American media companies may be cutting back on the domestic front, but they are shopping heavily overseas. The object of their desires? Reality shows like Big Brother, Promzillas and Freaky Eaters.
As giant companies like Time Warner and Discovery obtain a growing portion of their revenue from overseas markets, they are homing in on a handful of relatively small foreign production houses.
They value these companies because they own what the industry calls ?formats? ? entertainment concepts like reality or game shows that can be plopped down in almost any country and find audiences regardless of cultural divides.
Though it is shedding assets in the United States, Time Warner made a $1.4-billion bid this month for Endemol, the Dutch production company behind reality stalwarts like Big Brother, Wipeout, and more recently Love in the Wild, a dating show set in a jungle. Also this month Discovery Communications acquired an outside production company for the first time when it paid an estimated $16 million for Betty, which makes Freaky Eaters and other British television shows.
Unlike a finished show that studios export to local partners who add subtitles or dubbing, a format is simply a piece of intellectual property. Local producers buy the rights to make, for instance, the Ukrainian version of Wipeout or the Nigerian edition of Big Brother, and big media companies take in revenue without having to invest much, if anything, in the productions. These global hits can bring in hundreds of millions in revenue over years.
Because they are typically reality series or game shows, formats cost much less than scripted Hollywood series and are often more popular, since audiences prefer to watch local celebrities or contestants. Also, the intellectual property can be updated or modified and sold over and over again. On December 12, NBC will introduce an updated version of Fear Factor after the original show was canceled in 2006.
?It?s not about the production companies, it?s about formats,? said David Bank, an equity research analyst at RBC Capital Markets. Referring to a game show that was a hit on NBC, he said, ?Deal or No Deal works in Mumbai. It works in Manila, and you don?t have to produce it.?Time Warner?s nonbinding cash bid for Endemol could ignite a bidding war as the production company restructures its $3.9 billion in debt. But lenders will most likely find the Time Warner offer low, given Endemol?s strong financial performance, analysts said.
Endemol declined to specifically comment on the bid. ?Our goal as a management team is to restructure the debt of the company, not to sell the business,? Endemol?s president and acting chief executive, Marco Bassetti, said in a phone interview.
The Biggest Loser has now been produced in 25 countries and shown in 90. In the Indian version, contestants do Bollywood-inspired dances to get in shape and learn how to bake whole-wheat naan. In the West Asian edition, women must cover themselves during weigh-ins and men and women mostly work out in separate gyms.
Thirty-three per cent of Discovery?s revenue last year came from international operations, compared with 46% for News Corporation, and 29% at Time Warner, according to Discovery?s latest investor presentation ? percentages that have all been growing in recent years.