As giant companies like Time Warner and Discovery obtain a growing portion of their revenue from overseas markets, they are homing in on a handful of relatively small foreign production houses.
They value these companies because they own what the industry calls “formats” — entertainment concepts like reality or game shows that can be plopped down in almost any country and find audiences regardless of cultural divides.
Though it is shedding assets in the United States, Time Warner made a $1.4 billion bid this month for Endemol, the Dutch production company behind reality stalwarts like “Big Brother,” “Wipeout,” and more recently “Love in the Wild,” a dating show set in a jungle.
Also this month Discovery Communications acquired an outside production company for the first time when it paid an estimated $16 million for Betty, which makes “Freaky Eaters” and other British television shows.
Based in London, Betty does not carry the same cachet as a Hollywood entertainment enterprise with high-end television shows and big-name producers, but for Discovery it offers something even more valuable: intellectual property.
Unlike a finished show that studios export to local partners who add subtitles or dubbing, a format is simply a piece of intellectual property. Local producers buy the rights to make, for instance, the Ukrainian version of “Wipeout” or the Nigerian edition of “Big Brother,” and big media companies take in revenue without having to invest much, if anything, in the productions.
These global hits can bring in hundreds of millions in revenue over years.
Because they are typically reality series or game shows, formats cost much less than scripted Hollywood series and are often more popular, since audiences prefer to watch local celebrities or contestants. Also, the intellectual property can be updated or modified and sold over and over again. On Dec. 12, NBC will introduce an updated version of “Fear Factor” after the original show was canceled in 2006.
“It’s not about the production companies, it’s about formats,” said David Bank, an equity research analyst at RBC Capital Markets. Referring to a game show that was a hit on NBC, he said, “ ‘Deal or No Deal’ works in Mumbai. It works in Manila, and you don’t have to produce it.”
Time Warner’s nonbinding cash bid for Endemol could ignite a bidding war as the production company restructures its $3.9 billion in debt. But lenders will most likely find the Time Warner offer low, given Endemol’s strong financial performance, analysts said.
Endemol declined to specifically comment on the bid. “Our goal as a management team is to restructure the debt of the company, not to sell the business,” Endemol’s president and acting chief executive, Marco Bassetti, said in a phone interview Friday.
The battle for Endemol is just the latest in the pursuit of foreign production companies. Last year Time Warner paid $100 million for a 55 percent stake in the British production company Shed Media, best known for shows like “Supernanny” and “Footballers’ Wives.” In February, the News Corporation announced it would pay $674 million for the Shine Group, the British production company known for shows like “The Biggest Loser” and “Masterchef” and founded by Elisabeth Murdoch, the daughter of News Corporation’s chairman and chief executive, Rupert Murdoch.
“Bigger media companies are finally waking up to the trend: even though we live in a global world, people still want television with a local wrapping,” said Ben Silverman, the founder of IAC’s Electus multimedia studio. In 2008, Shine acquired Mr. Silverman’s former production company, Reveille, and its primary assets, “The Biggest Loser” and the United States version of “The Office.”
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