The Development of Internationally Exploitable European TV Fiction

TABLE OF CONTENTS

ABSTRACT

TABLE OF FIGURES

TABLE OF ACRONYMS AND ABBREVIATIONS

1. INTRODUCTION
1.1. Definition of the Problem
1.2. Objective and Relevance
1.3. Structure and Organisation of the Paper
1.4. Limitations

2. THEORETICAL FUNDAMENTALS
2.1. Unique Characteristics of the TV Industry
2.2. Screen Media Exploitation Chain
2.3. Programme Acquisition
2.4. Types of Fictional Programming
2.4.1. Films
2.4.1.1. Feature Films
2.4.1.2. TV-Movies
2.4.2. Series
2.4.2.1. Drama Series
2.4.2.2. Daily Soaps
2.4.2.3. Sitcoms
2.5. The Different Markets: Mainstream and Arthouse
2.5.1. Arthouse Programming
2.5.2. Mainstream Programming
2.5.2.1. National Mainstream Productions
2.5.2.2. International Mainstream Productions
2.6. Core Concepts of Competitive Strategy
2.6.1. Competitive Forces
2.6.2. Competitive Strategies
2.6.2.1. Cost Leadership
2.6.2.2. Differentiation
2.6.2.3. Focus
2.6.2.4. “Stuck in the Middle”
2.6.2.5. Pursuit of More Than One Generic Strategy
2.7. Locational Choice

3. ANALYSIS OF THE MARKETS
3.1. The European Market for TV and Film Production
3.1.1. Structure of the TV Market
3.1.2. Characteristics of the TV market
3.2. The US Market for TV and Film Production
3.2.1. Structure of the TV Market
3.2.2. Characteristics of the TV market
3.3. The Market for TV Licenses
3.4. Programme Weight of Fiction in Europe

4. VOLUME AND COMPOSITION OF TRADE
4.1. Trade Data
4.2. The Origin of Fiction

5. SOURCES FOR US DOMINANCE OF TRADE AND THEIR SUSTAINABILITY
5.1. Sources of US Competitive Advantage
5.1.1. Domestic Market Size
5.1.2. Production in English
5.1.3. Characteristics of the US Market and Industry
5.1.4. The Hollywood System
5.1.4.1. The “Star” System
5.1.4.2. Vertical Integration
5.1.4.3. First-Mover Advantage
5.1.4.4. Export Pricing
5.1.4.5. Support by US Government
5.2. Sustainability of the US Competitive Advantages

6. REQUIREMENTS FOR THE INTERNATIONAL EXPLOITATION OF PRODUCTIONS
6.1. Internationalisation Strategies
6.1.1. Americanisation
6.1.2. Europeanization
6.2. The Relation between Universality and Authenticity
6.2.1. Creation of Universality
6.2.2. Universality of US TV Fiction
6.2.3. Script Development

7. THE DEVELOPMENT OF INTERNATIONALLY EXPLOITABLE EUROPEAN FICTION
7.1. Competitive Advantages of the EU
7.1.1. Freedom to choose content and form
7.1.2. Variety of Cultures
7.2. Utilisation of Competitive Advantages
7.3. Focus on Universal Values

8. SUMMARY AND CONCLUSION

BIBLIOGRAPHY

PREFACE

This diploma thesis employs an economic perspective to examine trade and business strategies in fiction programming. The author decided on the topic of this analysis due to his strong interest in the media. Since the age of 16 the author continually tried to broaden his knowledge about communication and media by working with various media enterprises. Now, the exact choice of the subject reflects a blend of this interest and the author’s economic studies. Hence, the contribution of this analysis is to provide a business perspective on a subject area which has long been dominated by academics from other disciplines. The author therefore stresses the uniqueness of cultural products like TV programming, and his examination is largely based on their unusual characteristics.

This thesis would not have been possible without the support of my coaching instructors, Dr. Max Schachner and Tiny Gilliam for their advice, their probing criticisms and the generous time they dedicated to me. I would also like to thank all those who form part of my personal network of social relationships and who have in various forms contributed to my diploma thesis. First and foremost I want to thank my parents for being my parents and their constant unshakeable belief in me. I am indebted to Michael, who always stood at my side when I was on the edge of despair and desperation. Thank you for helping me to find my way. I am also grateful to Astrid for being a continuous source of encouragement and support in respect to this work and to personal issues. Rudi always assisted me in the development of ideas and showed me the depths of the technical backgrounds of my topic. Karina, Max and Bernhard have been wonderful friends and have always advised me well during my studies. I am indebted to Nicole for giving me valuable hints with regard to literature. Finally I want to thank Amelie and Elfi for giving me professional insights into the broadcasting business. Concerning this work I am especially indebted to Elfi and to ORF Austrian Broadcasting Corporation to allow me the flexibility and time for writing this thesis.

