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THE ESCALATING SCRAMBLE FOR PRODUCT INTEGRATION FEES

Producers, Networks and Middlemen Grasp at New Bonanza

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LOS ANGELES -- TV executives already reeling from how much Mark Burnett charges to integrate brands into his reality shows should brace themselves for another round of sticker shock.
Ben Silverman has taken back control of his company from NBC Universal in order to sell his shows himself.



That’s because after single-handedly raising the bar for integration fees on shows like Survivor, The Apprentice or The Contender, Mr. Burnett has given other producers some big ideas of their own. They’ve studied his every move and taken notes.

Yet the misconception is that there are a large number of producers demanding the same fees that Mr. Burnett has been able to collect and are taking money out of the broadcast networks’ pockets. That just isn’t the case. In fact, few if any producers are in Mr. Burnett’s position.

Figuring it out

“All producers are interested in figuring it out,” said Van Vandegrift, executive producer at Matrixx, a Los Angeles-based production and brand-integration company. “But the problem is, very few producers are actually in a position to negotiate a deal with a network where they are not in a work-for-hire position.”

Generally, producers must pony up roughly 30% of a production’s budget, with a network funding the rest for the broadcast rights. But Mr. Burnett now has the deep pockets to own the rights to his shows outright and sell them and the formats worldwide. He also has the connections to brands willing to pay to appear in his shows, relationships with foreign buyers and earnings from DVD sales as well.

Without that, a producer needs a partner to come up with the production costs. That partner is usually a studio, which leaves the producer with a flat producing fee, some overhead and a piece of the backend of the show --- if he or she is lucky.

“There are very few independent producers who are truly independent,” Mr. Vandegrift said.

But that may soon change.

Ben Silverman and Reveille

Earlier this year, Ben Silverman, founder of Reveille, which is producing the sitcomThe Office and was behind brand-friendly reality shows The Biggest Loser and The Restaurant, went independent, taking back control of his company from NBC Universal in order to license and market his formats and series himself.
Ben Silverman has taken back control of his company from NBC Universal in order to sell his shows himself.

NBC and its broadcast and cable networks get first dibs at all Reveille programming intended for the U.S.

Other production entities like Endemol U.S.A. (Big Brother, Extreme Makeover: Home Edition, Fear Factor), FremantleMedia (American Idol), Scout Productions (Queer Eye for the Straight Guy) and newcomers like Madison Road Entertainment and Embassy Row are generating clout among advertisers.

What helps is that advertisers are starting to devote more of their marketing dollars to branded entertainment. During this year’s broadcast network upfronts, the prime-time marketplace fell from $9.3 billion last year to $9.2 billion this year, with advertisers setting aside between $100 million and $125 million for branded entertainment opportunities.

Producers say advertisers should go one step further and set up a pool of dollars devoted for integrations.

Traditional planners at disadvantage

“Brands have been programmed by media buyers to allocate every dollar and stick to your plan,” Mr. Vandegrift said. “But right now, [marketers] scramble and say, ‘That’s a great idea, but I don’t have any money.’ They should put money in a pool and resist from saying that it will be for a specific show. They have to be nimble enough so that when a producer calls them for an integration, they have the money to turn to.”

But that move may have its drawbacks for both networks and advertisers. With less advertising revenue, production budgets may suffer, leaving producers with a bigger gap between what they must pay to produce their shows and what a network will pay for them. That could force producers to eventually charge marketers even higher integration fees.

How high those fees might go is anyone’s guess.

Mr. Burnett has asked upward of $5 million from marketers looking to tap into The Apprentice. For The Contender, he collected $16 million in sponsorship and media buys from Toyota Motor Sales USA -- the highest fee ever paid by a marketer for such a deal. And for his upcoming series Rock Star: INXS, which debuts on CBS July 11, the producer received stock options worth $100,000 from sponsor SLS International, an audio equipment manufacturer. He has the right to buy 2 million options that would give him an estimated 3% stake in the company. SLS will not buy ads during the show.

Production companies don't speak CPM

For media agencies raised on the measurement mantra, one-off integration fees are hard to justify to clients looking for return-on-investment data or benchmarking devices like a CPM (cost-per-thousand viewers) on an annual basis. Unfortunately, that's a language production companies don't speak. They just want to find the money to make their shows profitable as quickly as possible.

According to one TV executive familiar with discussions over integration fees, “the conversation goes like this: The media agency says they want to help finance the show, the studio will say can you help reduce our deficit, are you willing to pay a premium? The [agency] says we're a CPM model and then they go away until next year.”

Fred Dubin, managing partner and director of entertainment marketing at Mediaedge:cia, part of WPP Group, said everyone might be asking for integration fees, but not everyone will get them. "All the networks are saying I want something for it,” he said. “Our goal is to be able to say no. We want to enter a conversation and we've said no, your price is too steep and there are other places to go."

Still, the networks aren’t looking to be left out of capitalizing on product placement fees as a major new revenue stream.

ABC makes stiff demands

CBS has said it will aggressively go after product placement revenues for the upcoming fall season. And ABC is flexing its newfound muscles to make the stiffest demands of advertisers who want into its shows. Buyers report that the Walt Disney Co. network has not only asked for major media buys alongside requests for product integrations but has in some cases defined the nature of the buy for top-tier product. Desperate Housewives and Lost are some of the most sought-after new shows for product integration.

Some producers are willing to play nice as well, and are demanding similar deals from advertisers.

Madison Road, which works with Mr. Burnett’s company to integrate advertisers into The Apprentice, is readying to start production on its own reality series, Treasure Hunters, together with Imagine TV and Magical Elves for NBC. The series will feature a number of yet-to-be-disclosed brands. But in order to get placed in the series, brands will have to buy media and put together off-channel promotions to support the show as well. Madison Road is attracting brands to the project, while NBC’s sales department brokers the media and marketing packages, splitting fees with the show’s producers.

“Nobody is exclusively benefiting,” said Jak Severson, CEO of Madison Road. “The money is best used to reduce the cost of the program, so you don’t have to reduce the value of the program. Whenever everybody shares, there is more success to be found. There is a reason for everybody to make it work.”

'American Idol'

FremantleMedia North America, which licenses the format of American Idol worldwide, is currently shopping for additional sponsors to appear on the hit Fox show, and is negotiating renewals of existing integration agreements with Cingular, Ford Motor Co. and the Coca-Cola Co. The company splits integration fees with Fox, which in turn sells 30-second ad spots for around $600,000.

Olivier Gers, senior vice president of licensing at FremantleMedia, won't reveal what the company charges for integration but said that only production companies can have the kind of hands-on control of how brands are treated as part of the show. "I have a team making sure those Coke cups are displayed properly,” he said. “The networks don't always know how to deliver that.”

Mr. Gers admitted it's still the Wild West out there. "We are in a situation where it is completely in flux,” he said. “The marketplace needs to be rationalized. The producers, agents, the buyers and the networks all need to come to grips with the new reality. We have a track record to justify the services we charge for. My issue is with all the people in the middle.”
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