Trade in audiovisual royalties: Trends and issues

Exports hit record levels in 1999/00 but so did imports. Despite our success in marketing our television programs to the world, we’re now consuming more than half a billion dollars worth of imported film, television and video a year. LAUREN MARTIN looks at what’s driving the deficit and the prospects for further export growth.

Australian producers of films, television and video have seen a decade of mainly sustained growth in overseas sales, with total export royalties rising from $64 million in 1989/90 to almost three times that in 1999/00, when they hit $175 million.

Likewise, however, there has been continued growth in audiovisual imports. The US dominates the world market in film, television and video, and Australia remains a net importer of all three media. In 1987/88, we bought $350 million worth of overseas film, television and video; 10 years later the figure hit $598 million. And in the last year of Australian Bureau of Statistics (ABS) data available, 1999/00, the value of imports climbed to $683 million, an all-time high.

Film and video royalties

Australia’s earnings from film exports have been reasonably stable, albeit with a single good performer capable of skewing the figures for a country which rarely makes more than 35 films, including micro-budget features, in any given year. The value of film exports has oscillated between $15 million and around $20 million annually since 1993/94.

Until 1997/98, film imports had also remained reasonably steady, varying between $70 million and $90 million annually. The 1997/98 result was higher at $130 million, probably because of the blockbuster success of Titanic, released in December 1997. The next year saw the figure drop back to $92 million, but the latest data (1999/00) show film imports reaching their highest level ever, at $136 million, boosted by such films as Star Wars: Phantom Menace, The Sixth Sense, Austin Powers: The Spy Who Shagged Me, and Gladiator. The industry doesn’t expect imports to dip much below the $90 million mark in future, thanks to a decade of cinema building and audience expansion. Of course, that depends too on the quality and popular appeal of films released from the studios.

Box office earnings from Hollywood-backed Australian-created films such as Babe, Holy Smoke and the 2001 release, Moulin Rouge, are not reflected in the figures for royalty exports because most of the earnings are chalked up to the studios which financed them. However, such films contribute to the balance of trade in other ways, with much of their production budgets spent in Australia. This also applies to foreign films produced in Australia, such as The Matrix and Mission Impossible 2.

Video imports jumped in the mid-1990s and since then have stayed around $120–130 million. Video exports also have remained steady, at about $11–12 million during the past four years, so the deficit is little changed.

Television:
what’s driving the deficit?

Television is where the deficit has grown significantly, from around $200 million in 1995/96 to $313 million in 1999/00. Exports have stabilised since the steady and significant growth of the early 90s, but imports are charging onto local screens, mainly from the US.

This rise in imports is partly attributable to the growth in subscription TV channels serving Australia, many of which have been lifted almost entirely from the US. Legislation to enable enforcement of local content rules on subscription TV came into effect in late 1999 and this may have some effect on stabilising the use of imported subscription TV content.

However, data compiled by the Australian Broadcasting Authority indicates that free-to-air commercial television stations have also boosted spending on overseas shows, mainly drama: the Nine, Ten and Seven networks together paid $196 million for foreign programs in 1995/96, but the tab topped $267 million in 1999/00, a 36 per cent increase. This doesn’t mean the networks are spending a much greater proportion of their acquisition budgets on foreign programs; in fact this has remained around 30 per cent for the past decade (Programming: Commercial broadcasters: Expenditure). But there’s no doubt that imports are financially attractive – especially in an environment where the commercial networks have been under increasing shareholder pressure to contain costs, and the ABC has been forced to do more (including the introduction of Internet services) with less. Broadcasters can buy many overseas programs for much less than the cost of producing a local drama.

Australian broadcasters are also subject to output deals, mainly with the US. That is, a studio bundles a range of programs which must be bought as a package with its big hits.

Growth in exports

Despite the huge jump in spending on imports, Australia’s strong moves into overseas television markets over the past 10 years have slowed growth in the overall deficit: although imports rose by 68 per cent between 1989/90 and 1999/00, the deficit grew by only 48 per cent.

One factor driving export growth has been the importance of overseas presales in funding local television productions. According to the Screen Producers Association of Australia the licence fees that broadcasters pay for programs are declining in real terms, and local production companies are increasingly looking to international presales to fill the gap between production costs and local licence fees. Rather than relying on government subsidies or private investment to finance the deficit in the hope that it will be made up by future sales in overseas markets, they are seeking the certainty of the guaranteed advance sale.

Production/distribution company Southern Star, for instance, has stopped producing any programs that do not have overseas presales guaranteeing their budgets, after the company was forced in 2000 into an abnormal write-down in carrying the value of locally produced television programming. And the AFI award-winning drama Wildside, produced by Gannon Jenkins Television and screened on ABC-TV in Australia, was unable to attract the slots it needed overseas, and did not go to a third series.