Amsterdam

ABSTRACT

Der internationale Handel mit Lizenzrechten wird seit langem durch US- amerikanische Medienunternehmen kontrolliert. Diese Dominanz und das damit einhergehende, stetig größer werdende Handelsbilanzdefizit der EU bereitet einigen Beobachtern große Sorge. Die Vormachtstellung von US-amerikanischen Programmen birgt offensichtliche kulturelle Konsequenzen, als Fernsehen und Film eine große soziale Bedeutung für die Kultur, die Förderung der Staatszugehörigkeit und der Selbstbestimmung eines Landes haben. Nichtsdestotrotz existiert bis zum jetzigen Zeitpunkt keine effiziente Strategie, um eine erfolgreiche europäische Programmindustrie aufzubauen. Eine derartige Entwicklung muss in erster Linie grundlegende Prinzipien und Ziele definieren. Zum jetzigen Zeitpunkt gibt es weltweit nur das Geschäftsmodell Hollywoods für Filme und Serien, das weltweit akzeptiert und erfolgreich ist. Es stellt sich daher die Frage, inwiefern sich eine europäische Programmindustrie von diesem globalen Standard unterscheiden kann, um sich einerseits abzugrenzen, sich jedoch andererseits auch nicht ins Abseits zu stellen. Das inhaltliche Ziel künftiger Produktionen muss sein, europäische Werte und Traditionen zu behandeln und gleichzeitig eine gewisse Universalität zu vermitteln.

Diese Diplomarbeit untersucht den Status Quo der europäischen Programmindustrie und analysiert die Vormachtstellung Hollywoods mithilfe von MICHAEL E. PORTERS „Competitive Advantage“ Konzept. Darüber hinaus wird die Nachhaltigkeit der aufgezeigten Wettbewerbsvorteile bewertet. Von diesen Umständen ausgehend werden die Anforderungen für international verwertbare europäische Filme und Serien aufgezeigt: der Fokus auf ein internationales Publikum, ein universeller Inhalt, und ein Produktionsstandard der dem US- amerikanischen zumindest gleichkommt. Hinsichtlich der Universalität des Inhalts muss jedoch auch immer eine Balance mit der Authentizität gegeben sein. Professionelle Drehbuchentwicklung wird daher ein wesentlicher Erfolgsfaktor sein.

Die Umsetzung all dieser Kriterien wird in Verbindung mit den Wettbewerbsvorteilen Europas Produktionen kreieren, die zwar den USamerikanischen nicht gänzlich unähnlich sind und der Kategorie des „Mainstream“ zugeordnet werden müssen, sie werden aber dennoch europäischen Charakter haben. Die Filme und Serien werden die europäische Gesellschaft widerspiegeln, genauso wie Hollywood den „American Way of Life“ reflektiert

TABLE OF FIGURES

Figure 1 Positioning of Media Goods on a Product-Service Scale

Figure 2 The Five Forces and the Elements of Industry Structure

Figure 3 The Three Generic Strategies

Figure 4 Main Programme Categories

Figure 5 Trade in Personal, Cultural and Recreational Services

Figure 6 Origin of Imported Fiction Broadcast by Television Channels in Western Europe

Figure 7 Imported American, European and Other Programming Broadcast on Television Channels in Western Europe

Figure 8 Volume of Non-European/Non-American Programming and of International Co-Productions Imported and Broadcast by Western European Television Channels

Figure 9 Origin of Imported European Fiction Broadcast by TV Channels in Western Europe

Figure 10 Volume of US-originated Fiction and Films Imported and Broadcast on Television Channels in the Five Principal European Markets (2001) .

Figure 11 The World’s Largest Television Markets

Figure 12 A Comparison of Linguistic Populations

Figure 13 Universality and Authenticity of TV Fiction

Figure 14 Script Development

Figure 15 Importance of Location Factors

Figure 16 Ten Universal Values

TABLE OF ACRONYMS AND ABBREVIATIONS

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1. INTRODUCTION

International trade in television programming has long been controlled by companies domiciled in the United States of America. Empirical research in the 1970s, 1980s and 1990s revealed the dominant position of US originated fiction on European television, in consequence of which the term “dallasification of television content” was launched. Current figures from the OECD indicate that this dominance is likely to continue as the US-American trade surplus in personal, cultural and recreational services¹ is still on the rise with a growth rate of nearly USD 1 billion between the years 1999 and 2001. At the same time the trade deficit of the EU increases even faster with an all-time low in the balance of trade of minus USD 5.656 billion in 2001.² This continuing US-American dominance is a matter of concern to some observers particularly in Europe because of the apparent cultural consequences. Television and film has a big social importance on the culture, the promotion of citizenship and the self-determination of a country. This argument is often listed as a non-economic justification for government intervention. Nevertheless, there is yet no efficient strategy to establish a successful European fiction production infrastructure although the European Union has tried to counter the US dominance already since the 1980s (quota for European productions, support measures for the audiovisual industry).

1.1. Definition of the Problem

However, to assign subsidies is not enough since the present instruments can only serve, at best, to conduct a rearguard action in defence of European culture. The real challenge for Europe is to become more open to the world, to access a universal dimension by enhancing the value of its cultural diversity. A prerequisite for this is a common EU culture policy, which is founded on a clear general framework, including a set of basic principles and aims. Only with such a framework operational measures can make sense. The French Minister of European Affairs, Pierre Moscovici³ perceives two major challenges for a common cultural policy: the challenge of finding the right methods and the challenge of funding.

