The Distributors League Table

Secret Diary of a Call Girl: helped boost IMG's turnover

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The latest financial results for the UK's top distributors may herald a watershed year; revenues are up, thanks to strong growth from mid-sized companies, but there are signs that the market is cooling.

There were plenty of reasons to be cheerful for the UK distribution sector in the financial year 2007/08, with total turnover topping the £1bn mark for the first time and British formats increasing their dominance of the international market.

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It was also a year that saw considerable consolidation in the sector, with well established players such as Minotaur and Channel 4 International snapped up by fast-growing rivals. While there was no change to the top four distributors, it was medium-sized companies that drove much of the expansion in the sector.

After several years of strong growth, 2007/08 might also prove to be a watershed time for the market. With many countries sliding towards recession, there are growing concerns the next 12 months will see broadcasters tightening their belts. And while acquisitions might be more affordable than original programming, distributors are still likely to feel the impact.

Indeed, there may already be some signs of the market cooling, with growth this year slower than in 2006/07. Looking at the top 30 companies, total turnover was up just 7% (£66.6m), from £940.67m to £1,007.3m, compared with nearly 19% last year. With 56% of respondents admitting they are concerned about the impact of the credit crunch, it's clear that the slowdown is preying on people's minds.

"Everyone's got to be concerned about it," argues Paul Heaney, managing director of Cineflix International. "The glib response is: 'It's OK, in a recession people acquire more and commission less.' But it will have an effect because there's going to be a less rich stream of content coming through."

That said, 2007/08 was another healthy year for most distributors, with 20 out of 36 participating companies reporting improved results. And, while some familiar names may be missing from the league table, a number of new players have made it into this year's survey.

Gone are Minotaur and Channel 4 International, following their respective sales to Target Entertainment and DRG, while Bullseye was acquired by Scandinavian group Zodiak and relaunched as Zodiak International.

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The shock of the new
Other new names include drama and reality outfit Alchemy and factual specialist Steadfast International, neither of which existed when Broadcast first surveyed the distribution sector four years ago.

In both cases, their 2007/08 results are probably not a fair reflection of the current health of their distribution activities. Steadfast only launched a year and half ago, initially handling its own productions, but a recent alliance with US distributor CableReady has expanded its third party slate considerably.

Alchemy, meanwhile, launched three years ago but has only recently started to make waves, thanks to big-budget mini-series such as Burn Up and Coco Chanel, as well as its first drama series, Flashpoint, which launched on US network CBS to strong ratings this summer.

Also new to the league table is Australian distributor Beyond - which, like Southern Star, operates a London-based sales business, in addition to offices in Sydney and Dublin. In fact the company has actively traded in the UK for more than 15 years, but this is the first year it has provided financial figures to Broadcast.

This year's league table has also been extended to include indie producers which sell their own programming via an in-house sales division. Of these, Optomen and Hat Trick International reported the highest turnovers, while Mentorn's profit margin demonstrates the impact that international revenues can have on a producer's bottom line.

Indeed, given the healthy turnovers generated by all the indie producers in the survey, it's perhaps surprising that more companies don't handle their own sales in-house. As Leopard Films CEO James Burstall puts it: "Why would we give away 30% of our revenue? It doesn't make financial sense. Budgets are tight, we need every penny we can get."

of respondents are concerned about the credit crunch

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Movers and shakers
While it was the big four distributors which grew the most in absolute terms in 2006, this year much of the growth came from the 11 companies in the £10m to £100m bracket. Average turnover among this group was £25.2m, up from £21.7m in 2006/07, with much of the increase down to last year's wave of consolidation.

Target Entertainment, for example, saw its distribution turnover increase by £5.5m following its acquisition of Minotaur last August, while DRG, which gobbled up Channel 4 International, Zeal and iD Distribution last year, overtook the likes of All3Media International and RDF Rights as revenues rose by £10.6m.

It was children's outfit Entertainment Rights where turnover increased the most in actual terms, up from £25m to £58.9m. Again, this was the result of M&A activity, following the company's $210m purchase of US firm Classic Media in January 2007.

Not all the sector's growth was down to acquisitions. This year's fastest growing company was boutique animation outfit Cake Distribution, which saw a huge increase in turnover, thanks partly to the success of its animated series Skunk-Fu!, which has been sold to territories around the world, including Cartoon Network and the CW in the US.

"This year we're going to have even more substantial growth, mainly coming from the US," says Cake commercial director Genevieve Dexter.
At the top of the table, meanwhile, there was no real challenge to the dominance of BBC Worldwide, IMG, ITV Worldwide and Fremantle Media, all of which generated revenues of more than £100m once again. Between them the four companies generated £653m in turnover, accounting for 64.3% of total revenue.

However, the big four's growth was slower than in previous years, up just 2.8% from £635.5m in 2006. And BBC Worldwide's programme sales were actually slightly down on last year (by £200,000). That said, it remains some way ahead of its rivals and profits for the sales division were up.

"Our revenue dipped because our co-productions are down slightly, mainly in the US," explains Steve Macallister, BBC Worldwide managing director of global TV sales. "It doesn't actually affect profits."

Actual sales of finished programmes were up 16% year on year, adds Macallister. And both IMG and ITV were equally keen to stress their sales were far healthier than a top-line reading of the figures suggest.

IMG's figures did not include an extra £2.5m generated from sponsor-funded programming, for instance, while the company's non-sports distribution business enjoyed its best year to date, thanks to the success of shows such as Tiger Aspect's Secret Diary of a Call Girl and US format Make Me a Supermodel.

"This year, Secret Diary... will do as much in sales as the whole business did two years ago," says Mark Young, who joined IMG as senior VP, entertainment sales and acquisitions from BBC Worldwide last year.

Hard times
Among the lower reaches of the table, in contrast, life continues to get tougher for those smaller players without a guaranteed supply of programming or the deep pockets needed to secure third-party rights.

Among the 21 companies which generated revenues of less than £10m in 2007/08, average turnover was £4.1m, down slightly from £4.5m the previous year. Overall, the number of companies reporting a decline in turnover was seven, the same as in -last year's survey, while the number of companies which ended the financial year feeling more confident than a year ago was down slightly, from 89.2% to 87.9%.

And with the credit crunch starting to bite, the prospects of selling out to a larger rival seem much less likely than they did a year ago. Only 34.6% of companies said they were looking to acquire or merge in the coming year, compared with 57% last year.