I am Hollywood

Chapter 712 - 713: One-Tenth

Chapter 712: Chapter 713: One-Tenth

[Chapter 713: One-Tenth]

Revitalizing a television network couldn't rely on just one hit show. However, a program that generated buzz and garnered widespread media attention could significantly enhance the channel's visibility, attracting more viewers. Once the momentum had built up, continuously producing quality programming could lead the network into a healthy cycle of growth.

That was precisely what Eric hoped for with America's Next Top Model.

The Firefly Group didn't have any major acquisition plans for the next few years, but that didn't mean they would cease to expand and develop. Prior to Eric proposing America's Next Top Model, Katzenberg had already begun ramping up investments in Firefly's music division. Though Eric wasn't fervently passionate about Katzenberg's plans, he didn't obstruct them either. Thanks to strict copyright protection laws, the music industry, while heavily impacted by the internet era, hadn't completely collapsed despite becoming increasingly sluggish.

In addition to the music business, developing more structured commercial operations around popular films was one of the key development plans for Firefly over the next few years. The upcoming toy collaboration talks with Hasbro were part of this plan.

Upon hearing the idea for America's Next Top Model, the spirited Katzenberg immediately suggested revitalizing the Lifetime network.

As mentioned earlier, even if America's Next Top Model achieved great success, sustaining a television network would require more than just one hit show.

After several brainstorming sessions, management quickly developed a detailed original programming, network resource reutilization, scheduling, and marketing plan. Firefly committed to investing $100 million each year for three years into programming, acquisitions, and marketing for Lifetime, aiming to create a dedicated women's network focused on fashion and high-quality living for young women.

Lifetime's parent company, A&E Networks, was jointly owned by Firefly Group and Hearst Corporation. Thus, this reform plan for Lifetime needed to be discussed with Hearst for resource support. Hearst owned hundreds of daily papers, weeklies, and magazines worldwide, and these print resources remained indispensable for promoting a women-focused channel.

...

Post-Oscars, the awards season had finally concluded, and Eric had wrapped up most of the film projects that required his attention. Yet, before he could even take a few days to rest, a barrage of new tasks flooded in.

With Hearst's headquarters in New York and A&E's also located there, if plans went forward, most of Lifetime's programming would be produced in New York. For numerous reasons, Eric needed to head to New York to engage in relevant discussions and planning.

At the same time, the birthdays of his two little ones were approaching, and Easter fell on April 16 that year. During such special occasions, he always made it a point to spend time with his women and kids.

Hasbro's headquarters in Rhode Island was very close to New York, so negotiations regarding their toy development collaboration would take place there as well.

Discussions regarding Firefly Investments and telecommunications operator Sprint had already begun, involving over a billion dollars in investments, and certain key events warranted Eric's personal attendance. Both Firefly Investments and Sprint had their headquarters in New York.

On the flight to New York, Eric briefly reviewed his schedule and realized that once he wrapped up these tasks, summer movie season would be upon him.

...

As soon as he stepped off the plane, he dove headfirst into work.

At the ABC headquarters in Manhattan's Upper West Hydee, a meeting was in progress involving senior executives from Firefly Networks, A&E management, and representatives from Hearst Corporation. At Eric's invitation, William Hearst, the third-generation head of the Hearst family, was also present.

"...According to 1994 data, Lifetime had 31.5 million subscribers. Cable operators like Comcast, Time Warner, and TCI paid an average monthly subscriber fee of 15 cents per subscriber. Last year, Lifetime earned $56.7 million from operator fees, $33.5 million in ad revenue, bringing annual revenue to $90.2 million with a profit of $13.8 million. We plan to utilize three years to expand Lifetime's subscriber base to between 60 million and 90 million, increasing the operator fee to 25 cents, and we expect to surpass operator revenue with ad income through a series of quality programs, aiming for annual revenues of $500 million and a net profit of $100 million."

After delivering his brief report, as Katzenberg was ready to continue to the next topic, William Hearst raised his head, tapping on the documents in front of him. Without acknowledging Katzenberg directly, he looked across the table at Eric and said, "Eric, last year's Victoria's Secret Fashion Show generated direct profits and indirect stock value increases exceeding $1.5 billion for you. Doesn't this plan seem a bit modest in comparison?"

Leaning back in his comfortable leather chair, Eric twirled a pencil in his fingers habitually and smiled, "William, last year was entirely unexpected. We need to take things step by step. Given what Lifetime has in place, achieving that goal in three years is already an excellent outcome. Last year, Firefly's total profit from all television operations was over $600 million."

William Hearst scrutinized the young man seated across from him and said, "I'm not particularly focused on television, but something feels incomplete about this plan. Or rather, some aspects haven't been clarified."

Without directly confronting him, Eric replied in a roundabout way, "This is just a draft; it definitely requires revisions. Otherwise, we wouldn't be holding this meeting today."

William Hearst observed Eric's slightly relaxed smile, "Eric, I mean, regarding the production of original programming for Lifetime, this plan seems to lack clarity on how we're proceeding with that, doesn't it?"

Eric responded, "Oh, I believe there shouldn't be any disagreement here. Besides news programming, all other shows for the network would be produced by Firefly's entertainment division, following the usual practice."

As the two executives squared off, those present fell silent, patiently listening.

As industry elites, most attendees understood what the two were discussing. By this point, even the rather confused note-taker began to grasp the situation.

Eric and William were engaging in a discussion about the copyright ownership of Lifetime's original programming.

Typically, a television show's producer sells its broadcast rights to a network, receiving only a small portion of the revenues, often insufficient to cover production costs.

