TV Chiefs Yell ‘Cut’ on Costs

As sob stories go, Tim O’Donnell’s saga is no tear-jerker. For starters, he’s rich, big house-BMW-private-schools rich. His tale of woe is that he faces being, well, less rich.

O’Donnell is a television writer-producer.

Although movies grab the spotlight, everyone in Hollywood knows that television mints the most millionaires--and much richer ones at that. James Cameron created “Titanic,” one of the biggest movies of all time, but Larry David, one of the creators of “Seinfeld,” is the far wealthier man.

For the last decade, the television business has boomed. Spurred by an expansion in the number of television networks and increased demand for programming, the price for creative talent soared. Staff writers on even modestly successful shows could trade their Burbank apartments for Brentwood mansions.

“You could surf whatever wave that [came] along,” said Bill Grundfest, one of the original “Mad About You” writers, noting that even shows with middling ratings were passing for hits. “And then they backed the truck of money up to your house.”

The everyone-gets-rich part of the equation, however, is starting to change.

The broadcast networks, caught between escalating prices and plummeting advertising revenues, are cutting costs, as much as hundreds of millions of dollars a year. And the bacon in the business is the writer-producer.

“Fewer scripts have sold this season; fewer pilots will be made. Staffs are shrinking,” said Peter Benedek, a partner in United Talent Agency. “The notion that the entertainment industry is recession-proof is finished.”

Programming costs have risen 20% in the last three years. Hourlong dramas, on average, now can cost $2 million to produce, and half-hour sitcoms can cost $1 million per show.

“The process is bankrupt,” said Robert Iger, president of ABC’s parent, Walt Disney Co. “We’ve been lemmings to the sea” with expensive writer-producer deals that didn’t result in hit shows.

The halcyon days probably will continue for writer-producers such as David E. Kelley and Dick Wolf, whose hit shows “Ally McBeal” and “Law & Order,” respectfully, have elevated them to the pantheon of the profession.

But virtually everyone else can expect to get squeezed, according to several dozen talent agents, entertainment lawyers and studio and network executives interviewed for this story.

“I told my team we will produce a drama for the fall for a $500,000 license fee,” said Jeff Zucker, NBC’s president of entertainment, noting that cuts in the salaries of actors and writers will account for much of the cost savings. “I know it can be done.”

A Trickle-Down Effect on Industry

Considering television is a roughly $7-billion-a-year business accounting for as much as 70% of Los Angeles’ production industry, the livelihoods of thousands of writers are likely to be hit hard. Their lawyers, agents and the rest of the entourage that surrounds even the modestly rich of Los Angeles will see their income drop as well.

“Everyone will be affected,” said Peter Roth, president of Warner Bros. Television. “We cannot have costs continue to spiral upward.”

“With or without [Sept. 11], the economic trends were going to have to be reversed,” said Dana Walden, president of 20th Century Fox Television.

The television industry operates on a firm schedule. Writer-producers pitch their series ideas to the networks during the summer and early fall. The networks decide which pitches they will buy. The writers then turn those ideas into scripts. By January, the networks will decide which scripts are good enough to be produced as pilots. In May, the networks announce which pilots will become television series. About 1% of the ideas pitched to the networks become series.

At each point along the development track, writers are paid fees that can range from tens of thousands of dollars to millions, depending on the writer’s track record. Every aspect of a writer’s payment is subject to negotiation, according to agents.

To reduce the demand for sitcoms and dramas, the networks are filling their schedules with game shows and unscripted series as well as replaying first-run series on cable networks. The practice, called re-purposing, means one series can end up filling the time of two or three series.

“Producers of top shows who . . . made $750,000 a year and were in line to move up to the $2-million-to-$3-million overall development deal are going back to working for an episodic fee, $17,500 to $50,000,” Walden said. “They’re getting paid for a script, and only if it sells.”

Television writer O’Donnell expects to feel the pain. “People are going to hear my last quote [what a writer is paid for one script] was $65,000 an episode and that my next quote will be $40,000, and they’re not going to feel sorry for me,” said O’Donnell, who started out writing for the hit show “Growing Pains” and has since written for “Dave’s World” and “Clueless,” among other shows.

Considering writers may pen several scripts a year, that sounds plenty rich to folks who teach school or drive cabs. But they are the bourgeoisie of the television business. And, said O’Donnell, “the middle class is disappearing. . . . [That loss] ripples out through the town. It adds up.”

