The internet and the emergence of a global market for high-end series has ushered in a golden age of TV production and seismic changes to the media environment. Legal Business reports on the lawyers working in one of the fastest-changing industries.
These days, the small screen is big business. Popular television programmes, like period drama Downton Abbey, cost an average of around £1m to produce per hour of screen time, whereas fantasy epic Game of Thrones has reached new financial heights, with a budget of up to $8m (£5.3m) per episode.
Often involved from initial negotiations with writers to final broadcast, the in-house media teams and their external counsel continue to benefit from working in an increasingly competitive environment. Lawyers working for major broadcasters to independent TV production companies are busier than ever before.
‘The downturn meant that people were really cutting back, but now one observation is that there are a lot more deals and a lot more money coming into the market,’ says Nick Swimer, a former in-house lawyer at Channel 4, now a partner in Reed Smith’s entertainment and media industry group.
In many ways, the catalyst for so much change in television dates back as far as 2003. The terms of trade, which gave independent production companies (‘indies’) copyright of their programmes over broadcasters, was enshrined in the Communications Act, and helped to transform the British broadcast and production industry.
‘Broadcasters could now only license programmes from the production companies,’ says Medwyn Jones, a partner at Wiggin specialising in the UK independent television sector that includes Neal Street Productions, which the firm last month advised on its acquisition by All3Media. ‘That has really been the reason why the independent sector has grown massively in the last ten years or so and why there has been so much corporate activity, with companies being bought and sold for many millions of pounds.’
Indies with valuable assets are an attractive proposition for US investors, who have flooded the market in recent years. These US companies are known as ‘aggregators’ – groups that have come together and aggregated a number of production companies or groups that are owned by large conglomerates. Carnival Film & Television, the UK’s leading independent drama producer and maker of shows including Downton Abbey, is owned by US media giant NBC Universal, following a £30m acquisition in 2008. Other recent standout deals in the sector include the £550m acquisition of British ‘super indie’ All3Media last May by US entertainment group Discovery Communications and Liberty Global, the owner of Virgin Media, as well as the purchase and subsequent rebranding of Shed Media by Time Warner in June 2014 (Shed Media is now Warner Bros Entertainment’s UK television productions operation). UK public broadcasters are also lucrative assets, evidenced by US media group Viacom’s acquisition of Channel 5 from Northern & Shell for £450m, also in 2014.
‘We have some of the best production and writing talent here,’ adds Jones. ‘Also, the government brought in a tax credit for high-end drama two years ago. If your drama has a slot value and it is costing you more than £1m to make, you can get a tax rebate equal or up to 25% of your spend. The production costs in the UK for a variety of reasons are 60% of what they would be in the States.’
Blurred lines
Alongside government regulation and US investment, technological advancement has resulted in a myriad of new platforms and ways of viewing content, with increased digitalisation meaning that the old linear television model (ie watching broadcast TV at the scheduled time) is becoming increasingly redundant.
‘In four-and-a-half years in the job I have witnessed quite a lot of change,’ reflects Channel 5’s general counsel (GC) Marcus Lee. ‘Digital forms of distribution have really grown, and that is in terms of the breadth of content available and also the different means of accessing them. For example, Channel 5 has gone from six platforms to 22. There are a few reasons for that. There is the speed and availability of broadband – broadband is now available in 80% of UK homes. You’ve got smart TVs and over-the-top service providers, like Netflix and Amazon Prime. And the platforms are all fiercely competing with each other in terms of what’s available and the functionality viewers are offered.’
He continues: ‘We have got to keep pace with that and those viewing habits that are changing. Four-and-a-half years ago there was a lower percentage of people who would generally think of watching in a non-linear way. Now there are a number of sources of content to access and a number of ways of getting to them. For some episodes of our recent run of Celebrity Big Brother, a fifth of the audience was delivered by our catch-up service Demand 5.’
Responding to the more competitive market, traditional broadcasters are now investing heavily in creating their own content, as a means to differentiate themselves. This has meant the distinction between production and broadcasting has become increasingly blurred.
