Watching the Cash Flow

TV, according to ABC’s erstwhile ad campaign, is good. Prime-time TV, according to anyone whose name doesn’t end in Trump or Rockefeller, also happens to be very expensive to make.

Even in today’s media-savvy culture, people probably don’t give much thought to how much it costs to produce their favorite television shows or to where that money goes. Nevertheless, the issue is significant to the TV industry, especially as ratings continue to dwindle, gradually resulting in a flattening of advertising revenues.

Granted, top-notch series like “ER,” “NYPD Blue” and “The X-Files” showcase the best television has to offer, in the process exhibiting a level of quality that often puts big-budget feature films to shame for a fraction of the price. But should it really cost more than $1 million to produce an episode of CBS’ “Promised Land,” the recent Bo Derek series “Wind on Water,” or UPN’s short-lived “Mercy Point,” which was known throughout the development process as “ ‘ER’ in Space”?

According to TV executives, the budget for most new one-hour series runs from $1.3 million to $1.8 million per episode, with $750,000 to $950,000 spent on average for a half-hour sitcom.

Everybody feeling they have a sure-fire dramatic hit brewing in them, as a result, first has to find someone to foot the bill. Based on budgets reviewed by The Times, studio spreadsheets regularly include weekly items like $15,000 for makeup and hair, $30,000 for wardrobe, $35,000 for lighting and $25,000 just to dress the sets.

Viewers might take for granted songs they hear in the background or over the opening credits, but music rights for one series ran $40,000 alone. After reviewing several budgets, in fact, The Times put together its own sample breakdown for a fictitious hourlong drama--one kept relatively affordable (a mere $1.5 million) because it doesn’t involve major special effects or come with a huge star attached.

Actors and top producers not surprisingly represent a big part of the average series budget, but an enormous number of variables affects the price, which can fluctuate widely from show to show. Viewers have doubtless heard about the extravagant sums paid for top programs and talent--how NBC now shells out $13 million to Warner Bros. Television for each installment of “ER,” or how Tim Allen is garnering $1.25 million per episode of “Home Improvement” this season, which buys a lot of power tools.

Salaries often increase exponentially the longer a popular series stays on the air, with stars like “Mad About You’s” Paul Reiser and Helen Hunt gaining the leverage to command huge raises in their fifth year and beyond, just as the “ER” cast negotiated new contracts to share in that bounty.

Still, these inflated figures represent the exception rather than the rule. A program must run for several years and achieve considerable popularity to break the pattern followed on most new shows.

Casting a well-established performer like Ted Danson or Michael J. Fox as the lead will skew the amount that goes toward what’s known as “above-the-line” costs--that is, the portion of the budget allocated to actors, directors and writers.

On the flip side, big special-effects shows like “Star Trek: Voyager” and “Xena: Warrior Princess” (the latter saves money by shooting in New Zealand) place a higher percentage of their budgets toward “below-the-line” costs, which include technical areas such as special effects, costumes and production design.

Industry executives generally agree on two points: First, below-the-line costs have stayed relatively fixed over the years, especially on half-hour series; and second, the price of producing TV programs continues to escalate--a serious problem for the industry as audiences splinter.

Peter Chernin, chairman of the Fox Group, made that point in a speech to Fox’s affiliates earlier this year, pointing out how deeply studios are digging into their pockets to produce high-quality programming.

“In the late ‘80s, the average one-hour drama cost a little over $1 million to produce,” Chernin said. “Last year, ‘The X-Files’ cost more than $2.5 million per episode.” Sources say that figure has climbed even higher with the program’s move from Vancouver, British Columbia, to Los Angeles this season.

*

Despite agreement about the need to do a better job reining in costs, the pressure to find hits has actually tipped the scales in the other direction. With six broadcast networks vying for talent, established writers and actors are in ever-increasing demand, giving their representatives more clout in striking deals.

“The reality is the big jumps are above the line,” says Andy Kaplan, executive vice president of Columbia TriStar Television Group. “It’s a never-ending story, and it’s all about competition. . . . It’s essentially a free-market paradigm: supply and demand.”

According to Kaplan, other problems can include putting too many writers and producers on the staff of series and hidden fees, such as studios being compelled to sign sought-after writers to development deals in order to get them to work on a show--expenses not found within the program’s budget.