Most of a television show's revenue actually comes from the sale of VHS tapes and syndication rights after its initial broadcast, known as syndication. Shows distribute their content via syndication systems to numerous networks across the United States and more than a hundred other countries; the profits from these sales often far exceed that from the initial broadcast. In fact, the profits from popular shows' tape sales and syndication can sometimes reach ten times the production costs. That's also why many lead actors in television series earn such high salaries per episode; without those tape sales and syndication, networks would never be able to offer such exorbitant wages relying solely on advertising and cable division revenues from the initial broadcasts.

Most production and distribution departments in television networks operate as one unit, so they don't have to differentiate these issues.

However, the situation with Lifetime and A&E was different. A&E was jointly owned by Firefly and Hearst, with each holding a 50% stake. If Lifetime's original programming were produced by A&E, Hearst would share in the profits from tape sales and syndication. Yet, if the shows were produced by Firefly's division, the copyrights would be unrelated to A&E, which meant even though Hearst wouldn't need to bear production investment risks, they would also miss out on any profits from tape sales and syndication. That was the reason William had just called the plan 'stingy.' If ad revenues and cable fees alone could net $100 million in profit, that would be meager compared to what tape sales and syndication revenues could bring.

Though Hearst retained a giant presence in the print media world, they lacked enough confidence in television operations, and William recognized that Eric's invitation to this meeting was not as straightforward as it seemed. He decided to play along: "Eric, I believe it's more suitable for A&E to handle the production of these original programs. Hearst can proportionally provide the production funding, and if there are needs for print media resources, we can try to accommodate."

A glimmer of interest sparked in Eric, and he straightened up, "Speaking of proportions, William, I think the shareholding ratio between Firefly and Hearst in ESPN aligns better. Don't you think?"

Even though he had been prepared for such a discussion, William almost tossed the documents in his hand at Eric when he heard that. He immediately shook his head, "Eric, that's not going to happen. Absolutely not."

Firefly and Hearst held equal shares in A&E, but it was different for ESPN, where Hearst only owned 20% compared to Firefly's 80%. Initially, Hearst and the Metropolitan media group had equal stakes in ESPN, but in the 1980s, as ESPN was on the rise, Tom Murphy bought up most of the ESPN shares from Hearst and other minor stakeholders for less than $50 million. Now ESPN was the number one sports channel in North America, with revenues exceeding $200 million in 1995. The shares sold off by Hearst back then each generated profits beyond $50 million annually.

Given this past lesson, William was adamant that he wouldn't repeat such a mistake.

Hearing William's vehement refusal, Eric shrugged, "William, if you don't agree, so be it."

William fell silent for a moment before continuing, "Eric, I've heard your ideas about America's Next Top Model. This project requires extensive support from print resources. Firefly sold off all its print assets last year. Without Hearst, it would be challenging for you to grow this project significantly on your own."

"William, I see this as a win-win situation. We gain resources, and you receive more news material," Eric replied, shaking his head and flashing a confident smile. "Besides, you're mistaken, Hearst isn't the only player here; there's also Conde Nast and News Corp., with which Firefly has solid relationships. I even have Yahoo, which although not yet on par with traditional print media in influence, overlaps significantly with the young female audience Lifetime targets. I'm sure you noticed the media potential Yahoo demonstrated during last year's Victoria's Secret Show."

William opened his mouth but couldn't find the right words to counter.

Though reluctant to concede, he had to admit internally that while Hearst was a powerful player in the media sector, they weren't essential for Firefly, yet without Firefly, it would be hard for Hearst to grow A&E further.

The current situation was that Eric had laid down his conditions: Firefly wanted majority ownership of A&E. If Hearst opposed, they would lose out on most of the potential profits from Lifetime as it expanded. Conversely, if they compromised, Hearst could be in danger of repeating their past mistakes with ESPN.

After a round of internal conflict, William stated, "Eric, having Firefly aiming for 80% ownership is absolutely impossible. We could possibly relinquish absolute control, allowing you to reshape the network as you see fit. How does that sound?"

Eric shook his head, "William, Hearst's focus is on print media; I don't think you need to stubbornly cling to these television assets. How about this? I'll take a step back: Firefly will settle for 75%. That's my bottom line."

"No, no, no, Eric, the maximum is 55%. Any higher and I'd rather forfeit A&E's production powers and maintain the status quo."

"Hey, William, did you know that last year's ER had a production cost of less than $30 million but garnered over $150 million in syndication profits from just the first season? We'll soon be releasing tapes, which will bring additional revenue. And then there's the advertising revenue: $45 million, with profits only a fraction of what syndication provides -- a fraction!"

William appeared exasperated, "But you can't expect that kind of windfall from every series, can you? Well, okay, Eric, 60%. Any more than that, and I might face inquiries from shareholders."

"You can't fool me, William; the Hearst family has always firmly controlled Hearst Corporation, and no one would oppose your decision. It's 70%, the highest Firefly can handle. If you can't accept it, Firefly might consider acquiring another cable network on its own."

"..."

"..."

As the attendees listened to the two bosses exchange rapid-fire commentary, reflecting keen minds and quick pace, inferring shrewdness and strategy from even their light-hearted remarks, they were taken aback, as people rarely engage in negotiations akin to market bartering.

After more than ten minutes of back-and-forth, both parties finally reached a compromise they could begrudgingly accept: Firefly would hold 65% ownership while Hearst retained 35%, with A&E responsible for producing Lifetime's programs and Hearst providing ample support in print media resources.

*****

/Sayonara816.