‘We have significantly stepped up our investment in our own produced content,’ says Sky GC James Conyers. ‘We have commissioned content from the word go, but we have significantly stepped up our investment, particularly in comedy and drama. We have had to increase the amount of resource that we dedicate to content commissioning, as opposed to content acquisition, so the balance between those two activities has changed.’
Lee adds: ‘Channel 5 no longer just commissions content from production companies and US studios. It also makes its own content, so our team has had to adapt to business needs accordingly and that is going to be a continuing trend over the next few years. The real bread and butter for us previously were production agreements with indies and acquisition agreements with studios. Now we are handling talent agreements, location agreements and clearances, for example.’
While there is no doubt that the media landscape has changed dramatically, the question remains as to how much the day-to-day legal work and structure of in-house media teams has adapted to accommodate that change.
Tony Ghee, a partner at Taylor Wessing and former in-house lawyer for Australia’s Network Ten, feels little has changed fundamentally: in-house teams are doing regulation, production work and the agreements with the director or the cast in much the same way as it was 20 years ago. ‘Obviously, digitalisation changes everything because the nature of the rights is constantly evolving. What rights you get, how you divide the cake, who gets what and when they get them are things that are constantly changing. How you maximise the asset is always the issue.’
Compliance with the regulators is cited by ITV’s GC and company secretary Andrew Garard as an issue that continues to stretch his in-house team, as well as the business itself. ‘The level of regulation is quite astonishing. We produce over 40 reports for Ofcom a month. Every advert that is played out on an ITV channel has to comply with standards to make sure it is fit for broadcast and is not misleading. Every programme has to comply with regulations to be fit for broadcast. Everything that we broadcast is also subject to regulatory requirements as to where it was made.’
However, as Garard points out, although technology has thrown up new challenges for media lawyers, they are often wrestling with more traditional forms of media law, including defamation. This is especially true when it comes to programming that is particularly controversial or revelatory. When the legal team worked on the ITV1 documentary Exposure: The other side of Jimmy Savile, it took them nine months to carry out investigations and ensure all the evidence was factually accurate. ‘Where there were things we didn’t think could really stand up, they were omitted from the programme,’ says Garard.
Content is king
Traditionally, the main broadcasters, including ITV and Sky, have large in-house teams that are closely aligned to different areas of the business. The team at Channel 4 in particular, led by GC – legal, compliance and governance, Prash Naik, is noted as being ‘very fleet of foot’.
Sky, led by Conyers, has a team of 120 lawyers that is consistently praised by private practice lawyers, who describe it as a ‘force to be reckoned with – they play a bit of a numbers game, but it is always an experience being up against Sky in a negotiation’.
Says Conyers: ‘The team is sizeable because we are not just a broadcaster anymore fundamentally. Even within the broadcasting space, we’re not just acquiring programming or producing programming for inclusion in our own channels. We are also negotiating for carriage of other people’s channels so we can provide them to our customers. We are a multi-product business – we provide internet services to customers, as well as telephony services.’
At ITV, Garard manages a team of 85 lawyers in the UK and over 30 lawyers spread worldwide, including in the US, Hong Kong, Australia, Sweden and now the Netherlands following the acquisition of Talpa Media. He notes that the structure is in a constant state of flux as the business keeps evolving. Broadly, teams are split between broadcast, which handles the commissioning of programmes, and ITV Studios, which does the legal work connected with the production of a programme. On top of that, there is a compliance team that ensures programmes are fit for broadcast; a commercial team that oversees almost 4,000 forms of advertising contracts each year; and a central legal team, which handles all of the group projects, whether that is related to technology, M&A, litigation or intellectual property (IP).
‘Most of the core value work, we continue to do in-house, but where, for example, technology throws up a new way of delivering content, we are not necessarily going to have that expertise,’ says Garard. ‘There is a lot of work connected with the launch of a channel – a certain amount we can do in-house, but where we are looking at launching channels internationally, we probably don’t have the expertise.’