As explained, until now only the US fiction industry is internationally successful with its audiovisual products. This analysis therefore questions whether the USAmerican approach to fiction has to be a paradigm for the development of internationally exploitable European fiction.

1.2. Objective and Relevance

One part of the a.m. cultural policy should focus on the development of internationally competitive fiction. In the scope of this analysis the reader will be provided with an understanding of what could be the basic principles and aims for such a development. Based on this framework it can then be possible to develop the right methods.

The author will thus analyse the current stage of development of European fiction programming, the characteristics of fiction productions and the inflow and origin of television programming in Europe. The analysis employs MICHAEL E. PORTER’s Competitive Strategy framework to examine the current and past competitive advantages of the US fiction industry that have enabled the Hollywood studios to dominate world trade. The paper will examine the sustainability of the competitive advantages and analyse in how far the US industry structure could and should serve as a benchmark and paradigm for the development of a successful European fiction industry. Finally, and in view of the findings, the author will try to evaluate the competitive advantages and illustrate the basic principles and aims European fiction producers should take into consideration.

1.3. Structure and Organisation of the Paper

The information of this diploma thesis was obtained by using and comparing primary literature (particularly Journal articles) and secondary literature relevant to the topic. With regard to secondary literature the author mainly drew on books, encyclopaedias, handbooks and manuals as well as on important websites.

With regard to the structure background information on the audiovisual industry is set out in Chapter 2. This paragraph expands on two attributes of audiovisual goods that are crucial to explaining trade patterns: that they are joint-consumption goods and that they are subject to a cultural discount when traded. The author will define essential terms that are used in later chapters of this analysis. Furthermore the levels of exploitation of screen media are examined and the aspects of Porter’s framework, which are relevant to the fiction industry and this analysis are described.

In Chapter 3 the reader will be informed about the structure and the characteristics of both the European and US-American markets. Important characteristics of the international market for television licenses are described. In addition, the author evaluates the programme weight of fiction in Europe.

In Chapter 4 the task is to identify and explain the volume of trade in fictional TV programming and the composition of this trade flow. The author establishes that fiction is widely traded, and that this trade is dominated by US originated productions.

Subsequently the sources of current and past US competitive advantages are identified and examined. Explanations for US dominance include the size of the domestic market, the production in English, the special characteristics of the US market and industry, and the Hollywood system. The examined competitive advantages are then evaluated with regard to their sustainability.

After having described the success formula of the US producers the author will examine in Chapter 6 which options exist for European producers to compete internationally. The analysis considers different internationalisation strategies and the key to successful fiction programme, which has to be a script that is balanced between universality and authenticity.

In Chapter 7 the task is to examine what the implications for the European producers are with regard to competitive advantages of the US fiction industry. How can European Mainstream fiction be developed?

1.4. Limitations

Since scientific literature often does not differentiate between films and series as they share most of their characteristics the author will also primarily discuss fiction in general. The fact that there exists a lot more information on trade in motion pictures made the author use this literature - where possible - also for series.

In the course of this diploma thesis the inflow of programmes is analysed, but not their reception. The analysis does not cover the impact of this dominant USAmerican content on the attitudes and perceptions of the viewers. Besides, the author did not treat the topic whether there existed a demand for European productions within the European and international audiences.

Where possible, data on the overall size of the analysed markets is provided. It is important to recognize that in many countries there is little in the way of official statistics for this industry. In this report the author relies mainly on data generated by the OECD, Eurostat and the European Audiovisual Observatory.

The topic of this analysis is closely linked with European Union support measures to promote an efficient European television programme industry and the development of a European Audiovisual Policy. However, the enormous scope of these issues did not allow the author to assess the sufficiency of the support actions and political progresses.

2. THEORETICAL FUNDAMENTALS

Each and every study of television from an economic perspective has to clarify first of all how TV programming is classified as a good. The fact that media are predominantly produced by the industry and sold on a market indicates that television is an economic good. This argument gets supported by economic theory that declares something as an economic good if this product or service complies with three conditions: the good has to (1) serve the satisfaction of somebody’s needs and generate a benefit, (2) has to meet a demand and (3) has to be scarce, i.e. that someone is willing to pay a price for the respective good.⁴ Television content fulfils all three requirements. It serves the satisfaction of a human need⁵, meets a demand and is even in the age of digital TV scarce as the viewer is commonly most attracted to blockbusters or big events like Olympic Games. Although most channels are free to air, the existence of Pay TV and license fees for public-national television signifies that people are willing to pay for this good.

illustration not visible in this excerpt

Figure 1 Positioning of Media Goods on a Product-Service Scale⁶

A good can either be a product or a service with regard to its materiality. KIEFER⁷ considers media or media related goods as services without or with limited product character, i.e. immaterial goods with the characteristics of services.

