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Nets make no cents for Sony

Oct 22, 2001  •  Post A Comment

It’s the money, stupid.
That’s the message sent loud and clear last week when Columbia TriStar Television said it was terminating any future TV development with the broadcast networks.
“In the post fin-syn world, we were supposed to make it up on the back-end, and we don’t anymore,” said Howard Stringer, chairman and CEO of Columbia TriStar parent Sony Corp. of America.
“The deck is stacked. Anyone who is interested in changing the nature of the deck, I am game to meet. But those are going to be under our terms, not somebody else’s,” he said.
Mr. Stringer told Electronic Media he wants “to inspire a debate and not get into recriminations,” preferring to confer privately with key broadcast network and talent agency executives on the matter than to publicly hammer out solutions.
“A long time ago, when shows like `Dallas’ were made, they went on the air and the immediate week’s show was in profit for both the network and the supplier. Gradually, the balance of power changed. When fin-syn was broken, it changed again. And now nobody makes any money,” he said.
“The independent stations disappeared. Now they are all owned by large companies. There isn’t the same place in syndication to cover your losses and deficits in the early end of the development and in the early years on the network.” Mr. Stringer said.
The situation has been exacerbated by the fact that broadcast and cable networks increasingly have reached outside the Hollywood community for reality, news and game shows.
Industry executives said losing Sony as a major broadcast network supplier, even at a time when most networks own a stake in or produce a majority of their prime-time programs, would be bad for business.
“Sure we are forcing companies like Sony to share more of their upside with us, but we’re also paying companies like Sony a lot of money for too many properties that don’t work,” said one network executive who asked not to be identified.
Broadcast network executives point out that their business remains fairly healthy even in a bad economy.
“This is all very straightforward,” said Christopher Dixon, analyst at UBS Warburg. “If you have a television network, you can be in the television production [business]. If you don’t own a television network like Sony, then you have to be assured sufficient license fees to cover the cost of production.”
With international program licenses drying up, and most of the broadcast networks insisting on equity participation in programs they air, “Sony probably figures, why be in business?” Mr. Dixon said.
Indeed, even media conglomerates with broadcast networks such as Walt Disney Co. and Viacom are having a tough go of it.
Columbia TriStar will continue to produce and distribute shows for first-run syndication and cable.
But as for continuing to develop shows for the broadcast networks, Mr. Stringer said, “The dilution and the number of shows that have to be created, and the number of outlets for them, makes it harder and harder to get this business right.”
Tom Wolzien, an analyst at Sanford Bernstein, has been studying the problem he calls “massive distribution,” or the diffusion of programs, viewers and advertising dollars across a rapidly growing number of smaller-scale broadcast and cable television, subscription television, home video, Internet and other new platforms.
“What [Mr. Stringer] is saying is that they have to push more money to the front of these deals because the back-end profitability isn’t there anymore,” Mr. Wolzien said.
“But the broadcasters don’t have the money anymore, either. Their declining market shares coupled with this severe advertising weakness means that no one has the money anymore to make profitable programs the way they used to,” Mr. Wolzien said.
“There is no concentrated money or audience or advertising platform anymore. There is just massive capacity,” Mr. Wolzien said. “We’ve reached a crisis point. The broadcast networks and producers are complaining that their costs are too high and their profits too thin. The stars are being paid too much and the advertisers are spending too little. It will be interesting to see if [Mr. Stringer] can get everyone to sit down and work this out.”
Mr. Stringer said his decision to discontinue future broadcast network program development and production was not mandated by financially troubled Japan-based parent Sony Corp. “This has nothing to do with cutting costs. I’m trying to get out in front on this issue,” he said.
“My responsibility to Sony’s owners is to find a way to make this business more profitable and more creative,” he said, adding, “Why is saying `no’ in Hollywood so hard?”