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Financing the deficit ain't easy, but producers get creative aid.

Deficit financing has become the buzz word of the TV industry, and the issue itself is a dominant theme among producers and distributors.

It is a major headache for distributors, who find themselves under ever-increasing pressure to achieve increases in foreign income to at least partially make up for the losses at home, and it is generating a lot of talk and thought about possible ancillary income that can and will propel programs into overall profit.

According to a recent report by the Alliance of Motion Picture and Television Producers (AMPTP), producers creating shows for U.S. network primetime can be expected to accumulate deficits running close to a half billion dollars during the 1991-92 season.

The cause of all this comes from two factors:1. The networks' tendency to pay lower license fees, and 2. the continual rise in production costs.

The deficits arise from the difference between the cost of a production, and the amount the producer can recoup from a showing on the network. It's pointed out that this gap has always existed, but it was never as significant as it is now, and the problems of bridging it have never been as acute.

Steven Maier, whose company acts as a catalyst between U.S. and European producers to create acceptable coproduction formulas, said "the line of American producers looking for European money to help them lower the deficit has never been longer. They are literally standing around the block, and the Europeans aren't as eager as they were before. They are now thinking of different formulas when it comes to production."

Bill Miller, the new distribution chairman of Hearst Entertainment, said producers have a tendency to look at coproduction deals simply to help them break even. "That isn't enough," said Miller. "You still have those huge operational costs.

"Actually, some of those deficits aren't so insurmountable. But bridging them cuts into the profitability of the shows. And you have to figure the entire output. Someone has to carry the failures as well. When you look at it across the board, it's a lot larger."

At Worldvision, Burt Cohen, the executive v.p., said that at MIPCOM, Spelling Television, the parent company, is going to aggressively beat the bushes for coproduction partners, partly to meet the problem of deficit financing.

What this basically amounts to with most companies is that a foreign partner invests in a project--usually in advance--and in return receives the rights for his territory, or else for a part of Eu rope, in other words a pre-sell.

According to AMPTP, the average cost of a half-hour sitcom taped last season was around $959,000, an increase of some 37 per cent over the prior season. On that amount, the deficit gap for each is about $273,000 which is more than five times the amount racked up just five years ago.

Deficits for filmed sitcoms run even larger, and come to around $391,000, which adds up to better than 60 per cent over the year before.

Network licensing fees are declining steadily. The average for a filmed half-hour program this season was $5 5 8,000 whereas last year the same type of program got $597,000. The average cost of filmed dramas now is given as about $ 1.43 million. According to A M PTR fees paid by the networks have kept reasonable pace with the cost increases for full-hour shows. Still, each episode is likely to incur a deficit of about $307,000.

Established shows do better than new ones. For instance, a new half-hour program, which used to get $493,000 from a U.S. network in the past, now gets only $45 3,000, and the fees for new full-hour projects also are dropping.

In the past, because "they don't travel," U.S. sitcoms could only rake in up to $125,000 per episode worldwide which, added to the networks' fee, made producers break-even, while the U.S. syndication market brought in the "gravy."

Today, considering sitcoms' costs and topics, their international marketing is increasingly difficult, earning not more than $90,000 per episode. With the domestic syndication market in the doldrums and a glut of offnet sitcoms, the prospect to recap the deficit is now virtually nil.

All of which adds up to an array of headaches for the producers, and even the networks themselves since, when they go into production, they create their own deficit financing problems.

General Electric, which had been picking up the deficit financing for its NBC projects, had told the network that it would no longer do so, and that NBC would have to pre-sell the deficit abroad.

Other companies, taking a hard look at deficit financing, have decided to cut their losses. MGM, for instance, bowed out of network TV production altogether. According to some reports, Credit Lyonnais, which holds the purse strings at MGM, didn't like the deficits resulting from making shows for the networks and didn't wish to assume the resultant risks.

Because of the deficit financing situation, the home office pressures on foreign sales executives to come up with revenue increases have risen to what some say are unreasonable levels. Observers say the deepening of the deficit problem is forcing the planners to look into different directions, both at home and abroad, in an effort to seek out additional ancillary income. Video is of little help since the video market in most countries is down quite considerably.

What is mentioned most often is pay-per-view, which some feel has great potential for the future. Others said that cable and satellites will contribute much more in the future. But the real and simplest solution--as one executive wryly put it--is to "simply bring down production costs. That's the answer to a large part of the problem."
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Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Publication:Video Age International
Date:Oct 1, 1992
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