annals of communications
The New Yorker - December 1993
tv's new gold rush
American programming has invaded overseas markets once dominated by state-run television, and ABC's Herb Granath has led the charge.
Herbert Grnath's personality is as steady as a dial tone. Although Granath is a formidable figure in worldwide television and theatrical production--as chairman of ESPN, as co-chairman of two other cable networks, as a pioneer in the selling of network shows to foreign outlets, as a partner in ten overseas television enterprises and production houses, as a facilitator in the recent linking of ABC News with the BBC, and as a producer of Broadway plays--"power" is not the word that jumps to mind when people first meet him. At five feet nine inches tall, he gets lost in a crowd. He dresses the part of a conservative businessman, in suits of gray or blue. His hair is thinning. He walks stiffly. He does not talk or laugh loudly. Unlike politicians, Granath does not work a room. Unlike many Hollywood studio executives, who are frequently derided overseas for being showy and boorish, he is often praised for his quiet civility.
Granath is the president of ABC's Cable and International Broadcast Group, and he is also the senior vice-president of the five-billion-dollar communications colossus that is its parent--Capital Cities/ABC, Inc., the world's third-largest (and quietest) communications company, after Time Warner and Bertelsmann. For five days last month--from October 11th until October 15th--eight thousand television producers and programmers visited Cannes to sell and buy programs at the annual MIPCOM conference. ABC's booth, in the basement of the Cannes convention hall--the Palais des Festivals, overlooking the Mediterranean--ranked as modest. Time Warner's booth, for example, cost about three hundred thousand dollars and shimmered at the head of the second-floor escalator like a crystal palace: inside were blue-and-white striped couches, a private conference room, offices shielded from pedestrians, and what at first looked like a separate restaurant with a terrace but was in fact a Time Warner commissary of a dozen or so tables with freshly squeezed juice, croissants, coffee, sodas, and hot meals. By contrast, Granath's booth had only a small refrig-erator and a few cramped offices.
The garish glassed Palais, whose floor space is interrupted by a forest of white concrete columns, is "an abortion," says Barney Bernhard, who serves as the president of the United States division of the Reed Midem Organization, which runs these conferences. But then,Bernhard adds, adoringly, there is Cannes, where the sun shines and the Mediterranean soothes and where the hotels and the restaurants and the boats are so close that they create a cozy convention village. Something other than Cannes draws people to the twice-a-year conferences, however. The Palais has one hundred and fifteen thousand four hundred square feet of exhibition space, and the fact that every one of them is packed hints at the momentous changes in over-seas television. Thirty years ago, when the first MIP-TV conference convened, there were three hundred and twenty-seven participants; this October, eight thousand attended.
Privatization is the rage not just in Eastern Europe but throughout the world, as two forces come together: technology and politics. Technology has provided more ways to receive television signals. And nations that were once dominated by state-run television today welcome competition. What these new networks crave is programming, and, now that the growth of the television business in the United States has slowed, as the movie business did some years ago, American entertainment executives are turning to overseas markets. "Television used to be a relatively simple business in America," the Paramount Pictures Television Group's chairman, Kerry McCluggage, says. "You'd put a show on, and you knew that if you kept it on for five years you'd make a lot of money in syndication. Now there is no longer a guarantee that it can stay on five years, and there may be no market for it in syndication. So, the way television has changed is that you have to spend a lot of time thinking how to make shows viable, and the foreign market is a big part of it."
So far, the Americans have been the biggest winner in foreign markets, so much so that their dominance in the entertainment business has provoked some governments into erecting trade barriers to prevent what they call cultural imperialism. Entertainment is America's second-largest export (after jet engines), accounting for a positive trade surplus of four billion dollars a year, and television makes up nearly half of this total. Time Warner alone makes a quarter of these overseas sales--distributing one billion one hundred million dollars' worth of television programs and movies worldwide, according to Michael Jay Solomon, the brash and impeccably groomed president of Warner Brothers International Television Distribution. American entertainment companies dominate eighty per cent of the overseas movie box-office and just under half of all non-news programming on television. The bulk of this entertainment export is split by the six major Hollywood studios.
With few movies to offer, Granath and ABC don't sell as much at Cannes as do Warner Brothers or Disney or Paramount. But ranking right behind those three studios in the matter of television commerce is Capital Cities/ABC, which does about two hundred million dollars annually in overseas business. To understand what a nifty profit center Granath runs, consider this: last year, his division produced five times as much profit--three hundred million dollars overall--as the entire ABC network. Yet, except to the club of television executives who see him at the industry conferences and dinners and know him because he has been associated with television for more than thirty years, Granath is invisible. He built a small empire with a stealth strategy--flying below the radar, nurturing friendships, gathering information, making quiet alliances. "We're not in the announcement business," he says. "We're in the communication business."
