Wednesday, October 14, 2015

A possible explanation

I don't get Buzzr on my cable system. But I figure I should post about it now and then. It's the only other game show network around besides, well, Game Show Network.

One complaint I've often seen about Buzzr is the constant rerunning of a handful of episodes. People seem to think that with 40,000 or so eps on Fremantle's shelf, Buzzr should offer a much greater variety of episodes. On the board formerly known as his, Matt Ottinger voiced the criticism. I wish I understood why they're constantly rerunning a relatively small number of episodes -- I really think there's something we don't know at work there. But this far in, I was really hoping for more, even from a tiny operation like this.

Having worked in corporate finance for longer than I care to recall, there may be a pretty simple reason: internal accounting. Like every other Fremantle subsidiary, Buzzr has a profit-loss statement. I'm sure Fremantle anticipated some startup costs, but shareholders don't want any sinkholes gobbling up corporate dollars. Which could be better spent on, say, shareholder dividends.

So Fremantle's bean counters have to estimate what Buzzr would pay for leasing game shows in an "arm's length transaction." Since Buzzr is no doubt bringing in very little (if any) ad revenue right now, the finance folks see hardly any dollars to offset those arm's length costs. So Buzzr only gets a small number of eps.

I can't say for sure that this guess is accurate. But I suspect that the green eyeshade crowd doesn't want Buzzr to look insanely unprofitable on an arm's length basis.

12 comments:

  1. This practice is not uncommon among the other establishing diginets. While MeTV, Antenna, Bounce, and This TV are well-established and profitable to the degree that they can have a sizable budget and a larger focus on programming, instead of focusing on the all-important distribution.

    Looking at schedules and episode counts of other diginets, such as Laff, Decades, and Heroes & Icons, you'll see that a small number of episodes of a smaller number of shows are rerun. The reason behind it is perhaps unknown by most of us, but it suggests that the reason is universal. Plus, some of those diginets have to spend money for leases. I don't mean getting the shows, I mean getting the rights to the shows. At least Decades and BUZZR has the rights to their parent's libraries. Either way, BUZZR repeats shows in blocks, as does Decades and Laff. Heck, the shows airing weekdays on Decades repeat four times in 24 hours. Regardless of all of this, there is some common denominator that we, who are not in the business, are not aware of.

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  2. I think you need to explain this further.

    Buzzr is owned by Freemantle.

    Freemantle owns the shows.

    How does showing 10 seasons of a show, say The Price is Right, vs. 100 episodes of random seasons of property you already own get more expensive?

    Having seen how ridiculous corporate accounting and government accounting can be, I get that there might be a reason, but I just don't see it in this instance with your current explanation.

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    1. Well, I'll try again. Imagine what GSN would pay for, in your example, leasing the 10 most recent seasons of The Price is Right. A pretty good amount of money, no doubt. That's because it would be an "arm's length transaction" between independent businesses.

      For internal accounting purposes Fremantle "charges" Buzzr the same amount - or an estimate of what GSN would pay - for that lease. Obviously Buzzr has very little if any revenue right now. So the internal profit and loss statement for Buzzr would look horrendous if such big programming costs were offset by only a tiny amount of revenue.

      So to keep the internal books from looking too horrible, Buzzr gets "charged" relatively little by Fremantle for small leases of older, less desirable shows. Just as GSN would pay much less for small leases of such shows in a true arm's length transaction.

      It's basically pressure from external shareholders that forces such internal accounting. If Fremantle (itself a subsidiary of the RTL Group) freely lavished its entire library on Buzzr, outside shareholders - especially large institutional shareholders - would start wondering why Fremantle wasn't truly monetizing the library instead of just giving away everything free to a favored, heavily subsidized, unprofitable subsidiary like Buzzr. So to prove to outside shareholders that Buzzr is carrying its own weight, Fremantle internally "charges" it for the leases.

      And right now Buzzr can't afford very pricey leases. So only a small number of eps from the Fremantle library are currently available to Buzzr.

      There has to be some reason that Fremantle doesn't just shower the entire library - including the most desirable properties - on Buzzr. My guess is that such internal accounting, and the external pressure from outside shareholders, has a lot to do with it.

      I've been involved in such internal accounting myself. Publicly owned companies are sensitive to pressure from outside shareholders to make subsidiaries pay their own way. So subsidiaries have to "pay" the parent company for properties from the parent.