Serials such as Neighbours and Home and Away recoup a major proportion of their budgets from multi-million dollar overseas sales. For example, in March 2000 Southern Star sold the Seven Network–produced serial Home and Away for the rest of its life to British broadcaster Channel 5.

International co-productions are another response by local companies seeking finance and access to overseas markets, although from a trade point of view export royalties are reduced, as each partner would usually keep the proceeds of local sales and only split the royalties for sales to other territories. Between July 1996 and June 2000 there have been 19 television dramas co-produced with overseas partners: seven with Canada, three with France, one with Germany, one with Ireland, one with New Zealand, five with the UK, and one three-way partnership between Australia, France and Germany.

An option increasingly pursued by some Australian producers is to sell not just programs but program formats (such as cooking, quiz and travel shows) or production services (for local language drama) to these countries, including many across southeast Asia. The Becker Group, for instance, has sold the format for Battle of the Sexes to local markets around the world, as well as licensing The Pyramid Game and other US game shows in local languages throughout Asia. Becker is also a major producer of Bahasa language programs, basing crews in Indonesia for production.

Tightening export markets

Europe was central to Australian exports growth throughout the early 90s. Germany, for example – one of the most lucrative territories – deregulated in the 80s and went from a few terrestrial broadcasters to more than 20. There was suddenly a lot of air time to fill and not much local production to fill it. Australian producers helped to fill the gap. Since then, however, EU quotas for local programs, growing local production infrastructure, and output deals with US studios have meant there are fewer broadcast slots for which Australia can compete.

Australian producers, distributors and sales agents are still selling to European territories. But sales to Europe (not counting the UK) dipped to around 15 per cent of all Australian audiovisual exports in 1998/99, down from around 25 per cent in 1996/97. Although the European contribution rose again to around 20 per cent in the following year, production/distribution company Beyond reported a 16 per cent drop in sales to Western Europe in1998/99, and Southern Star cited the ‘dramatic’ market decline in Europe in 1998 as a factor in its 2000 balance sheet’s abnormal write-down. Producers are turning to cable deals in Europe, and having to work hard to achieve the same volumes and value. They’re also optimistic that the European networks will be less hamstrung by output deals in the future, as the US studios, too, face global competition.

TV program sales to the US have risen from around $5 million annually in the early 1990s (comprising around 10 per cent of total TV exports) to more than $30 million in 1997/98 and 1998/99 (around 30 per cent of total TV exports). Other territories, including Asia, Latin America and the Middle East, generally pay less per hour but will have vastly more broadcast hours to fill as they too follow the deregulation road.

In an interesting turn, Australia’s audiovisual exports to New Zealand increased from $6 million in 1997/98 to $18 million in 1998/99, with $13 million due to Aussie television shows selling across the Tasman. There were no audiovisual imports from New Zealand in either year, and a minimal level (less than $1 million) in 1999/00. This is despite much concern in the Australian industry that local small screens would see an increase of Kiwi programs after a 1998 High Court case allowed NZ programs to count towards Australian local content quotas (The current Australian content standard, which reflects the High Court decision, came into force in March 1999.)

The future

The result of an increasing focus on overseas markets and international sources of finance for Australian films, videos and television programs may be more exported productions, but industry experts suggest two potential downsides: less identifiably ‘Australian’ product, with films and programs made specifically to appeal to a more generic worldwide audience; and the potential for revenue to flow out to overseas investors rather than back to Australia.

However, Australian producers, sales agents and distributors are generally not pessimistic. All the major houses here have suffered severe share slumps due to the wreckage from the global media market changes, and most feel it will get better rather than worse because they have been forced to get nimble quick in adjusting to the changing dynamics. The experience and infrastructure to sell to Europe and the US is there, and stronger than before, even if the market is shrinking. Likewise Australian producers may be well placed to sell to developing markets in Asia.

Most production houses say Australia can position itself to produce programming ‘in the gaps’ for the international market. Producers and sales agents are diversifying their slates to cover event programming, high-quality mini-series, children’s shows, reality television, documentaries and character-driven dramas; Beyond has expanded into IMAX. The aim overall is for more niche programming and more targeted sales.

Digital TV and broadband are all important markets of the near future, but the consensus is that these will be only secondary. Most executives agree that, no matter how many outlets there are, no matter how many new TV channels, there is only so much time people can spend in front of a screen. It’s what they watch that matters: content will be king, as always. Global appeal will become more important and international partnerships may become more common, but Australia can build on its strong reputation for creative, professional and affordable production. The challenge will be to keep local content effective in fulfilling Australians’ cultural desires, while still profitable.