Now, however, when broadcast and cable and telephone and studio and consumer-electronics companies are rushing into one another's arms, and everyone is looking for the security of wealthy partners, and those with wealth have to advertise it to be asked to play, Granath and Capital Cities/ABC have chosen to become more visible. The week before Granath left for Cannes, Capital Cities/ABC announced his promotion to senior vice-president. "We're coming out of the closet," Granath says.
GRANATH refuses to divulge his age, but he is just under sixty. He grew up in the Marine Park section of Brooklyn, attended public schools, and graduated from Fordham University, in the Bronx, in 1956. He studied theoretical physics there. "To this day, I know just enough technology to be dangerous," he says. "I still enjoy talking about technological developments." To help pay his way through college, he worked as an NBC page. After graduation, he was employed by NBC Television Network Sales, and attended Fordham's School of Communications Arts at night.
Smitten by the actress Ann Flood, who was playing Don Ameche's daughter in the 1957 Broadway play "Holiday for Lovers," he became a stage-door Johnny, hanging around the theatre after they met, and in 1958 they were married. They have four children--three boys and a girl. In 1960, a friend told Granath about an opening at ABC, which was then a shaky television network with a subpar news division and without a full daytime schedule. James Duffy, a longtime ABC executive, who later became the network president, interviewed Granath, who thought that he was up for a television network job. Instead, Duffy offered him work at ABC Radio. He would be selling radio time to advertisers, and his pay would be sweetened by commissions and a bonus. "I made a lot of money--seventy-five thousand dollars my first year," Granath says.
In the early sixties, Granath grew close to Howard Cosell, who was doing sports on ABC Radio. At the time, no one would have dreamed of putting Cosell, with his New York nasality and his vulpine looks, on network television. Cosell was opinionated, not slick and homogenized; in fact, the president of the radio network couldn't bear to listen to him. "One day, I heard that Howard had been fired," Granath recalls. "I had been working six months on a deal with Mennen to sponsor a morning drive-time Howard Cosell sports show. I walked in to the president and said we had just got the biggest deal ever." The president was ecstatic until Granath told him that the order called for Howard Cosell to do the show. "I just fired Cosell!" he exclaimed. Pride did not stand in the way, however: the president quickly visited Cosell and apologized.
For the next ten years, Cosell thrived on ABC Radio, and so did Granath. Jim Duffy, who in 1970 had been elevated to president of the television network, was encouraging Granath to start a division to sell TV sports. In 1970, Cosell was drafted as part of Roone Arledge's team, a team that would broadcast National Football League games on television on Monday nights--the first time any sport would shine in prime time on a TV network. Granath attended these games with Roone Arledge, who was president of ABC Sports and is now president of ABC News, and with what he calls a travelling freak show--Cosell, Dandy Don Meredith, and Frank Gifford as straight man. "Monday Night Football" was so popular that in a few years ABC had shed its also-ran image and emerged as an equal to CBS and NBC.
In 1976, Granath became assistant to Elton Rule, the president of ABC. On the thirty-sixth floor of ABC's headquarters, on Sixth Avenue, he worked closely with Rule and ABC's chairman, Leonard Goldenson. Still interested in technology, Granath followed developments in the infant cable industry and in products that tended to be known by their initials--the VCR, the DBS (direct-broadcast satellite), and the MMDS (multichannel, multipoint distribution system). "It became obvious to me that the wonderful oligopoly that the networks had enjoyed would be eroded," he recalled. "I did a white paper for Elton and Leonard. Leonard, God bless him, saw it right away."
Granath guessed that cable would be a great growth business. But government regulations, as Goldenson and Granath knew, didn't permit a network to own a cable-distribution system. The regulations did, however, permit ABC to get into the cable-software business by owning a cable channel, as opposed to the cable box that allowed viewers to select that channel. In 1979, Granath and a deputy--John Healy, who remains his deputy to this day--started a new division, which eventually came to be called ABC Video Enterprises, and they devised a five-year plan to position ABC in cable and other new businesses. His division acquired the cable sports channel that later blossomed into ESPN, and joined in the start of two new cable channels--Lifetime and Arts & Entertainment.
In early 1982, Granath became the president of ABC Video Enterprises, and since that time he has fought a successful, if sometimes uphill, battle to expand the network's reach into other businesses, including cable. Along the way, he met with resistance from network executives, who feared that he was strengthening the competition and possibly diluting the company's focus. "I had five very tough years, where old friends were not talking to me," he recalls. It wasn't until 1986--the year that a local TV station and publishing giant, Capital Cities Communications, merged with ABC--that Granath's division turned a profit.