Market for Talent Cooling Down

One clear indication of long-term belt-tightening is the reduced number of overall deals for writers. To lock up the future work of someone deemed talented enough to create a successful show, a studio will put the writer under contract. The greater the competition for the writer, the richer the contract.

Warner Bros. Television signed one of the last big overall deals last year with “Dharma & Greg” creator Chuck Lorre for $7 million a year for four years.

There are about 250 writers with studio deals today, many paying the writers more than $1 million a year. That’s down 26% from last year’s 340 deals. That number is expected to take another fall next year.

Sony Pictures Entertainment, with several dozen television writers under contracts estimated to be worth $75 million, is pulling out of the business of making network shows. The studio determined television to be a hopelessly unprofitable business for many years to come.

With one fewer buyer in the market, agents predict that most of Sony’s writers will not find work at the other studios. Those who do certainly won’t find comparable salaries, the agents said.

This year, Michael Ovitz’s Artists Television Group closed its doors, leaving more than a dozen high-priced writers such as “Sex and the City” creator Darren Star and “Friends” producer Adam Chase scrambling for new deals. Those who landed at other studios agreed to work for less money.

Talent agents estimate that the remaining studios in the television production business have cut the budgets of those divisions by an average of 20%. The vast majority of that money would have gone to writer-producers.

Fox TV recently demanded a 2% across-the-board cut in all its shows in production, including “Ally McBeal” and “Malcolm in the Middle.” That follows a 10% cut in all development budgets this summer.

Warner Bros. TV last month dropped 10 writers from its roster of overall development deals in a cost-cutting move dictated by its corporate parent, AOL Time Warner Inc. The studio also has asked the producers of its current shows, including “Friends” and “West Wing,” to trim costs wherever possible.

Overall, the major broadcast networks bought 27% fewer scripts this year, the first step in the new-show development process, indicating they will be making fewer pilots and buying fewer shows.

“Everyone will get a little less, said John Wells, creator of “ER” and “West Wing” and former president of the Writers Guild of America West. “This is not an unusual cycle, but it may be longer, more pronounced. That’s what everyone is worried about.”

New Definitions for Success

Rewards in television traditionally were tied to success. When NBC ordered three extra seasons of “ER” in 1998, Warner Bros. Television negotiated a $13-million-per-episode fee from the network for its ratings winner. Creators Steven Spielberg, Wells and Michael Crichton each got tens of millions of dollars from the deal.

Competition among studios anxious to lock up the services of top writers created a new source of television wealth starting in 1995, when the demand for new shows exploded as the buyers expanded to six broadcast networks. Studios began throwing money at writers with even a passing relationship with a successful show, hoping that they had the Midas touch and could create a winner.

This was upfront, betting-on-the-come money--a separate, new cash spigot from the “ER” money or the traditional Aaron Spelling-sized wealth created when successful shows are sold into syndication. Hundreds of millions of dollars a year were added to the already potent television production industry.

“For a decade, we were out there aggressively investing in the TV business. Every mistake we made along the way was covered up by this robust market,” said Gary Newman, president of 20th Century Fox Television with Walden.

It became standard policy to offer the third-tier writer on the 30th-ranked show a couple of million dollars to sit in a studio office with an assistant and a cappuccino machine to try to think up the next “Friends.”

“Those are exactly the sort of aggressive, loose practices” the industry can no longer afford, Newman said.

The investments in fabulous deals didn’t result in the hits the studios had hoped for.

As always has been the case, many of the hits were surprises: a $50,000 script submitted on speculation from a new writer that became “Malcolm in the Middle” or the last hurrah of dismissed, former has-been David Chase that became “The Sopranos.”

The television industry party started winding down at the end of last year when the dot-com ad bubble burst. The hangover set in when this year’s ad slump left the networks with their current billion-dollar shortfall in revenues.

“All the people making television programming love the business and make a lot of money at it,” said Sony Corp. of America Chairman Howard Stringer. “But if the owners [of the studios] aren’t making money, the clash was inevitable.”

Kerry McCluggage, who recently resigned as chairman of Paramount Television Group, has heard the networks cry poor before. “There’s a history of the networks screaming that they’ve got to get a handle on costs, [but] the fiscal discipline never materializes. This time, with the TV ad market down, there is some fire behind the smoke,” he said.

Hollywood agents and lawyers said they are preparing their clients for the new economics of television.

“People want to work,” said Rick Rosen, head of television at Endeavor Agency. “They will cut their price.”