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The consolidation game

By Ed Waller 28-07-2014

The issue of consolidation and its impact on the international formats industry has been forced front of mind in recent months, following a spate of mergers and acquisitions (M&A) activity on both sides of the pond.

Merger ahead

Consolidation has always been seen by some as something of an unwelcome guest at the global formats party, a natural consequence of success but one that has had quite an impact on what was once simply a bunch of like-minded creative types who met at bars in Cannes, Montreux or Los Angeles and licenced each others’ ideas to produce in their own markets.

Fifteen or more years ago, at the beginning of the international format industry, that’s pretty much how it worked. People would fly to Cannes to see what crazy ideas were being produced in far-flung markets that could be borrowed, perhaps even licensed, to take home to produce locally. The industry was essentially producer-to-producer, with perhaps a few middlemen outfits like Distraction Formats.

Fast-forward to July 2014, and we have 21st Century Fox bidding US$80bn for Warner Bros but possibly being pipped to the post by Google, Amazon or Apple, while Endemol, Core Media and Shine Group look set to merge and All3Media is now owned by Discovery and ITV’s part-owner Liberty. Things have certainly changed.

In the intervening years, there was a gradual shift in emphasis from licensing intellectual property to third parties towards the model of retaining IP in order to produce whatever local versions it spawns yourself. It’s now about keeping both the format fee and the production fee, cutting out the middlemen, retaining creative control of the brand, owning the relationship with the broadcaster and keeping as much of the money in-house as possible.

The rise of formats over the past 15 years is usually explained by the role they play for broadcasters, such as reducing risk and increasing the chances of success. But, equally, it’s their strategic role in allowing production groups to expand into production sectors in other territories that has made them so valuable on the supply side.

Even today, a substantial part of the global format production industry is about IP moving around within multi-territory companies rather than licensing it outside them. Some format ‘deals’ soon might not even involve any third parties, as the same company will own the format, the production entities and the channels airing both the original show and the local remakes.

However, it is consolidation’s effect on the creative process that some people have issues with. Creative folks work best in smaller outfits, goes the argument, and so don’t thrive in vertically integrated factories. Also, those factories tend to rely on their vast catalogues of existing formats rather than embrace the risk and associated costs of developing new ideas.

Also, those toiling outside of the industry’s behemoths often complain about how their access to new formats is restricted by the power of the bigger players, which are often accused of defensive optioning just to take rival formats out of the market.

There is some basis to these concerns but, nevertheless, having parents with deep pockets is often what allows creative units within those machines the opportunity to take chances with new ideas, and broadcasters certainly like the idea of sharing risks with the companies encouraging them to take a punt of untested ideas.

Whatever the pros and cons of consolidation, the industry is only going to get more consolidated as even bigger players get into the video content business, and soon the rather quaint origins of the format business will be even further from reality. The upside is the more consolidation, the more likely the creatives will feel tempted to start afresh – and the industry lifecycle continues, in turn giving opportunities to the smaller players.

today's correspondent

Ed Waller Editorial director
Ed Waller PERSP 2

Ed Waller is a media journalist working out of London, England.

He is editorial director for C21 Media, which publishes the leading international TV trade website C21Media.net and print magazines Channel 21 International and C21 Kids. He also regularly contributes to UK national newspapers including The Guardian, The Independent and The Sunday Times.

Ed previously worked at trade magazines Televisual Magazine and Asia-Pacific Satellite.

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