Kate Bulkley, Media Analyst.

100 little brothers and sisters: Endemol's next steps

By Kate Bulkley

Royal Television Society

February 2010

Almost two years ago Erik Huggers was poised to become president of global video-rental giant Blockbuster. Then a last-minute phone call from the BBC and a follow-up 90-minute meeting with Mark Thompson led the 33-year-old man from Microsoft into the arms of the BBC as group controller (later, director) of future media and technology.

In the UK Big Brother is about to make its final bow on Channel 4, but it will be many years before the show’s producer, Endemol, loses its association with the global reality blockbuster. Even so, as a new decade begins there is change in the air as Endemol strives to reinvent itself.

For a start, the company, sold at the height of the boom to a consortium of investors who paid a whopping !3.4bn, is taking steps to shed its image as a one-trick pony.

These include more recent shows, such as 1 vs 100 and Total Wipe Out (sold to around 100 countries), and acquisitions such as Tiger Aspect. The latter brings scripted drama and comedy to an indie that has traditionally relied on reality and gameshows.

However, the company has a huge debt (!2.2bn), taken on at the time of the purchase. Moreover, some shareholders might be itchy to abandon ship in the near future.

So, given the timescale of private equity investments and a less than buoyant TV market, it appears possible that Endemol is about to take a cue from its most famous show and be voted out of its own house.

Both Endemol and the business landscape have altered substantially since Mediaset teamed up to buy the Big Brother producer with a private equity arm of Goldman Sachs and Cyrte Investments. The Cyrte fund is connected to John de Mol, the creator of Big Brother.

A big part of Endemol’s change has been led by CEO Ynon Kreiz, who was hired by Endemol’s new owners in mid-2008. Kreiz is an astute businessman, ex-venture capitalist and the co-founder and former CEO of Fox Kids Europe – and he has been busy diversifying Endemol.

There have been moves into sports and children’s programming. A feature film documentary is in the pipeline. The company is beefing up its scripted shows. There is a new partnership with Jerry Seinfeld for The Marriage Ref, a feel-good show light years away from the theatre of cruelty that is Big Brother.

One of Kreiz’s first moves was to hire ex-Disney distribution supremo Tom Toumazis to mastermind a global distribution network for both Endemol and third-party content. This seems set for big growth.

While the financial crisis has left much of the TV business moribund in terms of mergers and acquisitions, Endemol has been selectively buying.

To kick-start the push into distribution, early last year it bought Southern Star in Australia. More recently, it cemented its pole position in the British market by acquiring Tiger Aspect and Darlow Smithson for an estimated £30m-£40m from an eager seller, sports specialist IMG. The deal makes Endemol the biggest UK indie, with a combined turnover of £250m, according to Broadcast magazine.

“This is our first big move into scripted [content] in the English language,” says Tim Hincks, CEO of Endemol UK, who is all smiles about the deal. “It’s a good deal and Tiger and Darlow Smithson are brilliant companies.”

All this activity aside and despite disenchantment at Channel 4, the Big Brother franchise is far from dead. Outside the UK the show remains on plenty of screens and is undergoing something of a resurgence in Europe and the US.

Over the past year, some 28 series of Big Brother have been broadcast to more than 60 countries. The show has had some of its best ever ratings in important territories, including Spain, Italy and Germany. And in the US series 10 was the summer’s number one entertainment show on CBS (series 11 is scheduled for this summer).

“I have no qualms at all about being referred to as the Big Brother company,” says Hincks. “Big Brother changed television and online, and the rest of it. It’s 10% up this year on C4.”

Perhaps the most significant part of the new Endemol is the distribution network built on the back of the 14,000-hour catalogue of Southern Star. “We are building a capability in distribution that blends Southern Star’s business with Endemol’s existing business and putting it in the countries where we already run production offices, which lowers the cost,” says Toumazis, the firm’s chief commercial officer.

Endemol has a presence in 26 countries, with distribution executives based in offices in key territories such as the UK, France, Spain, the US, Australia and Hong Kong. And there are plans for more expansion.

Whereas the old Endemol would have distributed only its own fare, Toumazis’s arrival signalled a push into selling third-party content from a wide range of suppliers. Endemol is taking a page out of FremantleMedia’s book by offering distribution to non-aligned producers.

Acquiring Tiger Aspect (Secret Diary of a Call Girl and Benidorm) and Darlow Smithson (Touching the Void and The Falling Man) has added scripted programming, more comedy (Endemol already owned Zeppotron) and drama to the new Endemol Worldwide Distribution pipeline. But building a powerful distribution business requires time and money. Toumazis insists the investment is available: “We have money to put into this.”

“I think diversification makes sense and improving the distribution capability is absolutely key and is the right move,” says Colin Howes, partner at media and entertainment lawyer Harbottle & Lewis. “Diversification into other genres is one of the only ways to grow, as is moving into more partnerships with talent.”

Forging more talent relationships is at the top of Endemol’s to-do list, so expect more deals like the much-hyped partnership with Jerry Seinfeld on The Marriage Ref. Endemol beat FremantleMedia, Shine and NBC to be the global distribution partner for this studio-based reality format. The show has celebrity judges making rulings on a family’s domestic squabbles, much like referees on a football field.

“The success of Endemol is in the sheer anarchy that we have. We are not Disney, nor [are we] IMG. It’s easy to say we are a big conglomerate with a name that sounds like a suppository product,” laughs Hincks. “The truth is, Endemol is a collection of producers and egomaniacs around the world who are utterly passionate and are pretty good at creating and producing content. It’s the opposite of the top-down model.”

But the company’s expensive 2007 price tag, funded largely by debt, puts management under pressure to meet earnings targets set in headier times. Reportedly, Endemol’s underlying earnings in 2009 were under !200m – some !100m less than the shareholders expected to be making by then.

Given the pressure the TV industry has been under these earnings would be considered perfectly respectable. But the loss of the Channel 4 deals for Big Brother and Deal Or No Deal at the end of this year will create a big financial hole for Endemol UK to fill.

Endemol is tight-lipped on its figures, but Kreiz said in an email that the diversification plan was working: “Times are tough for everyone and we’re not immune to that. However, having global scale and presence has allowed us to soften the effects of the recession.”

He added that shareholders’ commitment is clear. “We’re very lucky to have solid backing from shareholders who really understand the business and are committed to growing it.

“I think the level of this commitment is evident from the acquisitions we’ve made.”

Even if Endemol’s private equity owners want to move on there will likely be no lack of buyers, especially now that the debt and equity markets are starting to loosen up after a long period of rigidity.

There is even talk that a Middle Eastern sovereign wealth fund might be interested in investing in Endemol. For the moment, however, Endemol continues to do what it does best, make shows and look for the next big global hit.

“I would definitely put global smash hits at the top of my wish list,” says Hincks. “Global hits and world peace. I’m in favour.”


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