2.1. Unique Characteristics of the TV Industry

However, television programming⁸ can easily be distinguished from other economic goods as it shares three uncommon characteristics. It 1. suffers a cultural discount when traded across international borders, it shows 2. the jointconsumption characteristic and may 3. have external benefits.⁹

HOSKINS, MCFADYEN and FINN¹⁰ explain Joint Consumption as the fact that “[…] viewing of a programme or a film by one person does not use up the product or detract from the viewing experience […]”. Hence, in an already given market an additional viewer involves no further costs. The feature of Cultural Discount is applicable as the viewers in a market, which imports audiovisual programmes tend to have difficulties to identify with “style, values, beliefs, history, myths, institutions, physical environment, and behavioural patterns”¹¹ illustrated. Another key source of cultural discount is the language difference. The attribute of External Benefits is an economic term indicating “benefits to people other than the producer”¹², i.e. positive side-effects. In respect to television this is e.g. true when educational programmes promote a population more informed.¹³

Another unique characteristic of an audiovisual good is that its production can be described as the creation of a prototype. Each television programme requires close attention of its developing team (actors, writers, directors, etc.) and technical features that do not automatically coincide with previous productions.¹⁴

In addition the television industry faces a high degree of risk and uncertainty with its products. A business that deals in art and cultural products may forecast aggregate industry demand fairly accurately, but it is complex to project the demand for any particular production. For example, viewer data can be anticipated, nonetheless it is very difficult to know in advance whether a particular series or feature film project will succeed or not. This characteristic implies a high rate of failure and thus a cost-intensive business.¹⁵

As a result of the high cost of capital, the ever increasing costs of production and the high fragmentation of the audiovisual industry the companies find it more and more difficult to amortise the production of their programmes on the domestic markets.¹⁶ However, many entertainment products can attain global market appeal and the “[…] resulting incremental revenues from international sources have an important effect on profitability […]”¹⁷. The major Hollywood studios in the USA therefore strived to break through the cultural barriers that complicate the internationalisation of programming. DE BENS and DE SMAELE state Hollywood’s success formula as the themes covered in its productions. These are derived from emotional, daily life and focus on private conflicts: “Love, jealousy, hatred, ambition and the lust for money are the major themes. The cause of all good and evil lies with the individual, not with society. Each serial is characterized by an intelligible content, identifiable situations and a touch of suspense.”¹⁸

2.2. Screen Media Exploitation Chain

The fiction and especially the film industry does not only earn money from the first exhibition of its production but employs a number of exploitation levels that aim at maximizing the full economic potential of each market. In international trade these levels of exploitation are commonly referred to as “windows”.

Before television, motion pictures played only in theatres, and the only ancillary markets were found in other cinemas abroad. But the rise of commercial television in the 1950s, pay cable and home video in the 1980s, as well as the introduction of DVDs in the 1990s created additional venues for fiction. Today, a feature film first opens in motion picture theatres to establish its box-office value and critical reputation. It is then released to ancillary markets in the following order: (1) home video and DVD (videocassette and DVD rental); (2) pay cable (i.e. premium services such as HBO, Showtime, and Cinemax in the USA or Premiere and BSkyB in Europe); and (3) free television. In the USA it is further differentiated between the exploitation via network television¹⁹, cable television and television syndication²⁰.

With the exception of DVD and home video, which has a window that remains open almost indefinitely, a new feature is exploited in one market at a time. In each level of exploitation, the price paid by the consumer to view the respective film drops. Economists call this process price tiering: A film is first released to cinemas where it is viewed for a period of normally three months at top prices by "high value" consumers, i.e., to those who are most anxious to see the film and are willing to pay EUR 7 and more for a ticket. The film is then released at contractually specified intervals to "lower value" consumers at prices that decline with time. A consumer willing to wait two to three years to watch a production can finally receive it "free" over commercial television. Hence, the distribution pattern taps every segment of the market in an orderly way and at a price commensurate with its demand.²¹

Out of these windows the DVD recently gained more and more importance as Hollywood now earns more money from home entertainment than from the showing of films in cinemas. In 2003, Americans spent USD 22.5 billion on DVDs and videocassettes compared with USD 9.2 billion at the box office, where receipts fell slightly for the first time in a decade.

“People are buying and renting DVDs in numbers that Hollywood never dreamed of when the format was being developed in the mid-1990s. Sales and rentals of DVDs account for two-fifths of the studios' revenues, according to Adams Media Research, compared with under 1% in 1997. Studios' revenues from rentals and sales of videocassettes, on the other hand, started to fall in 1999. What is particularly exciting for the movie industry is that people are choosing to buy rather than rent DVDs, as they mostly did with videos.”²²

2.3. Programme Acquisition

After the programme has been shot producers and production companies generally seek to sell or pre-sell it to foreign distributors by the use of their own sales divisions or companies that specialize in the international sales of programming. These distributors, in turn, will sell a production’s international rights in diverse media (Video, DVD, Pay TV, Free TV). Productions that are not cost- intensive will be expected to amortise their costs principally from the domestic market, international distribution will simply be a supplementary revenue stream rather than a determinant of whether the production gets made at all.