In contrast, teams at indies are much smaller and are as likely to integrate in the business as sit in a centralised function. Chief operating officer (COO) David O’Donoghue and head of business affairs Aliboo Bradbury from the team at Carnival in particular are recommended, while Kudos Film & Television, an indie whose productions include Broadchurch, has a good reputation, particularly COO Daniel Issacs. Left Bank Pictures is also noted for having an effective team that deals with both UK and US broadcasters, and Charlie Goldberg, head of its business affairs team, is singled out as a key player.
With three in the legal team in total – two qualified lawyers and one paralegal – Kudos is considered to be on the medium-to-large side. Those in the in-house legal team, which often comes under the title of ‘business affairs’ as opposed to legal, are also involved heavily in the financing of projects, in addition to other day-to-day legal work. And, as Olswang partner Victoria Gaskell points out, often production companies will have senior lawyers that work on the productions, but because they are all operating relatively autonomously, they don’t necessarily need a GC sitting at the top.
Game changers: the rise of Netflix and Amazon Prime
The emergence of over-the-top (OTT) service providers – the delivery of audio, video and other media over the internet without the involvement of an operator or broadcaster controlling or distributing the content – particularly Netflix, Now TV and Amazon Prime, is shaking the game up for broadcasters and independent production companies. OTT companies are now commissioning production companies to produce content specifically for their service – the most notable example being Netflix original series House of Cards, Orange is The New Black and Daredevil.
It creates a new business dynamic for the production companies, as traditionally they would have been commissioned to produce a programme for, say, the BBC, which would purchase the rights for the UK, leaving the indie to sell territorial rights to other national broadcasters. With internet-based companies like Amazon Prime commissioning content, that territorial revenue stream has gone.
‘If you are a lawyer for a production company, doing a deal with Netflix is very different to doing the types of deals you are used to doing, which is a deal with, say, the BBC or ITV, who are the people that normally commission programmes from you,’ says Olswang partner Victoria Gaskell. ‘So they have really had to try to work out not just different technology there, but also a different business model.’
With a dedicated Netflix button on remote controls for smart TVs manufactured by the likes of Sony and Samsung, OTT providers have certainly increased the level of competition in the market and look set to continue reshaping the TV industry for years to come.
‘The majority of what we do in the production space that the broadcasters don’t do – especially their legal teams – is engage directly with talent, being writers, actors and their talent agents, and understand the mechanics of production and deal making in order to get their buy-in,’ says Tariq Mirza, head of legal and business affairs at Kudos. ‘We are very much in the front line in terms of getting all of the key agreements, key talent together, and really managing expectations between the broadcaster and the talent to ensure you can put the budget together and make it work for the money on the table. Our challenge, which I don’t think the broadcasters’ legal teams have, is to make it work for a finite amount of money that doesn’t stretch as far as it used to.’
Jones points out that if a production company is making programmes for a broadcaster, the broadcaster only pays the licence fee on delivery of the programme, which means that even if the money is raised through the licence fee from the broadcaster, the pre-sale from an American broadcaster and the distribution advance from the distributor – the companies still need the cash, so lawyers will then get involved in negotiating back-financing dealing with IP rights.
‘In broadcasting, even if some of the production work is done in-house, they tend to send the financing work out to firms like ours, ‘ he says. ‘Usually, production companies outsource for things that are out of their comfort zone or for things they don’t do on a regular basis. Other production companies don’t have in-house legal teams at all and will use external counsel for everything.’
The type of work handled by legal teams at indies will also vary depending on the type of production. According to Jones, teams at outfits like FremantleMedia, which makes factual entertainment programme The X Factor, will do work-around agreements with contestants, various star performers, premium-rate phone lines and handling active websites. Whereas those on the drama side will be dealing with negotiating location and studio agreements as well as questions around the use of particular props or defamatory scripts.
Until now, in-house legal teams across both broadcasting and TV production companies have done well to adapt to everything an innovative industry has thrown at them. However, when facing genuinely fundamental change, there is possibly no other industry that expects as much adaptability of its lawyers.
‘The old adage “content is king” – I don’t see that changing,’ says Lee. ‘The next question then, is how do audiences find the content they want? The requirement to stay up to date and ahead of developments has been accelerated.’ LB
kathryn.mccann@legalease.co.uk