European TV Buyers Pull Back on U.S. Films

This story first appeared in the April 12 issue of The Hollywood Reporter magazine.

The Euro crisis has begun to hit Hollywood where it hurts: on the small screen.

Western European TV traditionally has been the bedrock of ancillary revenue for films — worth a total of $4.43 billion in 2008, according to a recent study by British group Madigan Cluff. But the combination of a sluggish European economy and an overall shift away from movies in favor of reality TV and homegrown drama is shaking that foundation.

In 2011, the tally for film rights to European TV fell $110 million to $4.31 billion, with the average value per hour of a film on European TV dropping from $75,000 in 2008 to $67,000. And insiders say things have gotten much worse.

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Spanish public broadcaster RTE lost $146 million last year and is facing budget cuts that could threaten its deals with Universal, Sony and Paramount. State-run France Televisions wants to chop $200 million from its budget by 2015 in large part by “renegotiation or termination of several contracts on programs.” Italian broadcasters RAI and Mediaset have gone cap in hand to U.S. studios, asking for rebates on existing deals. Even in economically robust Germany, national networks ARD and ZDF have scaled back film acquisition budgets drastically.

“ARD was really the primary television buyer for feature dramas … and they are out of the market completely,” says Lisa Wilson of indie financier-distributor The Solution. The struggling European economy is a prime factor, but a general pre-crisis trend has seen broadcasters shift movies out of primetime to make way for local versions of Dancing With the Stars, The X Factor or The Voice.

Then there is the AMC effect. Just as the U.S. network boosted ratings by shifting from a movie channel to the home of high-end dramas such as Mad Men and The Walking Dead, so European broadcasters are realizing that their own in-house series — think ITV’s Downton Abbey or Denmark’s The Killing — can be more alluring than movie reruns.

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BBC Two has shelled out for a British Boardwalk Empire — the period gangster drama Peaky Blinders, starring Sam Neill and Cillian Murphy — and Germany’s ZDF is airing the World War II epic Generation War. Austerity aside, Spanish public channel TVE still is bankrolling Isabel, a pricey historical drama.

Michael Cluff, a co-author of the Madigan Cluff study, cautions that things might not be as bad as they seem. While films are being pushed out of primetime slots, new online and digital platforms have meant more space, not less, for movies in Europe. Secondary or digital channels might pay a fraction of the license fee of a big free-to-air broadcaster, but top-tier indie producers such as Summit and IM Global have signed European TV output deals that point to a still-healthy business for A-list features.

Notes Herbert Kloiber, head of German rights giant Tele Munchen Group, “At the end of the food chain, the direct-to-video type product, nobody is mopping up those features anymore.”