Small is beautiful

By Ed Waller 17-07-2015

Over the past decade, UK independent producers have been one of the biggest driving forces behind the global market for TV formats. Whether it’s unscripted factual entertainment and quizzes or scripted comedies and drama, UK indies have been at the forefront of the decade-long boom in IP for TV.

But things are changing fast in the UK indie sector. A new report from indie trade body Pact, titled Independent Production Sector Financial Census and Survey 2015 and released earlier this week, reveals some interesting trends that could have major consequences for the UK’s position in the international format industry.

The UK indie sector is shrinking, for one. The Census reveals that it contracted for the first time since the Census began in 2004, soon after the UK’s revised terms of trade shifted programme rights from broadcasters to indies and propelled them on to the international stage.

The overall size of the UK indie production industry in 2014 fell from a peak of just over £3bn (US$4.7bn) in 2013 to just below £2.89bn. The dip in revenues was mainly driven by a fall in UK commissions – overall commissioning spend for independents fell from £1.76bn in 2013 to £1.63bn last year – compounded by declining international revenues, according to the Census.

After six years of successive growth, due in part to the UK’s format exports, international revenues were down. The total for all international revenues (including commissions and sales of UK programmes) fell 5.2% from £939m in 2013 to £891m last year. After steady growth since 2008, international revenues are suddenly £48m adrift.

Of relevance to the international formats sector, the report details UK indie revenues from licensing of format rights. That figure was up from £15.15m (5% of the £303m total revenue from international rights) to £18.2m (5% of £364m).

However, much of the international revenue from UK formats is hidden in the much bigger figure for direct commissions from non-UK channels, given the way formats are increasingly travelling via overseas production subsidiaries instead of being licensed to third parties.

The figure for international commissions, however, was down 6.5%, from £640m in 2013 to £599m last year. The research company behind the Census, Oliver & Ohlbaum Associates, didn’t differentiate between formatted and unformatted international commissions so it’s hard to judge how much the decline was due to any fall in format exports, However, the drop of more than £40m wipes out the small increase of a little more than £3m in format licensing revenues.

In trying to explain the international revenue figures, one could point to a number of trends sweeping through the global industry. UK indies and their overseas production arms were once the go-to guys for hot formats but now they face competition from not only increasingly ambitious local producers but a new generation of format exporters in Turkey, South Korea, Israel and elsewhere.

Furthermore, some of the big UK superindies have been embroiled in consolidation activities, perhaps to the detriment of their original development schedules, and this might have resulted in fewer hot formats reaching the global market and consequently fewer international commissions.

This also might explain another key finding of the Pact Census, that for the second year running, smaller UK indies (defined as those turning over up to £10m) and mid-sized indies (between £10m and £70m) increased their share of spending on indie commissions last year. Small indies lifted their share of the market from 10% to 16% and those turning over between £10m and £25m went up from 14% to 18%, while those turning over £25m-£70m saw their market share fall from 40% to 37%. Market share for those UK indies enjoying turnovers of more than £70m tumbled from 37% in 2013 to 29% last year.

Basically, the increasingly M&A-focused superindies are getting a smaller slice of a shrinking pie, since the value of total indie commissions fell by 7%. And it’s those superindies that are the ones usually winning overseas commissions based on their UK hits.

But if UK indies are starting to worry about declining international revenues, the Census revealed some good news too. Perhaps subconsciously hearing the gripes of global format buyers that there are no new ideas in a market dominated by 10-year-old format franchises, the UK indie sector enjoyed a good year for new commissions as opposed to renewals.

Ensuring that some new IP should be hitting the global market soon, UK networks commissioned a higher proportion of new commissions in 2014, with some showing significant increases. The BBC has the highest proportion of new commissions versus returning series (46%/54%), alongside Channel 4/S4C (33%/67%) and Channel 5 (38%/62%). ITV, however, has a low proportion of new orders, which comprised just 15% of all commissions last year.

It seems the trends are that smaller UK indie producers are stealing more commissions from the production giants; there are more new ideas being commissioned rather than just the established franchises being renewed; and there’s a boost in format licensing to producers overseas, rather than the market being dominated by vertically integrated production groups keeping their IP in-house.

Could this apparent rebirth of the old-school format industry last? With so many of the new ideas being commissioned by publicly owned broadcasters like the BBC and Channel 4, and the rise in commissions for smaller and mid-sized indies largely down to the BBC, that all depends on Messrs Cameron, Osborne and Whittingdale.

For a copy of Pact’s Independent Production Sector Financial Census and Survey 2015, from Oliver & Ohlbaum Associates, click here.