The foreign broadcasting corporation can acquire these productions either from the a.m. distributors or directly from the production company. These programme acquisitions usually include first-run feature films, library feature films, fictional series, documentaries and children programming. The television channel buys the right to broadcast a certain copyrighted content under specified terms. This right is generally known as License.²³

A special but very common form of TV Sales is a pre-sales contract, which is made before a production is completed and screened. It involves a sales agent, a bank, and the distributors in key markets all over the world (USA, Canada, Australia, Western Europe and Japan). The simplest pre-sales scenario looks as follows:

“[…] a sales agent acting on behalf of a producer undertakes to sell a film to as many distributors worldwide as possible, either prior to the film commencing principal photography or while the film is shooting. Each local distributor advances a specified sum of money to the sales agent once the distributor takes delivery of the completed film together with such materials as poster- ready artwork and a trailer. These funds that the distributor commits to advance on delivery are known as the minimum guarantee (MG).”²⁴

A License Agreement contains two fundamental aspects: Firstly it includes terms and the conditions of exploitation of the production in the programme, i.e. elementary editorial specifications on the licensed production. These contain the license period, the number of transmissions granted and conditions for repeat telecasts, adaptations, translations et cetera. Secondly, the License Agreement lays down the economic and financial terms of the programme acquisition. It states the supply of material, the terms of payment, the disposal of material and the tax arrangements. In addition to that the License Agreement regulates a number of other special details between the broadcaster (licensee) and the holder of the rights (licensor).²⁵

On the market for programme licenses high-quality productions are scarce and the demand of the channels commonly exceeds the supply. Besides the market is highly fragmented: Due to long-term agreements the programme output of the majority of the important producers gets exclusively traded to certain broadcasting corporations or intermediaries. In addition to that the market is characterized by intensive cross-ownerships.²⁶ A small number of large corporations has a direct or indirect share in multiple private broadcasting channels and at the same time some of the most important producers and license trading corporations also have an interest in the TV stations. Some other license traders even own a whole channel. Hence, business relations between a seller and a buyer who have a common investor or owner are clearly more probable to develop than those between two fully independent partners, which are in no way related to each other. The programme license a channel can obtain depends therefore on both its ownership structure and its expertise on the market.²⁷

A precondition for the acquisition of programme licenses is the Strategic Programme Planning. The TV station ought to have as precise a picture of the upcoming programme demand as possible, potential aims and price limits. However, the systematic creation of a stock of content bears a lot of risks: A large accumulation of acquired programming can turn out to be a dangerous burden with regard to content as well as business management. Potential influences are both the development of the broadcasting corporation itself and the pressure of competition in the television market. The channel should always have a sufficient amount of appropriate programming at its disposal without accumulating overstock, i.e. films and series that are already unsuitable from the editorial point of view. Hence, the proficient screening and evaluation of potential programmes is equally important as the following negotiation of the license terms.

2.4. Types of Fictional Programming

Fiction is the term used to describe works of information created from imagination. This is in contrast to non-fiction, which makes factual claims about reality. Fictional films and series may be partly based on factual occurrences but always contain some imaginary content.

“Fiction is largely perceived as a form of art or entertainment, although not all fiction is necessarily artistic. It may be perceived as funny, serious, sad, fast, tense, confusing, surprising, twisted, provocative, boring, unrealistic, enlightening, addictive, manipulative, generic, beautiful, life-changing, depressing, or inspiring. Whatever one's view of specific forms of fiction may be, it cannot be denied that fiction is a fundamental part of human culture, and the ability to create fiction, or in fact any art, is frequently cited as one of the defining characteristics of humanity.”²⁸

The television channels can acquire a broad variety of fictional programme rights. Still, there exist major structural differences between the diverse types of productions. A general differentiation can be made between films and series.

2.4.1. Films

Films can be produced in two forms: as Feature Films, which are first shown in cinemas, and as TV-Movies that are solely produced for television exploitation.

2.4.1.1. Feature Films

Feature Films are films that are produced for theatrical release and generally feature the highest production value. Regardless who is the producer of the motion picture, whether it is a big Hollywood studio (Major) or one of the smaller studios (Independent), the movie budget is commonly enormously high. Besides the theatrical movies usually feature internationally famous stars. The Hollywood productions aim at the global market right from the start and are therefore accompanied by intense marketing efforts. Thus feature films are especially attractive for the broadcasting corporations and generally promise high viewing figures.²⁹

2.4.1.2. TV-Movies

The situation is totally different for TV-Movies (aka Made-for-TV-Movies), which are directly produced for television exhibition. These productions have lower budgets and correspondingly lower production values. The cast is less prominent and the content focuses on the requirements of the domestic market and the channel for which they are produced. When shown in other markets the embedding in very specific social circumstances is consequently often difficult to understand and limits the emotional effect of the film. Nonetheless, the market for TV-Movies is bigger than for theatrical movies as the prices are significantly lower.³⁰

2.4.2. Series

Similarly to films one can also subdivide the category of Series: KARSTENS and SCHÜTTE³¹ differentiate between Network Productions and so-called Syndication or Cable and Pay TV-Series. Network Programmes are traditionally more expensive as their production value is higher and they have a more prominent cast. Still, the Off-Network productions have made up in this regard in the past years. From the editorial point of view one can make a distinction between Drama Series, Daily Soaps and Sitcoms:

2.4.2.1. Drama Series

The category Drama Series (aka One-Hour-Dramas) embodies narrative one-hour series of all types. This does not only mean melodramatic content but also dramas like “Star Trek” or “24”. The key features of this category include the variety of sets, a high production value and a superior cast.³²