Industry sources say the average new prime-time hour usually runs $900,000 to $1 million for below-the-line expenses, coupled with $500,000 to $700,000 in above-the-line costs. In sitcoms, the ratio is generally reversed, with about 40% of the budget spent on technical areas.

One studio executive called the current economic pressures the industry faces “really horrendous,” noting that many half-hours were produced for around $650,000 a few years ago, while that average has risen to about $850,000 today.

In breaking those figures down, studio sources say they are “lucky” to be under $100,000 for the main cast of a show, which usually runs higher. To demonstrate how such charges can vary, one studio executive put the cast range at $180,000 to $225,000, while another indicated $120,000 would be more accurate, saying keeping those salaries down “requires some discipline holding the line on journeyman players.”

For that reason, a two-tiered system has developed, mirroring what has happened in the National Basketball Assn.: Stars draw astronomical salaries, while networks and studios are more tightfisted compensating players with less marquee value.

Studios have to be prepared to spend more than $100,000 in most instances on a program’s writing staff, with some executive producers earning $75,000 or more per episode alone. Payments spiral downward from there: supervising producer, roughly $15,000 to $22,500 per show; producer, $12,500 to $17,500; co-producer, $10,000 to $12,000; and story editors, $7,500 to $9,000. Writers also receive a fee for each episode for which they’re credited.

Again, there is a wide range of variance, especially if that next project comes from a hot producing team like the creative trios behind “Frasier” or “Friends,” both of which have new comedies on NBC this season.

“Obviously, it gets expensive when you keep going back to the same people,” says one studio executive.

Because television is principally a writer-producer’s medium, directors often come and go as guns for hire, though many series retain directors on staff. Directors Guild of America scale begins at $24,200 an episode for a one-hour show.

Several other budget items require translation, such as “administrative fees”--in essence, overhead costs that some studios charge against each program’s budget--or “fringes,” encompassing money that goes toward pension and health benefits, required by the various guilds. “Transportation” is another significant expense, paying the Teamsters who ferry equipment, props and people to sets or locations where programs are shot.

While the greatest pressure in sitcoms remains above the line, large crews, union minimums and an increase in programs emphasizing special effects have raised the bar in terms of below-the-line costs on drama series and made-for-TV movies, one reason so much production has fled to Canada.

Certain programs made for first-run syndication, cable and even fledgling broadcast ventures such as Pax TV bring their costs down by shooting abroad or on a nonunion basis. Some executives say there is also room to reduce expenses by working without large writing staffs or holding firm on actor fees, as studios did in television’s early days.

*

Even members of the production community say the TV industry must find a way to reduce spending, recognizing that fragmentation of the audience must eventually lead to fundamental changes in the way they do business.

Larry Sugar, who is currently producing three series in Vancouver, including the Showtime anthology “Dead Man’s Gun,” maintains the networks need to find new economic models as they look toward the future.

“They’re going to go to the $950,000 to $1.2 million range--that’s the cable to first-run range--or they’re not going to survive,” he says.

Different studios employ varying methods now as they seek to curtail overhead. Some try to set a budget in advance, then let the producers decide how best to allocate money by working backward from that figure.

If the producers especially want a certain actor, they might have to cut back on music rights or special effects. By contrast, if special effects are vital to the show, then a less prestigious cast could be assembled, or the number of extras needed for crowd scenes might be limited.

“If they want to hire a guest star who’s over budget, and they’re able to balance that by spending less on sets, that’s great,” says 20th Century Fox Television Executive Vice President Gary Newman, adding that his studio “tries not to micromanage how our creators and show runners produce their series.”

Shooting in Canada brings budgets down due to tax incentives and the favorable monetary exchange rate, which has driven a considerable amount of production to Vancouver, where savings can exceed 25% versus a comparable project in Los Angeles.

MGM Television, which distributes the Showtime series “The Outer Limits,” “Poltergeist: The Legacy” and “Stargate: SG-1,” shoots all of them in Vancouver, largely to get more bang for its buck in terms of special effects and production values.

“It’s not that we’ve taken that money and put it in our pocket. We’re putting it on the screen,” says MGM Television President John Symes.

What privately aggravates many network and studio executives, meanwhile, are expenditures that don’t wind up on the screen: namely, the “packaging fee”--usually 3% of the licensing fee the production company receives from the network--paid to talent agencies who brought together the elements of a show.