Today, Video Enterprises is itself an empire within the huge company. In addition to acquiring ESPN, which is now America's largest cable network, and starting Lifetime and Arts & Entertainment, he began pushing, much earlier than either NBC or CBS, the idea of selling network programs internationally, and his division now does more business overseas than any other network. He has also invested, with two French partners, in Eurosport, a pan-European, satellite-delivered sports service; in the Scandinavian Broadcasting System S.A., based in Luxembourg; in the Japan Sports Network, a cable service jointly owned with several Japanese companies; in RTL-2, a jointly owned German programming service; and in Lafayette, a company based in England, which owns mobile broadcast units and relays programs to broadcast satellites. Granath was apioneer in co-production deals, investing in partnerships with production housesin Germany (Tele-Muenchen), Spain (Tesauro, S.A.), France (Hamster Productions), and England (Molinare). His division acquired majority ownership of DIC, a producer of animated and live-action programming for children. And, finally, in 1978 his division developed a partnership with the Shubert Organization, usually providing half of the capital for its investments; also, though the fact is little known, Granath, on behalf of Capital Cities/ABC, is today the fourth-largest producer of Broadway plays.
Of course, Granath has made mistakes. When he was offered a chance to invest in the Broadway revival of "Guys and Dolls," he passed up what is today a transcendent hit. And Capital Cities/ABC itself has at times been too cautious--declining, in 1990, for instance, to buy the twenty per cent of the now spectacularly profitable ESPN that it did not own. Nabisco Brands had acquired that twenty per cent in 1984, and, when Capital Cities/ABC turned it down, it was bought by the Hearst Corporation.
LAST October 6th, Daniel Burke, the president and C.E.O. of Capital Cities/ABC, announced that he was separating the company into five divisions: the network; the broadcast-station group; the publishing division; multimedia; and a cable and international-broadcast group, which Granath would head. His promotion to senior vice-president was a reflection of more than satisfaction with his performance. It reflected, as well, a recognition that a new frontier of business opportunity has opened overseas. As happened in the United States in the eighties, the television marketplace is multiplying everywhere. Many governments' relaxation of restrictions on the private ownership of TV broadcasting companies has combined with the rise of cable and satellite technology to bring on a modern-day gold rush.
Five years ago, says Xavier Roy, who is the president of the Reed Midem Organization, England had four TV channels, and today it has nearly thirty, while France has gone from three channels to twenty-two. There are now a hundred and fifty networks in Europe, says Giuliano Berretta, the commercial director of the European Telecommunications Satellite Organization, and in five years there will be two hundred and fifty. State networks have been supplanted by private networks both in Eastern Europe and in the Middle East. Investors are scrambling to get a piece of the growing South American market. And Asia, with a third of the world's television sets--a billion four hundred million of them--provides a vast opportunity. Xavier Roy calls Asia the new El Dorado, and next November his organization is launching an annual MIP-Asia conference in Hong Kong.
Looking about at the crowds of potential buyers who thronged his booth at Cannes, Jan Mojto, the managing director of the KirchGroup, which is the most prolific producer of television in Germany, said, "For the first time, we are operating in an environment that is a market. Before, it was a buyers' place. There was only public television. A limited number of channels." Today, a Kirch executive said, the company sells a hundred and fifty million dollars' worth of programs outside Germany. Barney Bernhard summed up the way privatization has altered the television conferences in Cannes by saying, "You used to come to France and there were two people to see. You went to England and there were three people to see. There were just two hundred people in the world to sell to five years ago. Around 1987 or '88, the world over here went berserk, like sharks in a bloody pool."
Instead of Warner Brothers selling a hundred million dollars' worth of television programs overseas, as Michael Solomon says it did five years ago, today it sells six hundred million dollars' worth. CBS has become much more aggressive overseas under James Warner, the president of the CBS Enterprises Division--with crucial assistance from the CBS Entertainment Division, which now produces and owns four of the twenty-two hours of prime-time CBS programs. Today, CBS sells nearly a hundred million dollars' worth of its entertainment and news programming overseas. In contrast to CBS, which just sells programs overseas, in early October NBC bought a controlling interest in a distribution system--the Super Channel--which reaches nearly sixty million viewers in Europe. MTV, which is owned by Viacom, is seen on every continent but Antarctica, and reaches one hundred and ninety million households outside the United States. Joseph Abrams--who, as the head of ABC Distribution, works for Granath--says that Capital Cities/ABC sells the annual Academy Awards show to more than ninety countries. ABC also recoups a third to a half of the cost of a made-for-TV movie by making about a million dollars on its overseas sale.