2.4.2.2. Daily Soaps

Daily Soaps stand for one- or half-hour formats, which are cheap to produce and rather simple as regards their content. They are produced for daily exhibition. The most typical and well-known example is “The Young and the Beautiful”.³³

2.4.2.3. Sitcoms

Sitcoms (short for Situation Comedies) generally only last for half an hour and can be characterized as the TV version of light theatre: They are completely produced in the studio with only two or three sets. They feature humorous dialogues and slapstick. The laughter of the audience is commonly recorded. This form of series is extremely popular in the USA. However, many US series have flopped in foreign markets. Examples of this form of programming include series like “Friends”, “Seinfeld”, “Married With Children” and “Alf”.³⁴

2.5. The Different Markets: Mainstream and Arthouse

The above explained different types of fictional programming can - like in every industry - commonly be produced either for a broad audience or a niche market. Thus the production work has to be adapted to the demand of the selected target group. With regard to fictional programming it is especially crucial to decide whether to produce for your national or an international audience as well as to decide on the intellectual standards of the prospective production.

In order to differentiate between these special focuses it is essential to clarify first of all the different perceptions of film production. This differentiation is also valid for the entire group of fictional audiovisual products.

The production of films and fiction can either be seen as business or as culture in the narrower sense of the word. The commercially motivated view gets generally associated with US-American film production, in particular with Hollywood films. The artistic point of view is commonly linked to the European film culture. Yet, as there exist both European commercial and sophisticated American productions, a differentiation with regard to the origin of programming does not make sense.

The two attitudes can, however, be distinguished in terms of their objective: The commercial point of view considers film first and foremost as business. The overall aim is therefore the maximization of profit and viewer figures. Hence, the content of the production orientates itself totally to the interest and taste of the broad audience, the so-called Mainstream. On the other hand, the cultural approach regards film as a form of art and the content is thus the crucial point, which is superordinated to viewing figures and financial success. This category of film is called Independent, Art Film or Arthouse-Movie. In practice culture and commerce cannot be separated as even an Arthouse film has to recover its cost of production.³⁵

2.5.1. Arthouse Programming

Although there exist some Public Service Broadcasters in Europe, which produce sophisticated Arthouse TV films the main part of Arthouse productions is principally made for cinema exhibition. Arthouse series or other types of fictional programming in practice do not exist. Art Films are generally easy to export as the achieved box office takings abroad often come close to those achieved in their country of origin. Arthouse productions target a small high-profile audience that seeks an alternative to the overwhelming Mainstream offerings. The produced films often try to present feelings and experiences authentically and dedicate themselves to tabooed topics, which Mainstream films have not (yet) covered. Hence, the productions often try to convey complex philosophical issues by using unfamiliar and metaphorical visualizations. Still, it is possible to earn money with Arthouse productions given the budget used for production is much smaller than for Mainstream programming. This often entails a lower technical standard. As the productions, however, generally do not need famous and therefore expensive actors as well as special effects the shooting can be done much cheaper compared to Mainstream fiction.³⁶

2.5.2. Mainstream Programming

Contrary to Arthouse productions the characteristics of Mainstream programming can be found in every type of fiction. With regard to the content these features include easy comprehensibility and the common reduction to stereotypes and symbols. The programming must not provoke and it should have a “Happy End”.

Hence, the fictional entertainment takes the viewer to a simpler and better world for the short duration of the production. And this is exactly what the majority of viewers wants and expects from fiction.³⁷

These simplified fictional worlds bear the risk that they tend to be too similar to each other so that the audience can predict the end of the storyline and considers the productions as uninteresting. Yet, this applies only to a very limited number of viewers, the majority can be fascinated by Mainstream programming continuously. When aired on television Mainstream movies, however, already lack the bonus, which they had previously, as they are already considered as ordinary and boring.³⁸

2.5.2.1. National Mainstream Productions

European made Mainstream programming is most often only successful in its country of origin. There it can, however, achieve higher viewing figures than American Mainstream fiction. With regard to its content domestic Mainstream features national stereotypes, which are only entertaining if the reduction to the cliché is obvious to the audience. As this understanding can only be attained if the viewer can compare the stereotype with his own experiences, the foreign viewer has difficulties to recognize the reduction. The production suffers a cultural discount and is therefore very hard to export.³⁹

2.5.2.2. International Mainstream Productions

Mainstream programming that can successfully be exploited around the globe principally only originates in the United States. These productions feature worldwide universality by using a “language”, which is understood everywhere: Hollywood uses stories that interest the large majority of people and employs famous stars, which are familiar to nearly everyone.

European Mainstream productions are rarely successful on the international marketplace. RÖSCHEISEN⁴⁰ argues that this is partly caused by the fact that the national TV stations are the most important customers of the production companies. These are predominantly focused on their national audience and thus want to feature national, familiar topics that ensure high viewing figures. Hence, the productions lack universality and the potential of international exploitation. The powerful national television broadcasters are therefore partly responsible for the difficulty in developing internationally applicable fiction contents.

