Europe Turning From U.S. TV

Western European free TV networks, traditionally big spenders for Hollywood programming, are becoming picky buyers, which has severe implications for U.S. network TV series, according to executives on both sides of deal making at the recent TV program gathering here.

A two-decade run-up in European purchases of U.S. theatrical movies and TV programs, spurred by privatization of state TV channels and deregulation, has plateaued and might even be declining.

“The Hollywood programs will always sell overseas, but the ‘gold rush’ days are over,” says Rainer Siek, president of CBS Broadcast International, the U.S. network’s foreign syndication arm.

The main reason, oddly, is that many of the European TV networks buying U.S. programming are becoming very successful. Private TV networks, many of which launched on a shoestring in the 1980s, are now $1-billion-plus revenue behemoths in Germany, France and Spain, so they can afford more locally made programs.

The growing number of local programs, because they are more popular than imports, are displacing U.S. TV series, especially in prime time. The consequences were evident at the five-day gathering, known in the industry by its acronym, MIPCOM, in the south of France earlier this month.

Even more than economically depressed Asia/Pacific and Latin America, Western Europe is a crucial region for Hollywood, representing 60% to 80% of the estimated $4 billion in international revenue that Hollywood films and TV programs generate from foreign free and pay TV.

U.S. network TV series, which through the years have become dependent on foreign sales for roughly a third of their cost, up from 15% to 20% a decade ago, are feeling particularly squeezed, sources indicate.

The average network drama series today costs about $1.5 million per hour to make, with $1 million generally covered by the license fee from the U.S. network that commissioned the show. To close the gap, studios count on a patchwork of foreign sales.

Studio and financial sources say the $400,000 to $600,000 per episode a new hourlong, prime-time U.S. network series could be expected to make from international sales last year has eroded. In some cases, series are going unsold in various territories.

“We don’t buy the big Hollywood packages anymore,” says Sonia Talarewitz, director of acquisitions at the leading Spanish broadcaster network, Antena 3. “Before, we purchased many titles that didn’t get used, and so now we select more carefully.”

Hollywood theatrical films aren’t particularly hurt by the market change because a growth in international pay TV more than offsets the slowdown in free TV. Also, the economic base for theatrical films is more diversified with large home video and cinema revenue streams.

International TV sales executives at major studios don’t seem to be panicking, with some arguing there’s no downturn but merely a flattening. “Overall, I think the studios are looking at an overall increase in revenues, but clearly not as pronounced as in years past,” said Michael Grindon, president of Columbia TriStar International Television.

Germany--Hollywood’s biggest foreign export market, ahead of Japan, England or France--is a prime example of the slowdown in free-TV buying. In the early 1990s, German broadcasters routinely accepted “output deals,” agreeing to buy every film and TV series from Hollywood’s seven major studios (in what are also called “dump truck” deals since studios literally unload everything).

During that era, German buyers bid aggressively even before a studio’s existing deal ended. This year, Metro-Goldwyn-Mayer faced an eight-month gap before coming to terms with a buyer, broadcaster Pro Sieben.

Warner Bros. Television’s output deal with German leader RTL Television expired Aug. 31. Jeffrey Schlesinger, president of the studio’s international TV division, says Germany just got overheated. So he’s waiting before lining up another buyer, predicting business will pick up as networks get competitive.

For Germany, sources say the average price for terrestrial broadcast rights to a Hollywood studio film surged from $500,000 in 1991 to $2 million in just four years but is now sliding.

European program buyers also complain that this season’s crop of TV series from the U.S. is not compelling, lacking breakthrough shows in the mold of “The X-Files,” “ER” or “Beverly Hills, 90210.”

“Hollywood doesn’t produce the right programs anymore,” says Helmut Thoma, CEO of RTL Television. “Few hour shows and no sitcoms translate in Europe anymore,” which he blames on a tilt to more “American” and less universal themes. In the 1980s, “Knight Rider” was a smash hit for RTL.

“American shows are just not working in prime time anymore,” concurs Klaus Hallig, Los Angeles-based buyer for Germany’s other big TV buyer, KirchGroup.

That lament draws a sympathetic response from some executives in Hollywood.

Marion Edwards, an executive vice president at 20th Century Fox International Television, notes that “there were no ‘must-have’ shows” this TV season at a spring market attended by foreign buyers, calling it an off year in the fickle, up-and-down business of television programming.

Another factor dampening the international earnings power of a U.S. TV series is that there are so many. International broadcasters complain that they are choking on excess volume, as what had been a steady flow generated by three U.S. networks has escalated to a glut from seven networks today.

While European TV networks are no longer eager to buy large quantities, they are willing to pay up for a proven hit. Sources say the top handful of U.S. prime-time dramas rake in $1 million an episode from international sales after several years of success.

The contrast of big money for hits and a decline in sales value for weak series points to the emergence of a feast-or-famine pricing environment. Non-network syndicated series such as “Hercules: The Legendary Journeys” and “Baywatch” tap into that demand because they are particularly crafted for the international demand for (less verbal) action-adventure. In contrast, network series are geared for U.S. audiences.

Studio executives are pinning hopes that U.S. TV series sales will get a new surge as European cable/satellite networks that resemble TNT, Lifetime and Nick at Night in Europe come of age. However, most see European specialty cable channels as three to five years from being major spenders for programs and their ultimate appetite for Hollywood fare has yet to be proven.

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Robert Marich is a senior editor at Baskerville Communications, publisher of industry reports and newsletters, including Variety Deal Memo.