FrontPage DeficitFinancing

Deficit Financing . . .

is a practice developed in order to avoid the risks of television production. It is an arrangement between network who airs the television product and the studio who makes it. The former pays only a license fee in exchange for the right to air the product, typically a first and rerun of episode. The studio retains the ownership of the product. Therefore usual payment from network would not cover the whole production costs.

Studio tries to recover the costs of the production by reselling the product to various markets, which may include cable tv industry, individual local stations, DVD industry, and international markets -- i.e., various distribution windows. This practice of reselling products is often called "syndication."

This practice is known to minimize the risks and costs of developing television products for the networks. It also helps the studios initiate the product development. If shows and products are successful, studios recover and receives a large sum of money without putting additional costs. But, if they are not successful, the production company has to absorb the difference between the production cost and network payment.

This practice is also known to encourage networks and studios to investigate in television products with more controversial and sensual topics such as laws, police, hospital shows and discourage them to produce more conventional fare. The practice also gives a sort of safe-net to failure because despite many failures of products, one success, hence reselling the product to various syndication windows, uncovers the loss of previous products.

It also gives a great amount of power to the networks. They retain a greater control and less risks in TV production by "profit participation."

e.g.,

typical cost of an hour-long TV drama is $1.2 million per episode.
typical payment from broadcast networks is $.8 to $1 million per episode.
hence, $.4 to .2 loss (deficit) per episode.
4.4 to 8.8 million lost for the entire 22 episodes (a typical volume of a television season)

reselling to recoup its costs . . .
local stations for once a week airing
cable channel
international buyers

CSI produced by Alliance Atlantis and CBS Productions
CBS Productions sold to cable network, Spike for $1.6 million per episode and local stations in the US
selling
Alliance Atlantis sold the series in 177 different international markets for at lease $1 million per episode

See Also Fin-Syn Rules
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