A more odious expense can involve paying producer salaries to managers of stars who in some instances collect thousands per episode simply for making their clients available. Studio and network executives note that such fees don’t augment the finished product but, given the hunger for talent, have seldom proven able to eliminate or curb the practice.

The feeling that prime-time spending is out of whack has prompted many networks to look favorably toward alternative genres, especially news and so-called “reality” programming, which can be made for far less than their scripted counterparts.

“Dateline NBC” and ABC’s “20/20” are produced for about half as much as an average drama and are thus able to churn out original stories throughout the year for about the same amount as the production tab on 22 episodes of a drama series, without resorting to reruns. That’s one reason NBC has expanded “Dateline” to five nights a week.

Along the same lines, comedy-reality programs such as “Candid Camera” or “Kids Say the Darndest Things” can be assembled for about $400,000 per half-hour, less than half what’s spent on many sitcoms.

With the price tag for comedy and drama rising--and rights for sports franchises like football and the Olympics surging well into billion-dollar multiples--networks have a strong incentive to at least balance their lineups with such programs, which can bring down their average per-hour outlay. There’s even been talk the networks may look again at examples from daytime and late night, where the reliance on talk shows, court shows and game shows directly reflects how relatively inexpensive those genres are.

*

To keep matters in perspective, it’s worth remembering that the budget for an average film released by one of the major studios runs more than $50 million. For roughly that amount, series such as “Law & Order” and “Touched by an Angel” generate the equivalent of 10 feature films each year.

In addition, hand-wringing over the price of producing television programs is hardly new. In 1974, under the headline “TV Cost Crisis,” The Times reported that many producers were fretting they “could put themselves out of business” if they persisted in making shows for prime time.

Why? Because the expense in producing a one-hour series had “climbed” since the late 1960s from $165,000 to a whopping $230,000 per episode--a figure now exceeded by Anthony Edwards or Noah Wyle’s weekly paycheck for “ER.”

At the time, Columbia Pictures Television chief John Mitchell summed up the problem by saying network and studio executives would have to reach some sort of understanding about reducing costs “if any of us [are] going to be around in five years’ time. . . .

“Network executives have always suspected and been baffled by the dynamics of production--very few of them came up through that route, and they think we’re all involved in a fast shuffle,” said Mitchell, who died in 1988. “Some producers might be, but the networks won’t have either the good or the bad ones to kick around if they don’t do something dramatic.”

More than two decades later, the beat, and the drama, go on.*

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

WHAT AN HOUR OF PRIME TIME COSTS

A sample budget for a new one-hour drama series. Figures are based on actual budgets and industry interviews.

*

Above-the-Line Costs

Cast: $190,000

Producer’s Unit: $160,000

Direction: $25,000

Story & Rights: $70,000

Fringes: $60,000

Travel & Living: $15,000

Agency Commission: $30,000

TOTAL ABOVE-THE-LINE $550,000

*

Below-the-Line Costs

Production Staff: $40,000

Extra Talent: $13,000

Set Design: $10,000

Set Operations: $20,000

Set Construction: $37,000

Special Effects: $8,000

Set Dressing: $22,000

Makeup & Hairdressing: $12,000

Properties: $13,000

Wardrobe: $20,000

Camera: $40,000

Lighting: $40,000

Production Sound: $35,000

Location Expense: $55,000

Transportation: $75,000

Film & Lab Production: $11,000

Living Expense: $9,000

Fringes: $80,000

TOTAL PRODUCTION $540,000

*

Post-production costs

Editing: $30,000

Photographic Effects: $20,000

Post-production Video: $25,000

Post-production Sound: $30,000

Music: $25,000

Stock Footage: $3,000

Fringes: $16,000

Titles: $1,000

TOTAL POST-PRODUCTION $150,000

*

Other costs

Insurance: $5,000

Administrative Exp.: $25,000

Misc. Expense: $80,000

Amortization: $105,000

Fees & Facility: $40,000

Publicity: $5,000

TOTAL OTHER COSTS $260,000

TOTAL ABOVE-THE-LINE: $550,000

TOTAL BELOW-THE-LINE: $950,000

GRAND TOTAL $1,500,000