In contrast to some American studio executives, who are thought of in Cannes as effective salesmen but also as take-it-or-leave-it arrogant, Granath is a popular figure there. "He's the eminence grise," says Jessica Josephson, an international media and telecommunications consultant. "It's a relationship game, and he has spent the time overseas. He has travelled. He has done what you have to do to establish good relationships and trust." Tesauro's president, Herve Hachuel, who is Granath's partner in Spain, says of him, "He was probably the first American television executive to see the need to grow beyond the United States." And Granath's business grew chiefly because he acted as a respectful partner, says Herbert Kloiber, the chairman of Tele-Muenchen, in Germany, which has the world'ssecond-largest communications company, the German-based Bertelsmann, as a partner. "We would never have chosen any other American company. I am very hard to get along with. But it has been a completely unclouded experience."
Kloiber said this over drinks at the bar in the Majestic Hotel, one of many hotels, along a strip facing the beach, where business is conducted in Cannes. By night, participants attend official functions, dine in splendid restaurants, and head back to the bars, where executives wander in and out, vying to buy one another drinks. By day, the executives mostly stay at their booths and promote their wares, or stray off to business lunches to work on relationships. The Americans, who are able to offer the most "product," as programs are commonly referred to, can enjoy the luxury of being laid-back sellers, so they stay closest to their booths. Representatives from the other countries, who are often buyers, spend their days meandering through the corridors.
At the stand of Nippon Television, the network's director of international operations, Haruo Kubo, sounded rather like an American automobile or shoe manufacturer complaining about Japan's restrictive market. "It's very hard to sell to the United States," he said. "There is custom. Habit. Language. We import much, but we seldom export to the United States." He added, "Foreign programs are not so popular on Japanese television--except for American movies." Nippon wanted to buy the rights to Steven Spielberg's "E.T." from Universal, but to get it Kubo had to take a package of nineteen other films, and pay a total of a million dollars, he says.
In the United States, block booking--forcing a buyer to take one product in order to get another--is forbidden by law, but overseas, it is not discouraged. A hit like "E.T." becomes the engine pulling the rest of the freight along. Joseph Abrams, of ABC Distribution, said that before he and Granath and Jack Healy arrive in Cannes every six months, he creates "a customized country list," a list of what they might sell to each country. They know that half-hour comedies generally don't translate well anywhere outside the United States, that cartoons and certain sports tend to be universal, that action-adventure shows transcend language barriers best. "Our goal is to maximize our inventory," Abrams says. When a programmer in one country tries to make an offer to buy just the two or three most popular ABC shows, Abrams resists, saying, "That's a nice offer, but your competitor will beat it."
GRANATH arrived in Cannes late on Sunday, October 10th, and left the following Friday. For all four days, he delegated the selling to his colleagues and concentrated on gathering information and cultivating relationships. On Monday morning, over breakfast at the Majestic, several of the people he had met over the years paused at his table to say hello. "One of the ways we operate is to talk to people," he said. "It's one of the reasons I come here. Being well known in the international community and being able to talk to these people is how I find out what's going on. If I were just to read the trade press, it would be too late."
Granath says that the information he gathers often comes from local partners. "Each of the German states has its own media authority," he said. "It's like having fifteen F.C.C.s. They ask, 'What are you going to do to enhance Bavaria?' That's why it helps to have local partners." The local partners also help shield Americans from a fever of protectionist anger that is rising everywhere: as channel choices proliferate and American-made programs flood these channels, the demand for local programming grows. In the long run, this expansion should open new markets, including this country's, for programs produced overseas. At present, however, local producers have difficulty competing with America, which has one of the world's largest markets, the biggest production budgets, and the most experienced storytellers. While American films like "Jurassic Park" earn more money overseas (nearly five hundred million dollars so far) than in the United States (over three hundred million dollars), few foreign films or TV shows do well here. Consequently, small foreign producers go out of business or get swallowed by large companies.
This situation makes for a combustible mixture. There are "two different issues," Jan Mojto, of Kirch, said. "One is the argument that American programming is taking over and controlling the world. I am not afraid of that. The second argument is that there becomes a kind of universal culture"--the imposing of an American way of life--and Mojto does worry about a loss of national culture. "It's very easy to complain," he said. "This is a very European attitude. The answer is simple: Compete."