2.6. Core Concepts of Competitive Strategy

As in every industry competition is also at the core of the success or failure for television enterprises, no matter whether they produce or air programming.⁴¹ According to MICHAEL E. PORTER⁴² competition determines the appropriateness of a firm’s conduct, which can “contribute to its performance, such as innovations, a cohesive culture, or good implementation”. As already indicated the market share available to a programme is a crucial factor for recovering development, production or acquisition costs. However, in many countries the market share available has been negatively affected recently by audience fragmentation, and this is expected to continue. Due to the multiplication of channels via the introduction of cable-delivered satellite channels, independent stations and digital networks both US and European Channels have already seen their share decrease dramatically. This clearly entails a shortage of productions. Still, programming is the key factor to stand out from rivalling channels.⁴³ As a consequence the demand for high quality content and hence competition is going to increase. The crucial question is how to achieve advantages over competitors, how to gain and sustain Competitive Advantages. These can principally be realized “by offering consumers greater value, either through lower prices or by providing more benefits that justify higher prices”.⁴⁴

Competitive advantage develops basically out of value an enterprise is able to generate for its customers that goes beyond the company’s cost of creating it. PORTER⁴⁵ defines value as “what buyers are willing to pay”, and states that superior value “stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price”. Additionally competitive advantages in an industry can be significantly improved via cross-ownerships with firms doing business in associated industries. These interrelationships are the prime methods by which a diversified enterprise creates value and form the prerequisites for corporate strategy.

2.6.1. Competitive Forces

A major determinant whether a company attains sustainable competitive advantages is the realization of a competitive strategy. This should cope with the rules of competition in the respective industry and if possible change the given system in the company’s favour. Each and every industry features five competitive forces that represent these rules of competition: the entry of new competitors, the threat of substitutes, the bargaining power of suppliers as well as buyers, and the rivalry among the existing competitors.⁴⁶

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Figure 2 The Five Forces and the Elements of Industry Structure⁴⁷

Whether or not a company can cope with these competitive forces determines its ability to achieve profit in its industry. However, the degree of influence of the single forces varies considerably from one industry to another as the underlying economic and technical characteristics are different. Besides it can also alter with the development of the industry itself. The profitability of a certain industry is thus not affected by e.g. the looks or the technical standard of the good but by the fact whether the five forces are favourable or not. Cable television for example is not lucrative for many participants of the market. This argument gets backed up as the five competitive forces influence the elements of return on investment (ROI) in an often negative way. These elements not only include prices and costs but also the required investment of companies in the respective industry:⁴⁸

“Buyer power influences the prices that firms can charge, for example, as does the threat of substitution. The power of buyers can also influence cost and investment, because powerful buyers demand costly service. The bargaining power of suppliers determines the costs of raw materials and other inputs. The intensity of rivalry influences prices as well as the costs of competing in areas such as plant, product development, advertising, and sales force. The threat of entry places a limit on prices, and shapes the investment required to deter entrants.”⁴⁹

All potential elements of industry structure that can influence competition are shown in Figure 2. The framework of the five forces enables the company to get a comprehensible overview and to pinpoint those elements that are most relevant for its respective industry.

2.6.2. Competitive Strategies

Besides the insight into the complexity of the industry structure, the positioning among the rivalling players is also a central part in the formation of a competitive strategy. The relative positioning determines whether a company’s success is above or below the average profit of its competitors. A major prerequisite to positively stand out is the possession of a sustainable competitive advantage. The multitude of strengths and weaknesses of a company in opposition to its competition can generally be summarized with two basic types of competitive advantages: low cost and differentiation. As PORTER points out, the “[…] significance of any strength or weakness a firm possesses is ultimately a function of its impact on relative cost or differentiation.”⁵⁰ Low cost and the feature of differentiation in turn stem from the company’s ability to handle industry structure and its five forces better than its competitors.

The a.m. two fundamental types of competitive advantage have to be linked with the scope of activities for which a firm aims to achieve them. This combination results in three generic strategies that promise successful performance in an industry: cost leadership, differentiation and focus. The third strategy can either focus on cost or on differentiation.⁵¹

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Figure 3 The Three Generic Strategies⁵²

These three strategies lead to different ways to a competitive advantage. They involve both the selection about the type of competitive advantage sought and the range of the strategic target in which the competitive advantage is to be attained. The general low cost and differentiation strategies do not differentiate between the special segments of the industry but aim at competitive advantages in a wide scope of industry segments. On the other hand focus strategies concentrate on cost advantage (cost focus) or differentiation (differentiation focus) in a narrow industry segment.⁵³ The core idea that features this concept of generic strategies is that a competitive advantage is essential for every business operation and the selection of it is crucial. This also implies that a company without a clear competitive strategy often faces industry performance that lies below the average.⁵⁴

2.6.2.1. Cost Leadership

The implementation of this strategy involves pursuing a variety of cost cutting measures in order to become the low-cost producer in the respective industry. Possible means depend on the industry structure but generally include the utilization of economies of scale, proprietary technology, preferential access to essential inputs and similar factors. A company that pursues this strategy serves a broad range of industry segments often allowing the firm to benefit from size effects.⁵⁵

