Q&A: Herbert Kloiber
EmptyWhat recession? As broadcasters worldwide pull out the budget scissors, German mogul Herbert Kloiber and his Tele Munchen Group are thinking big. Later this year, TMG will begin shooting its $25 million, two-part miniseries "Moby Dick" starring William Hurt, Ethan Hawke and Donald Sutherland. TMG is also expanding its exhibition business, having recently secured a majority stake in German multiplexer CinemaxX, while TMG's output deals with Summit and Marvel continue to fatten the group' acquisitions slate.
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The Hollywood Reporter: The global television market is in freefall, broadcasters are slashing their budgets. Why'd you pick now to make your most expensive production ever?
Herbert Kloiber: Well, the project was in development long before -- some two years before the crisis hit. But we decided not to put it off. We had such a great experience with (miniseries) "Seewolf" with writer Nigel Williams and director Mike Barker that we wanted to do another great sea adventure. And "Moby Dick" seemed the obvious choice.
THR: How did you finance it in the midst of the recession?
Kloiber: This time we went with RTL, not ZDF, in Germany and ORF in Austria. In the States our partners are RHI, Robert Halmi Jr.'s company. Ahead of MIPCOM the presale talks we are having are with the same partners who came on "Seawolf." We put our own money into it and then there are a few other sources -- the Canadian tax shelter, German production subsidies and so on. This is more ambitious than "Seawolf," it's about 25% more expensive -- partly because of the talent and partly because of the story, which is much bigger in scale. But TMG turns 40 years old next May, and we wanted to do a big production, a real opus.
THR: Has the recession changed your production and acquisitions strategy?
Kloiber: We are investing more directly in commercial American and Canadian series that have a minimum commitment -- at least 30 hours -- from the American market. Like "Flashpoint" for CBS. We try to take, if not all international rights, then at least rights for several territories. One can see that the networks have to save money. CBS, for example, isn't keeping all the rights for series for themselves or giving them to CBS Paramount to sell. We are seeing it more and more. That creates certain opportunities but one has to be careful. I have a great respect for the Studios' assessment of the world market. If they say they don't see the international potential for a certain series, they are usually right.
THR: Has the recession changed the fees broadcasters are willing to pay?
Kloiber: No. The prices are stable and strong and haven't fallen in the last 18 months. But where you are seeing a big difference is between acquisitions for primetime and for late-night or less attractive slots. So you'll see a channel saying, We want "Gilmore Girls" but not for primetime, and priced accordingly. But the big primetime series -- your "House," "Monk," "Stargate" whatever -- are still very much in demand. In fact, we are seeing channels that had tried an all-reality TV strategy are moving back to good old U.S. series and films.
But it is the case that channels are looking much more carefully at new acquisitions. For long-running series -- we have "Closer," "Stargate" for example -- there is no problem. But shows like "Dexter" or "Californication," however great they may be, will be a tough sell because they can't run before 11 p.m. in a territory like Germany.
THR: What about new shows -- what are you on the lookout for?
Kloiber: Everyone is searching for the same truffles -- the one or two series that can run on RTL on primetime. And everyone else is looking for some magic formula in the events area, even though they don't know what it is supposed to be. There's a lot of reading of the tea leaves. And everyone is targeting the middle-of-the-road, primetime demographic. Everyone is also looking for sitcoms, but there aren't any. There haven't been any good new sitcoms for the past 2-3 years. No new discoveries in California to match a "Two and a Half Men" or "King of Queens."
THR: What about the new crop of shows this season, anything interesting there?
Kloiber: Well, it is extremely dangerous to buy a series in the first or second season. If you just have 21 episodes and the show gets canceled, you can't do anything with it. You need 44-66 episodes minimum and then it starts to be programmable. It's a chicken-and-egg problem. You can take the risk and bet that it will work in Germany and risk it gets canceled in the U.S. Or you can wait till it succeeds in the U.S. but risk that someone else is quicker and takes it out from under you.
THR: What about the demand for feature films, which is at the core of your licensing business?
Kloiber: Broadcasters are looking for the primetime comedies and there are fewer and fewer of those. Not more than 5-8 a year. So it comes down to the art of packaging. If you have a "James Bond" or a "Bridget Jones" you can package first runs of that with some second runs of other films, library product, etc. We still have the "Harry Potter" films and the "Lord of the Rings" films from our agreement with Warner Bros., so we have a lot of options.
And out output deals with Summit and Marvel will keep us well supplied with films for our film distribution arm, Concorde Films. Even though Marvel are now with Disney, our agreement with them means we will have their fantastic franchises -- "Iron Man 2" and on. With both Marvel and Summit, we have a lot of carve-outs from the majors. But it's a tougher struggle every year. It's not getting easier. The independents are fighting for every film.
THR: Are public broadcasters poised to gain in strength as a result of the downturn? They aren't as dependent on advertising revenues to fund programming and acquisitions.
Kloiber: The public broadcasters are in a more stable situation, and they will start playing a more important role for a lot of production companies. But there is also growing unemployment, which will lead to a drop in license fee revenues. (German public broadcasters) ARD and ZDF are expecting a €100 million ($140 million) shortfall. So they are affected as well. And the commercial sector can react more quickly and effectively than public channels, which have less leeway when it comes to budget cuts.
THR: Do you expect further consolidation in the production market? Warner Bros. International Television has announced plans to expand into Europe.
Kloiber: I don't think there will be a big change. If you look at the last 10-15 years, it has gone in waves with the studios. Sony comes in and then they go away, and so on. For a long time, Warners were very hesitant to enter the market. Now they have -- for example with their ($241 million) investment in (East European broadcast group) MediaPro. I think it's the studios thinking, Why can't we get a piece of the national market? And Germany in particular is attractive as the second- or third-largest market, especially with the euro as a stabilizing force for the dollar-driven majors. But it's always the same. They come in, hire a few competent people, and then 2-3 years later, they see it's not so easy.
It's like the wave of private equity acquisitions a few years back, where they came in and bought up everything they could see -- broadband networks or (broadcaster) ProSiebenSat.1. But the local production business in particular is not a big margin business. A small company can live quite comfortably on the margins but when you calculate in the inter-corporate charges and overhead of a Warners or Sony, it's not that interesting.
THR: There's been a major overhaul in the pay TV market in Germany, with News Corp. buying into and restructuring Premiere -- now called SKY Deutschland. How do you assess the progress there?
Kloiber: I would love to have a great functioning pay TV market in Germany. In particular one that generation production like Canal+ or HBO and doesn't just buy a few things, paying less and less every year. But (with SKY Deutschland) it is still wait and see. We need to see a very clear improvement in the third quarter figures before we can talk about any sort of recovery.
THR: When do you see an end to this current slump, and what will the market look like when we emerge?
Kloiber: I think it will sort itself out in 30 months. In 2, 2 1⁄2 years we will return to solid growth as opposed to the retrenchment. I'd exempt theatrical revenues from that, where we could see growth there continuing in the next two years. So it'll be 2010-2011 before we get out of this, and we will probably never again see the highs we all experiences in 2004. Production budgets will have to be trimmed, especially on high-end expensive projects, which means drama. The big commercial broadcasters will be more cost conscious and will cut back and of course, they will start at the top, with high price drama the first to go.
That's one of the reasons we at TMG maintain three solid pillars -- the film licensing business, film admissions and productions/sales. It gives us the flexibility to move from side to side. And it allows us to invest even in the recession -- which is why we can do a "Moby Dick" or spend the millions we are spending to upgrade our CinemaxX theaters to 3D. We have room to maneuver where a lot of smaller companies do not.