Much of Europe appears to prefer another answer. The European Community had adopted a rule specifying that at least fifty-one per cent of all television programs must be European-produced. (In France, a majority must be made in the French language.) Currently, there is a debate within the E.C. over whether nations should provide subsidies to their entertainment industries, as many European and other nations do. Protective legislation makes sense, Tesauro's Herve Hachuel said in Cannes. "The American television market is so much more advanced, and there is so much more financing in America, that you are able to sell product for prices that European producers cannot compete with," he explained. "And European producers can't sell in America. They say our product is not as good. I don't believe it. It is not a fair market. So we need help."
This cultural and political chasm extends beyond television and movies, and far beyond Europe. On the eve of the Cannes conference, the government of China announced that it had banned ownership of satellite dishes by individuals. At least several million of the dishes are already owned by individuals in China, and this was a bold attempt by the government to continue to monopolize the flow of information. The dishes were able to pick up Star-TV, a satellite service in which Rupert Murdoch's News Corporation recently acquired a majority interest, and which provides more tantalizing fare than that seen on the state-owned channel. Several other countries, including Singapore, have also banned the dishes, and these bans threaten Murdoch's five-hundred-and-twenty-five-million-dollar investment.
There is a cautionary tale here. There are today multiple ways for TV signals to enter a home--through direct-broadcast satellite distribution, or digital and compressed signals transmitted over copper or fibre-optic cable and telephone wires, or regular broadcast or wireless radio signals. But the tradition overseas, in contrast to that in the United States, is that governments are usually intrusive, unapologetic media policemen. And government, as the experience in China--and France--suggests, may alter the rules at any moment. "Murdoch did not do his homework," Granath said. "It's different doing business in Asia. Form is much more important there." Murdoch made a second mistake, he says, in not becoming a junior partner but instead making himself the majority owner of Star-TV. "China is the place of the future," he said. "You've got to be there. How you get in there is critical." Granath and Capital Cities/ABC have chosen to get there by entering into a deal to broadcast ESPN throughout Asia from a state-owned satellite.
Michael Solomon, of Warner Brothers, didn't express an opinion on Murdoch's predicament, but he did offer one on the so-called cultural divide. "The cultural argument is bullshit," he said. "All that people in television care about is ratings and profit." He says the governments are just trying to protect failed local businesses. As for the notion that Americans are resented because of aggressive and insensitive business practices, Solomon rejects it. "You've got to analyze: Do they have a business interest in making that charge?" he said. "You can't say this is the general feeling abroad. The general feeling abroad is that people totally welcome the Americans."
Even if there were no cultural or political barriers, other obstacles to the new worldwide television frontier would almost certainly continue to arise. Some nations, like China, may continue to refuse to accept international copyright laws. And will anyone sell shows to a country that declines to make royalty payments? Asia may be the next great market, but not until all nations, like China, relax restrictions so that producers can withdraw currency, Paramount's Kerry McCluggage said. An impediment to introducing pay-cable channels is that they require sophisticated billing systems, and such systems have not been established in many countries. Also, without the equivalent of America's Nielsen ratings, how do TV channels sell time to advertisers if they can't quantify who is watching their channels?
These are real problems, but they are not the main barrier to a free international television marketplace. The largest barrier overseas is human, not technical. It's emotion. "These Americans are so bad," said Barney Bernhard, who is an American himself, and who exempts Granath and some other executives from his broad charge. "We took the French Minister of Culture around, and the Americans said, 'Look, I want to talk to you about quotas.' "
While others protest, Granath slips quietly from one meeting to the next and stops to chat at various booths with people he has known since worldwide television was in its infancy. He is ecumenical. Asked about quotas, Granath said, "They can be viewed negatively or positively. We view them as positive. What the Europeans are trying to do is foster European product. Seeing that as the European Community's goal, we started buying into European production companies." The second thing Granath and Capital Cities/ABC did was use their "expertise in commercial broadcasting," he said. "The Europeans have been at television as long as we have, but most of their experience is in state-supported television. They didn't have to worry about ratings. The only worry was that government would get pissed off at you. Now that commercial television has invaded most European countries, American knowledge is exportable. We can help with on-air promotion, with rate cards and trafficking"--scheduling ads--"and program stunting and competitive scheduling. Therefore, the second phase of our approach is to get into various distribution media."
Granath has understood that success overseas is predicated not just on good product or technology, but on human relationships. There were three steps to his and Capital Cities/ABC's overseas strategy, he said. The first was to recognize that "Americans running anything poses a problem." The second: "We always keep a low profile"--certainly within a foreign country. And, finally, he added, with a sly, determined smile, "It's all very much like a club. If you are a member, you get to play. If you are not a member, you get what's left over. It's very much like Broadway. Members of the club get first look at stuff. Information is the ammunition for making a kill." (c)