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Sony’s push for cable series profits

Feb 17, 2003  •  Post A Comment

Sir Howard Stringer stunned his peers 18 months ago by declaring Sony Pictures Television, of which he is chairman and CEO, would no longer produce prime-time series at a loss.
Most people took that to mean that Sony would no longer produce prime-time series period. After all, conventional wisdom says that profitability usually occurs only if a series makes it into syndication-and fewer than 10 percent of prime-time network series ever do.
Now Sony is determined to prove otherwise.
Some of the series Sony is producing for prime-time cable are breaking even the first season and posting profits as early as the second season. It is pushing the same envelope for original prime-time series it produces for the broadcast networks and syndication, where making ends meet comes with a different set of challenges. When Sony can execute its way it generally makes television series for at least 30 percent less than many of its competitors. It owns all or part of most of the estimated 30 series it produces.
One of the best examples of its success so far is “The Shield,” which Sony produces in conjunction with Fox Television Studios for FX for about $1 million per episode. Sources said that is about $800,000 less per hour than it might have cost to produce the series for a major broadcast network that can insist on high-priced talent on and off camera. Such caveats to a series pickup can inflate production costs by as much as $500,000 per episode, high-level industry sources said.
As a result of being able to make what Sony Television President Steve Mosko calls “smart choices,” “The Shield” will be modestly profitable in its second season. Overall, analysts estimate Sony’s restructured and streamlined television operations could post more than $270 million in profits in the fiscal year ending March 31 on about $1.5 billion in revenues. That represents a swing of more than $100 million from the prior year, fueled by an estimated $70 million in cost savings from last year’s consolidation and increasing program profits, which should grow at least another $50 million next season, well-placed sources said.
Mr. Mosko said Sony no longer maintains a contracted roster of in-house talent that it must support with an endless stream of mostly failed projects, which is an industrywide standard that vexes all of its peers.
When possible, it matches the best person to the job and works to stay within a budget that assumes little or no deficit financing.
The impetus for doing business this way is simple but effective: It accelerates the timetable for all parties to make money even on a modestly successful project.
By comparison, sources said, Sony’s production of “The Guardian,” which predates the company’s new business practices, costs closer to $2 million per episode, reflecting network-mandated talent and other production costs. With deficit financing at an estimated $800,000 per season, the series likely will not see steady profit until syndication, sources said.
Branded distribution
That Sony Television also is working more closely with other Sony units, such as the motion picture division, for access to top creative talent at reasonable prices, means it will enjoy a “Charlie’s Angels” series revival and an animated “Spider-Man” for MTV.
The television unit is contributing to a record estimated $1 billion in earnings Sony Pictures Entertainment is expected to post this fiscal year. The $14 billion domestic entertainment umbrella unit is, in fact, key to aiding Sony in establishing a branded media platform that can integrate and advance the company’s dynamic electronics devices and content.
Until that occurs, Mr. Mosko is leveraging what he has to create multiplatform gains elsewhere.
Sources said Mr. Mosko continued his discussions with NBC in New York last week about a possible multiplatform deal that could go beyond signing NBC’s owned stations for Sony’s new syndicated “eBay-TV” series this fall. A deal could include revenue-generating co-branded Web sites and local cable shows that also could include NBC’s Telemundo and partially owned Paxson stations, and possibly link to ShopNBC. Sources said Sony also has discussed a similarly broad “eBay-TV” association with Viacom, which can bring its TV and radio stations and its billboards to the mix. NBC, CBS and Sony declined comment on the discussions.
Sony will produce at least a half-dozen prime-time series pilots this spring for pickup on the broadcast networks this fall, working diligently to stick to its new alternative economic models. The pilots should cost an estimated $6 million to produce, compared with the 18 series pilots Sony was producing several years ago at more than three times the cost.
“We want to have these shows on the air in year two making money for ourselves and our partners, ” Mr. Mosko said. “That’s how we’re producing them from now. And we’ll only do the pilots we believe in.”
“We didn’t want to do it at a loss anymore,” Mr. Stringer said of his now infamous declaration of 18 months ago.
“The idea that you concentrate your talent in one place, like a network, and solve your problems by relying on a syndication market that has dried up a lot just doesn’t work, because this isn’t a science,” he said.
While the recent trend of less-expensive popular prime-time reality series represents a short-term boost to everyone’s bottom line, none of those series are expected to thrive in syndication. None of this season’s scripted series have emerged as a breakout hit. The longer-term solution is smarter, better business practices, Mr. Stringer and Mr. Mosko said in interviews.
That is why Sony Television’s story is an important one for the industry at a time when hand-wringing over meteoric program costs has become an obsession with the largest cable operators, who have the multiple revenue streams that suffering broadcasters lack. In recent weeks, cable operators have been complaining about program costs doubling up to 18 percent increases, and broadcasters have been topping their average 8 percent annual program cost increases.
Even a jubilant Viacom last week hedged its aggressive growth forecasts, realizing that robust advertising revenues could be adversely impacted by war and an economic downturn.
But Viacom has the advantage of being a self-sufficient producer and distributor of content that Sony seeks. (For instance Viacom’s syndication hit “Dr. Phil” is produced by Paramount, distributed by King World and broadcast by many of CBS’s owned TV stations and affiliates.)
That content-distribution dynamic and Viacom’s dedication to holding costs are the driving forces behind its record profitability at the corporate and even broadcast network levels, as Viacom President and Chief Operating Officer Mel Karmazin explained last week, and are helping to set a new industry standard.
While Sony is not inclined to acquire TV stations of its own, it could eventually seek a grand alliance with Viacom, NBC, a major cable operator such as Comcast, or a satellite provider such as DirecTV. Just a few years ago, Sony nearly secured such a deal with General Electric-owned NBC.
While Mr. Stringer saids he is not seriously considering any such alliance now, he is keeping all options open in his longtime pursuit of a branded Sony distribution platform.
“I’d like to find a way to create a Sony-branded environment somewhere, but I don’t know where that is,” he said.
Art of saying `No’
Analysts speculate that Sony may more immediately seek to launch its own digital networks or tiered digital services, supported by its film and TV library product. Sony also could acquire and convert an existing cable service such as American Movie Channel from Rainbow Media Group, or seek to align itself more closely with NBC’s recently acquired Bravo cable service.
Until something like that occurs, Sony is strengthening its hand by challenging costly conventions and perfecting the fine art of saying “no” to expensive TV production choices that cannot be justified.
Having better control of costs means companies ha
ve more control of their destiny, and more growth options, both Mr. Mosko and Mr. Stringer said.
UBS Warburg recently issued a report on Sony saying the television group and SPE are the “secret weapon” to the company’s achieving a new level of profitability by providing network-distributed digitally encoded content that will more firmly integrate the company’s electronics devices and software and grow its market share.
Mr. Mosko is adamant about wanting Sony to keep more of the value that it now creates for cable and broadcast networks to whom it licenses its product. The advent of the video-on-demand era almost makes it imperative.
“We got rid of the overhead and some of the practices that have been killing us on the series side,” he said. “Now we have to push forward and position ourselves for the digital age, where it’s less about saving money and all about making it.”