Weekly: What links seven days of ‘momentous’ industry headlines

It has been quite the seven days for momentous industry headlines.

First, Paramount finally found a deal that stacked up for shareholders of Warner Bros Discovery, proving that persistence (and plenty of billions of dollars of backing from your father) pays off.

Then, Banijay and All3Media confirmed a coupling up that has been years in the making, albeit with the more recent intervention of a Middle East-backed investment fund.

And then the BBC provided a 100-page response to a UK government Green Paper, setting out the future scope of the world’s most famous public broadcaster and its potential funding models, while also underlining rampant inflation and the impact of global streamers on national PSB’s.

These three news events may, on the face of it, seem relatively unconnected: one involves two US Hollywood studios; the second reflects a Paris-based group expanding its English-language reach; and the third relates to an existential crisis that has been enveloping the UK’s public broadcaster for several years now.

Yet they are all part and parcel of the same thing.

Take the BBC’s figures on production inflation, revealed on Thursday, which showed that the broadcaster’s premium drama has seen an average cost increase of 10.5% each year between 2019 and 2026.

It’s a figure that is at once both shocking but also to be expected, given the serious travails that producers have faced over recent years. It means that if a mid-range drama cost, say, £3m in 2019, it would now cost north of £6m per episode in 2026 - barely seven years later.

In an industry where two years between greenlight and on screen is almost par for the course, the perilous nature of the production business becomes abundantly clear.

Such inflation doesn’t mean viewers are getting a show that is twice as good, of course. It’s the same quality of drama on screen with the same production values and the same actors. It just costs twice as much to produce.

‘Global economies of scale’

Multiply that across the BBC’s drama output and it’s easy to see how scripted is contributing to the broadcaster’s existential crisis, especially when coupled with the fact that coproduction partners are less cosy than they were and non-licence fee paying is increasing more quickly than predicted.

“Global media and technology companies have tapped into economies of scale that no UK media company has access to,” the broadcaster said, “driving up the price of making content as they have expanded reach globally, and driving down the price of selling it.”

Indeed, the BBC’s travails are not so different to those facing Paramount.

Behind the curve of Netflix, the David Ellison-led company had to acquire Warner Bros Discovery if it wanted to achieve anywhere near the economies of scale that the world’s leading streamer enjoys.

That’s why Ellison and co fought so hard and dug so deep. And it’s perhaps why industry reaction to the deal has been relatively soft - very few people within the industry would want two US studios to merge, but if that’s the alternative to the world’s most dominant streamer owning WBD, then it might be the least bitter pill to swallow.

Once combined, Paramount-WBD will be able to use its improve economies of scale to better compete with Netflix globally, delivering better returns on its investments in programming.

And then there’s the supply side, and the likes of territory straddling companies such as Banijay and All3Media.

Both the BBC and the global streamers are clients, both are under pressure to perform, and both are squeezing ever harder on suppliers to get the best possible deal.

One way to mitigate the effects of this is to bulk up, to create a company that houses more premium talent and IP, which can then be leveraged in what are becoming increasingly tough conversations with those on the buying side. 

But Banijay and All3 also clearly share a vision over how they see the industry developing, of holding large amounts of IP coupled with the global mechanisms to monetise it. That is a future-facing business - one made easier if economies of scale are at play.

A bigger Banijay will be better able to translate its IP into whichever vertical it prefers and can profit from - whether that’s shows being cut up and placed on YouTube and socials, a theatre production or live experience, or a spin-off show. Or just good old fashioned merch.

The days of simply producing a show for a buyer, building in some margin and taking some of the resultant waterfall from global sales are not over - that industry still exists, as savvy operators make the sums stack up by embracing new partnerships, leverage soft money and develop innovative financing models, even when faced with the clout of global streamers.

But Banijay chief exec Marco Bassetti, who described his company’s deal for All3 as “momentous”, made little secret over how he believes the industry may look in the not so distant future - a world in which producers, even giant groups such as his own entity, look to go increasingly direct-to-consumer to deliver returns.

Changing viewing habits that have embraced streaming, social and YouTube are transforming the economics of production and consumption - and the events of the past seven days have underlined that.