By FRANK SWERTLOW
Hollywood's major studios have launched a bold initiative to boycott No. 1 TV network NBC, in what is becoming a battle of nerves over ownership, licensing fees and renewals of prime-time series for next season.
Depending on who blinks first, the outcome could change the economics of the television industry.
"A revolution is going on in Hollywood," said a former NBC executive who is now an independent producer. "(The networks) are reinventing the rules almost daily, and as long as network shares keep going down, they have to keep reinventing the wheel. This is all about leverage buyers vs. sellers and the networks are trying to squeeze every nickel out of the suppliers (producers)."
Among the studios involved in the boycott are Warner Bros. (which produces TV's top-rated drama "ER"), Paramount Pictures, Walt Disney Co., Sony Pictures Entertainment and Twentieth Century Fox.
Although many of these studios are currently producing shows airing on NBC, they have stopped pitching new projects to the network to protest what they see as excessive demands for a piece of the profits on new contracts being negotiated by NBC.
The implications for both sides are serious. For NBC, it could mean that the best shows go to other networks, which would result in lost ad revenues. For the studios, it means losing a chance to get a show on the nation's most-watched network, and the potential loss of millions in syndication revenues for shows that make it big.
"It is clear that (the studios) have been taking a collective position for them to boycott," said Don Ohlmeyer, president of NBC West Coast. "People have to do what they think is intelligent and honest, and we have to do what we think is intelligent and honest."
Ohlmeyer implied that the studios are trying to leverage their clout against NBC. "That would be some form of collusion," he said, adding sardonically, "nobody thinks the studios would actually talk to one another."
None of the studios involved would comment on the record about the boycott. A source familiar with the studio position denied there was any collusion or joint action being taken against the network.
Despite the boycott, Ohlmeyer said he is not concerned that NBC will lose a batch of new hits to its competitors.
"All the networks have been buying from (the studios), and we are in the largest erosion of audiences in the history of TV," he said. "Maybe if we start casting a wider net, we will do better."
Right now, NBC remains the No. 1 network in the important race for viewers 18-49 years old, the audience that advertisers covet. NBC's clout, however, has been diminishing, especially with the loss of "Seinfeld" this season.
At issue is the ownership of prime-time series. Most contracts are renewed, or renegotiated, after a series' fourth year. During the process, producers often seek and get higher licensing fees the money paid up front by the network to offset production costs.
Licensing fees rarely cover the entire cost of production. For example, a show that costs $1 million an episode to produce might get a licensing fee of $750,000. The producer has to shoulder that extra $250,000, in hopes that the show will last long enough to go into syndication.
It usually takes about five years before there are enough episodes available for the syndication market. The producer can then recoup its losses, and sometimes make huge profits, by syndicating the reruns to TV stations around the world.
Recently, NBC has begun demanding that shows be renewed in perpetuity at the original licensing fee. In other words, the contract won't be renegotiated after four years, and producers will have to accept the same licensing fee for the entire life of the series. That would allow NBC to avoid debacles like the $13 million per episode it was forced to pay Warner Bros. in order to renew "ER."
Further, NBC is demanding an ownership stake in the shows, meaning it gets a piece of the syndication revenues.
Len Hill, an independent producer, said agreeing to NBC's demands would be like a rookie ball player signing a deal with an owner for life and at a fixed salary. "A network wants to make a contract with a rookie and make his services available until his useful career is over," Hill said.
Ohlmeyer said he believes the network's demands are reasonable, considering that producers need NBC to launch their shows.
"Why shouldn't we own a piece of the back end (profits from syndication)?" Ohlmeyer asked. "Doesn't a network have a part in making a show a hit? And then we have to pay an arm and a leg to keep it."
The studios, however, maintain that they face years of losses to cover the total costs of a program. Cutting in NBC for a share of syndication profits, they contend, would diminish a producer's ability to recoup losses and secure any profits.
"Business-wise, for us, this is not feasible deal" the source familiar with the studio position said. "How do you run a business like this? The banks would pull our loans."
Both ABC and CBS have asked for equity stakes in new shows and longer renewals, but NBC has been much more aggressive in pursuing the new economics.
"We are doing this up front," Ohlmeyer said. "We are not waiting until the 11th hour (renewal time) to grab a piece. If they don't like it, they don't have to do it. Sellers have never had more choices and buyers have never had more choices."
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