By Gordon Chu | August 03, 2010

Where is your “Ugly Betty”?

When the Korean all-girls group, ‘Wonder Girls’, debuted in the US market, Chinese netizens started an online debate of when it was ‘their turn’ where the US would embrace such a creation coming from China. Oddly enough, those arguments eventually evolved in how to group together an all-girls group of Chinese ‘hotties’ and make their own similar business model in the US – but that’s for another conversation at another time. It dawned on me while reading this big online hoopla – the Chinese youth really have really evolved from the days of the old school business mantra ‘made in China’. No longer are they content that 80% of iPhones and Xbox 360s are manufactured in China. Now they want to see China as the epicenter of the world and especially so in the creative industry. Unfortunately, all those thoughts came to a screeching halt after the premier of ‘Avatar’ (which lifted China box office by 86% last year) when even they knew China could ever create or replicate the quality and output of the movie.

Still, this whole thought of creative epicenter CAN be changed in a different direction… in the form of media formats.

What are Formats

Simply put, formats are copyright protected programming ideas / templates versus that of a finished product. It could be as simple as a story idea or can be divided into multiple layers which include ways a character is developed, how to integrate brands and advertisers into the programs, etc. As Eggo Muller (Head of Screen Arts and Cultures Department at University of Michigan) points out, “the international trade of format is an exchange of ‘culture of production’ rather than a ‘production of culture.’” While in most cases, formats apply to the television and film industry, but can be applied to any media-based business model as well.

Why Sell Formats

International formats of television programs have a strong and proven track record of success in one or several countries. What’s good for one market is often good for another as well – especially if you have such hits such as ‘American Idol’ (licensed reality TV format by Freemantle UK).

As a content provider, the primary motivation is to generate another stream of revenue by licensing the formats in other territories. It’s ‘found’ money and goes straight to the bottom line (financially) for many companies.  As a potential buyer, the primary motivation is to mitigate risk as much as possible by getting a proven formula. In recent years, TV dramas like “Ugly Betty”, originally developed by a Columbian production company, has been a tremendous hit in the US through format licensing.

Where is my ‘Ugly Betty’?

The format business has changed and evolved over the last few years – and especially with the price. For a premium format (a la ‘American Idol’), format fees are estimated to be as high as $1.0M – $1.5M per episode (Tradingmarkets.com, 2010) versus for a popular European format of $50K – $60k per episode just a few years back in 2006 (Understanding the Global TV Formats, 2006).

On one side, you see an increasing cost of formats especially in the US. On the other, we also see a decline in budgets for television due to an oversaturation of media options along with an overall economic hit on advertisers. So, you have declining budgets coupled with more expensive projects and there is a definite need for more cost-effective media options in the US. In the case of ‘Ugly Betty’ where in some estimates, the format rights were less than $200K per episode, this was the exception to the rule where it was both cheap and a format that worked.

So, the million dollar question: Why not have the best of both worlds – something that is well-tested but is cheap? Where are there more ‘Ugly Betty’ around?

Made in China

Here comes the part of China… Here is a country with over 3,500 TV stations and thousands upon thousands of hours of programming that has served well in a market of 1.3 billion people. Why wouldn’t this make sense?

Unfortunately for those looking at China with big money signs, China has not exactly been exemplary in the world of media innovation. TV stations and production companies in China are definitely busy; however, they are busy producing “knock-offs” of programs (thanks to the poor intellectual property laws) and spend very little effort in creating new and original formats. Fortunately for the rest of us, these TV folks are no longer driving the decisions. The new driving forces are:

Global Advertisers

‘Super Girl’ was a knock-off imitation of the popular program, ‘American Idol’. Broadcast over Hunan Satellite TV, the show was sponsored by a local Chinese yogurt brand. Riding the coattails of ‘Super Girl’, Unilever quickly snatched up the ‘Ugly Wudi’ format despite paying much more than they had anticipated (season 2 included many more brands to offset costs). These are two prime examples of format success in China albeit one legitimate (‘Ugly Wudi’) and the other not (‘SuperGirls’).

So, here’s the breakdown of China’s media landscape: relatively cheap(er) media costs on TV, the largest consumer market in the world, and 31 nation-wide TV networks without much quality content on-air. All of this means China is becoming one of the very cost-effective markets for global brands to test-run different ideas on television. Imagine if global brands can outright pay for a format and test its validity in China. Test the China market and eventually export the formats to Tier 1 markets (like the US). For brands, it’s another way to generate revenue and a low(er) risk method to get proven formats at the cheap.

“Other” Media Companies

Other Chinese media entertainment companies will also jointly push the innovation of entertainment formats business in China. Companies that are not typically aligned with television and film are now showing their own respective swing at television production.

In 2009, Shanda Interactive Entertainment, a company that is well-known for online games versus that of television, co-produced a reality TV program with Zhengjiang Satellite TV around the art of Karaoke (if that really IS an art). Part of the hook was integrating Shanda’s online Karaoke game engine into the program that showcases the scores of participating contestants.

New media companies such as Shanda are driving cross-platform integration of TV formats alongside with the global brands. Moreover, Shanda is also taking a chapter out of comics and acquiring comic / fiction formats from emerging artists and writers around China to develop them into film, television, games and comics. Especially with the ability to create a true multi-platform viewing experience alongside of television, Shanda is poised to be one of the few companies in China that will proven formats with that capability.

Conclusion:

Many things remain to be seen about the emerging trends of exporting formats from China to other international markets. However, when it does happen (and I truly believe that it will), we’ll see a flurry of activity in the China market as production companies, global brands, and new media companies built up their portfolio of this new and untapped resource of media gold.

Gordon Chu is the VP of Business Development at METAN Development Group. For comments/questions, email gchu@metanmedia.com.