For Broadcast August 30, 2007

What price an indie?

Selling your indie? Beware the murky task of figuring out your company's value. Dozens of factors can influence what a buyer will pay for your business - from micro issues such as changing tastes in programme commissioning trends to more macro factors such as how expensive it is for a buyer to access the debt market. But one thing you need to understand is your forward EBITDA, or future operating profit. That is what the buyer is betting on to pay back his punt.

Clearly if you have some long-running series or a bunch of new commissions secured, these make your future EBITDA bigger. For example, earlier this month DCD Media spent £9.06m (in cash and shares) to buy September Holdings, whose operating profit for 2006 was £707,000. This gave the deal a multiple of 12.8x, higher than the 8x to 9x multiples indies typically sell for. But if you assume September's operating profit is going to rise next year, say to £1m in 2007 (based on its booked commissions and returning series), then the multiple DCD paid is a more typical 9x.

The September acquisition was part of a tripartite deal where DCD spent £19.1m to also buy West Park Pictures and Prospect Pictures. Buying multiple companies has an effect on valuation because the banks and the brokers are much more interested in larger-scale deals, not least because they are more lucrative. They also look better to the investor community and to the debt market.

Mick Pilsworth, the chief executive of Motive, which buys smaller indies, calls this "flock management" or the spreading of risk among a group of production companies. Even in the cyclical world of TV, it is unlikely that all the indies under one roof are going to lose business or have a flop at the same time.

The other point is the murkiness about the top-line value paid for indies. All3Media reportedly paid between £40m and £50m for Objective Productions. In fact, the initial guaranteed cash payment to Objective is likely to be in the region of £25m, with something like £10m coming to the Objective owners through earn-out, and £15m if targets are achieved. Quite what the targets are (and how realistically they can be achieved) is all part of the convoluted process.

Why isn't talking about finance sexy?

The economics of making telly is not just having a good idea, selling it to a broadcaster and producing the show. Was it ever that easy? Getting a commission is only part of the process, which now includes how to capitalise on new media rights and how to expand your business into new revenue streams such as distribution.

There is a huge opportunity to understand more about the money behind TV production, but there was precious little on these topics at the recent Edinburgh talkfest. I had some hope the session Indies @ 25: from Kitchen Table to Boardroom would deliver, but all we got was debate over whether indies should exist or should all production be in-house.

The session also saw BBC Vision Studio's Peter Salmon highlight the issue that bigger indies are going to make it harder for smaller indies, especially as broadcasters want longer runs of programmes from established and well-financed producers. All the more reason why some more panels about the money side of TV would have been welcome.

Wouldn't it have been interesting to hear from an indie which had done a great financial deal? Or from one which runs a really tight financial model or one which has figured out how to capitalise on new media rights?

Figuring out how to finance it all has to be more interesting than yet another session on whether there is too much sex on TV, especially when it deteriorates into whether Channel 4 planned two shows or a whole week about wanking. Yawn.