Australia's free-to-air TV networks are reviewing their deals with US studios in an effort to cut costs, which may bring benefits to our home-grown industry.
Currently, close to $300 million is paid to US studios each year by Australian broadcasters, according to the Australian Financial Review (AFR). Ten Network Holdings (ASX: TEN) is estimated to spend around $50 million each year to show Fox shows, including The Simpsons, Glee and Modern Family.
While hit US shows like Revenge, Glee and Two and a Half Men still prove to be hit shows, there are an increasing number of US shows that have proven to be turnoffs for Australian viewers. As US content wanes, the costs go up, making Australian-made shows more competitive.
The AFR estimates US studio deals have typically cost Australian broadcasters $100,000 to $150,000 an hour for content that rates in prime time – about one fifth of the cost of locally produced content. But currently that US content is estimated to be costing the networks $400,000 to $450,000 an hour –similar to Australian-made shows, according to one industry executive.
Nine Entertainment chief David Gyngell suggests that contracts with individual studios are on their last legs, and he believes it won't be long before Australian TV networks move to bidding for individual shows, rather than aligning with one studio. Nine is estimated to spend $110 million a year in a deal with Warner Bros, which ends in 2015. Seven West Media's (ASX: SWM), the owner of Channel 7, contract with Disney/ABC Television is worth more than $50 million a year. Disney's trilogy of new US shows, Desperate Housewives, Lost and Gray's Anatomy, allowed Seven to rise to establish its dominance in ratings in 2004, a lead it has pretty much kept since then.
Nowadays though, US shows are failing to attract ratings compared to Australian drama and locally made spin-offs of global shows. According to David Gyngell, around 47 of the top 50 shows last year were Australian made. "People want Australian stories, they want to hear Australians, watch Australian news, Australian dramas, Australian reality contestants. It is just a cultural thing," he said.
Foolish takeaway
While the US still provides hit shows, the number of flops is rising. With ad revenues in steady decline across all the free-to-air networks, Australian broadcasters need to find new ways of cutting costs while still attracting viewers. That could mean more Australian content on our TVs.
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