-hour programs released to local stations and cable networks, in millions of dollars.

1988: The syndication market peaks as “The Cosby Show” garners a record $4.4 million per episode in sales to local stations.

1989: “Who’s the Boss” becomes the second most profitable show in syndication, earning $2.5 million per episode. Otherwise, prices for half-hour comedies begins to soften.

1990: “Golden Girls” grosses $1.65 million per episode. But a flood of comedies hitting the market continues to drive down prices.

1992: The $1.8-million-per-episode price for “Roseanne” inflates the year’s average. But for one other exception--”Murphy Brown,” which grosses $950,000 per episode--the market remains mired below the levels of the mid- and late-1980s.

Source: Paul Kagan Associates, C.J. Lawrence Inc., studios

Shrinking Pains

After escalating in the late 1980s, the prices that local TV stations and cable networks have been willing to pay the Hollywood studios for reruns have begun to decline.

Estimated sales price per episode

(millions of dollars)

1986 The Facts of Life: $1.01 Gimme A Break: $1.00 * Magnum, P.I.: $1.63 * The A Team: $0.95 * Riptide: $0.20

1987 Webster: $1.65 Cheers: $1.60 Family Ties: $1.30 Silver Spoons: $1.20 * Crazy Like a Fox: $0.14 * New Mike Hammer: $0.14 * Remington Steele: $0.14

1988 Cosby Show: $4.40 Kate & Allie: $0.97 Night Court: $0.95 Newhart: $0.53 * Hill Street Blues: $1.00 * Simon & Simon: $0.97 * Murder She Wrote: $0.45 * Miami Vice: $0.38 * Cagney & Lacey: $0.11

1989 Who’s the Boss?: $2.50 Growing Pains: $1.10 M*A*S*H (3rd cycle): $1.10 Mr. Belvedere: $0.83 Mama’s Family: $0.50 It’s a Living: $0.35 * Hunter: 0.38

1990 Golden Girls: $1.65 Alf: $0.98 Head of the Class: $0.92 Perfect Strangers: $0.90 227: $0.65 Hogan Family: $0.52 Amen: $0.40 Out of This World: $0.35 She’s the Sheriff: $0.35

1991 Married with Children: $1.80 Different World: $0.80 Full House: $0.74 Saved by the Bell: $0.25 Tracy Ullman: $0.13 Gary Shandling: $0.08 * L.A. Law: $0.20 * China Beach: $0.10

1992 Roseanne: $1.80 Designing Women: $1.00 Murphy Brown: $0.95 Family Matters: $0.88 Dear John: $0.65 Wonder Years: $0.50 * Quantum Leap: $0.30 Programs in bold (with *) are one-hour dramas.

Regular type denotes half-hour sitcoms.

Sources: Paul Kagan Associates, C.J. Lawrence Inc., studios

TV ECONOMICS

The gap between the costs of producing TV shows and the fees paid by the networks to broadcast the programs has widened over the last few years. The growing deficits are beginning to color decisions about how shows are made and even whether they remain on the air.

Source: Alliance of Motion Picture and TV Executives