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    2. Didnt' Fox get in a heap of legal trouble over something along those lines? What I remember is they let FX have reruns of MASH for far less than market value and the producers filed suit (and either won or settled out of court.)

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    3. Thank you for the further explanation. Yeah, I've seen that kind of faulty accounting, and it's very short-sighted to the big picture.

      What they're doing:

      We own all this stuff and it's collecting dust. If we show 10% of all of it, we could have a nice little channel, charge ourselves for it, and have an arm of the company making a profit while the big central part of the company shows more income. Sure it will be a flash in the pan and will be gone in two years, but that's a nice two years of numbers.

      result: Stuff goes back to collecting dust. Profits cease.

      What they should be doing:

      We own all this stuff and it's collecting dust. If we show 100% of it, we could have a nice little channel, the targeted audience would love it and watch every day, and have an arm of the company making a profit. That target audience will have us on practically 24/7--we will own those people and can make them do our bidding! The beauty of this evil plan is it won't cost us anything since we already own all the property--it will be like a solo game of Monopoly, and we will end up with the entire bank for a long time to come!

      result: Stuff stays nicely dusted, long term profits continue, even if small.

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  3. The people at Buzzr might have to convert the shows into the format in which they are airing them, which may be a different format from the way GSN are airing them. THey won't be airing TPIR anytime soon as CBS doesn't want TPIR airing in reruns on another channel(though it did air on GSN from 12/96-4/2000). Only the game show diehards will notice if they only convert say, a few hundred episodes at a time, rather than the whole library, into whatever 21st century format they're airing the shows in.

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    1. Such conversion costs - if they exist at all - would be trivial compared to "arm's length" leasing costs for large numbers of the most desirable episodes in the Fremantle library.

      You may be right that there are special factors affecting certain properties like The Price is Right. Though GSN itself once leased the show.

      But the overriding problem is that Buzzr is producing almost no revenue right now. That's a common problem for start-ups, of course. But the problem would look a lot worse - to both internal and external stakeholders - if Fremantle just showered the entire library on a subsidiary that was generating virtually no return.

      People would start wondering why Fremantle wasn't making real money from the library instead of just giving it away for nothing. That's why such internal profit-loss systems for subsidiaries exist in the first place.

      If Buzzr proves that it can exist as a viable entity, Fremantle will loosen the strings on the library. Right now the jury is still out on Buzzr's future.

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    2. I've said this before. This channel is basically giving us the middle finger. 40,000+ episodes and what do we get, the same old 25 episodes. And really, it's ridiculous. If tomorrow, they starting airing last season's Price Is Right, Let's Make A Deal, or Steve Harvey Family Feud, Buzzr could gain a lot more homes than the ones right now.

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  4. GSN started out in very few homes and on satellite systems only. They didn't turn a profit until they were about a decade old.

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    1. Yep, the network was almost dead by 2000-01. Liberty took a half-interest in GSN and brought in Rich Cronin to straighten out the mess.

      Nowadays, GSN is doing just fine, thank you, but it was a rocky trip in the early years. I wonder if Buzzr will survive the first few years. We'll see. Game shows are a small niche, after all, and Buzzr is targeting an even tinier sub-niche of oldies.

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  5. CBS doesn't want reruns of Price airing on another network, though in Canada Price episodes from two years ago are now airing on GameTV. Buzzr does air classic LMAD, however, despite the Wayne Brady LMAD airing on CBS. GSN dropped classic LMAD in 2009 right before the announcement was made by CBS to bring back LMAD to replace Guiding Light.

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    1. Already commented on the CBS issue. While the broadcaster may want to protect TPiR, the bigger issue is probably that Buzzr just can't "afford," on an internal accounting basis, the estimated arm's length cost of a lease of recent TPiR seasons. GameTV produces some revenue, so it can spend on TPiR. Buzzr is producing almost no revenue right now.

      As another poster pointed out, it's kind of a catch-22. Buzzr needs more desirable properties, like recent TPiR and Feud and LMAD, to attract more viewers and more revenue. But until the subsidiary starts generating more revenue, Fremantle probably doesn't want to give them those more desirable properties. Instead, Fremantle wants to make real money by leasing those shows - Feud in particular - to outside organizations like GSN.

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