Channeling Banks into TV Syndication
Kraus, James R., American Banker
Loeb & Loeb, a New York-based law firm, thinks it can take foreign banks into television series financing.
In a complex financial structuring the firm hopes will serve as a model for similar deals, Loeb & Loeb has helped a team at the Los Angeles office of Holland's ING Capital Group finance an original syndicated TV series for Sunbow Productions.
The show, "Conan The Adventurer," will cost several million dollars to produce.
The financing "has all the markings of providing a mechanism where none had been before," said Robert S. Reich, a partner with Loeb & Loeb.
"It's something that should work not only for individual cases, but on a generalized basis as well," he said.
Until now, foreign banks, like U.S. banks, have been willing to finance film production but unwilling to finance syndicated television because the returns are far more uncertain.
In fact, given the way original TV productions are distributed, financing them simply is "not bankable," Mr. Reich says.
Barter Concept a Problem
The reason, he says, is that producers distribute syndicated original TV productions on a so-called "barter" basis.
Whereas producers of theatrical films sell them to distributors, who pay the bank, a syndicated TV series or program is offered to stations across the country in exchange for a fixed amount of advertising time.
The series distributor arranges to sell that time and uses the funds to pay back the financing.
"Banks won't lend against that concept because advertising time may or may not have value, and it becomes too speculative," Mr. Reich points out.
"In fact, there's not even a minimum guarantee on repayment because the very entity that sells programs to TV stations has no obligations to make any payment [to the bank]."
As a result, he noted, producers of such series had to frequently reach into their own pockets for financing or find a financing partner on less than favorable terms.
The ING team, many of whom formerly worked for Credit Lyonnais, declined to be interviewed for this article.
A Commitment on Ads
However, according to Mr. Reich, Loeb & Loeb first arranged for the distributor to agree to obtain advertising commitments from a fixed percentage of the stations it targeted for distribution.
Second, the New York law firm obtained a "completion bond" from a company that agreed to complete and deliver the film if sufficient advertising commitments were obtained in time to meet distribution deadlines.
Third, it got the distributor to agree to pay back the bank if the distributor failed to obtain the agreed-upon TV coverage.
"The key word is matching risk with obligations and making classic wisdom for single-picture financing work in a broader context," Mr. Reich said.
"The concept was to match all the obligations so that it would smell, look, and taste like a single-picture financing."
ING is not the only foreign financial group that sees entertainment financing as a profitable source of revenues.
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