2.6.2.2. Differentiation

When a company selects the differentiation strategy as the best way to achieve profit it then should seek to be unique in its business field along some dimensions that are generally valued by customers. The firm chooses one or more product features that are conceived as important by the customers and uniquely positions itself to meet those requirements. The superiority is commonly rewarded with a premium price by the buyer of the good. Potential means to attain this exclusivity can be based on the good itself, its marketing, its delivery and other factors.⁵⁶

2.6.2.3. Focus

The focus strategy is different from the other two generic strategies as the firm pursuing it concentrates on a narrow competitive segment within an industry. This segment may include only one target at all. The company then customizes its strategy for the selected group and thus excludes the other segments that were left ignored by the focuser. This approach enables the company to create a competitive advantage for its target segment even though it lacks a universal competitive advantage.⁵⁷

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¹ This category includes audiovisual and related services as well as other personal, cultural and recreational services. Television programming relates to the subcategory of audiovisual services.

² see OECD / Eurostat (2003), 71

³ Moscovici (2002) in Friends of Europe, Summary of Debates: “What future for European cultural policy?”

⁴ see Paulsen (1966), 128

⁵ Abraham Maslow (1908-1970) felt that the basic human needs were arranged in a hierarchical order. According to his framework there are two major groups of human needs: basic needs and meta needs. Basic needs are physiological, such as food, water, and sleep; and psychological, such as affection, security, and self esteem. The higher needs are called meta needs or growth needs. These include justice, goodness, beauty, order, unity, etc. Basic needs take priority over these growth needs. People who lack food or water cannot attend to justice or beauty. Watching television is regarded as a recreational activity and can be categorised as a so-called Aesthetic Need. For further information, please refer e.g. to <http://www.businessballs.com/maslow.htm>.

⁶ see Kiefer (2001), 142

⁷ ibid., 142

⁸ A television programme is a presentation in a television broadcast which may be either a one-off broadcast or, more usually, a periodically returning one. A television series is an example of the latter type. The content of television programmes may be factual (e.g. documentaries) or fictional (e.g. comedy or drama). Common TV programme formats include TV comedy, TV documentary, TV drama, TV talk show, TV current affairs show, TV cartoon, TV infomercial, TV miniseries, and TV quiz show.

⁹ see Hoskins / McFadyen / Finn (1997), 4

¹⁰ Hoskins / McFadyen / Finn (1997), 4

¹¹ ibid., 32

¹² ibid., 4

¹³ see Hoskins / McFadyen / Finn (1997), 4

¹⁴ see Vogel (1998), quoted in Dally et al. (2002), 7

¹⁵ see Prindle (1993), 4-5

¹⁶ see Röscheisen (1997), 27

¹⁷ Vogel (1998), quoted in Dally et al. (2002), 5

¹⁸ De Bens / de Smaele (2001), 65

¹⁹ A television network is a distribution network for television content whereby a central operation provides programming for many television stations. Until the mid-1980s, television programming in the United States was dominated by a small number of broadcast networks, but with the advent of cable television the cost of creating a television network has been reduced and there has been a huge increase in the number of networks with most of the newer networks catering to a small group.

²⁰ A definition of Syndication is provided in Chapter 3.2.

²¹ see Balio (2003), n.p.

²² The Economist (2004), n.p.

²³ see Karstens / Schütte (1999), 239-240

²⁴ Dally et al. (2002), 303

²⁵ see ORF (2003), n.p.

²⁶ An overview of interrelationships between media companies and their assets please find under Vertical Integration, Chapter 5.1.4.2 and in the Appendix.

²⁷ see Karstens / Schütte (1999), 239-240

²⁸ Wikipedia (2004), n.p.

²⁹ see Karstens / Schütte (1999), 246-248

³⁰ see Karstens / Schütte (1999), 248-249

³¹ ibid., 250

³² ibid., 250

³³ ibid., 250

³⁴ see Karstens / Schütte (1999), 250-251

³⁵ see Röscheisen (1997), 135

³⁶ ibid., 136-137

³⁷ see Ridder (1991), 58-62

³⁸ see Gruber (1995), 101

³⁹ see Röscheisen (1997), 138

⁴⁰ see Röscheisen (1997), 139

⁴¹ This chapter will provide a general overview on Michael E. Porter’s framework on the competitive situation within industries. It is applied to the TV programming industry in Chapter 6.

⁴² see Porter (1985), 1

⁴³ see Hoskins / McFadyen / Finn (1997), 48

⁴⁴ Kotler et al. (1999), 999

⁴⁵ Porter (1985), 3

⁴⁶ see Porter (1985), 1-11

⁴⁷ Porter (1985), 6

⁴⁸ see Porter (1985), 1-11

⁴⁹ Porter (1985), 5

⁵⁰ ibid., 11

⁵¹ see Porter (1985), 11

⁵² Porter (1985), 12

⁵³ Chapter 5, Sources for US Dominance of Trade and Their Sustainability, describes in detail why differentiation and differentiation focus are the only viable strategies for production, marketing and sales of fiction programming.

⁵⁴ see Porter (1985), 11-12

⁵⁵ see Porter (1985), 12-14

⁵⁶ ibid., 14

⁵⁷ ibid., 15-16