from the September 28 New York Times:
Novel TV Deal Could Rein In Program Costs
By BILL CARTER
In a case of the right talent meeting the right need at the right time, Ed Zwick and Marshall Herskovitz, the creators of the 1980's ABC hit show ''Thirtysomething,'' have concluded a complicated new television series deal that several participants say may be the first step in a radically changed approach to controlling escalating program costs.
The deal is unusual in several ways, beginning with the fact that it involves four series at two networks, ABC and Fox, under the control of two Hollywood studios, Disney and Fox. But it is the element of who will own the rights to future sales of the shows -- should they be successful -- that places the deal at the heart of the issue roiling the entire television industry.
Under the deal, Bedford Falls, the company owned by Mr. Zwick and Mr. Herskovitz, will create at least three new shows for ABC, all to be produced through Buena Vista Television, the studio owned by ABC's parent, the Walt Disney Company. They will also create at least one new show for the Fox network, produced through a subsidiary of Fox Television, the studio owned by the Fox Inc. unit of the News Corporation. Thus, in both cases the shows will be partly owned by the companies that own the networks broadcasting the shows.
Earlier this year, NBC was forced to pay the Warner Brothers unit of Time Warner Inc. $286 million a year to retain ''E.R.,'' television's most popular show. In the wake of that, numerous producers and studio executives have said NBC, in an apparent attempt to control future costs, is pressing creators of programs either to cede some of the ownership rights to the network or else to sign licensing contracts that give the network exclusive rights to the show for up to 10 years. Executives at NBC, a unit of the General Electric Company, deny those reports.
Still, referring to the reports about NBC, Mr. Zwick said: ''This seems to be the trend. In making this deal, we were looking for a way for the artist to fit into this changing dynamic.'' Mr. Herskovitz added, ''Without a doubt, the ownership issue drove this deal.''
In a change from conventional practice, Mr. Zwick and Mr. Herskovitz will receive more than 50 percent of the syndicated rerun profits from all the shows they create under this deal.
''This deal represents what the future is going to be,'' said Lloyd Braun, the chairman of Buena Vista. ''The system as currently constituted is madness.''
Under the current system, studios pay established writers millions of dollars in upfront fees to secure their talents to create shows. While the studios retain the bulk of ownership rights, the writers end up with modest profits when or if the shows are successful. They rarely are.
''In success, the studios make loads of money,'' Mr. Braun said. ''But when the shows fail, they get killed. At what point does it make sense to limit your costs by giving up a little of the upside profits? The business is so tough today. It's so illogical that no one is doing this.''
When Mr. Braun joined Disney in March, he learned that ABC had already made a deal with Mr. Zwick and Mr. Herskovitz for three series. But the shows were to be produced through a Fox subsidiary run by Arnan Milchan, a producer for whom Mr. Herskovitz had directed the movie, ''Dangerous Beauty.''
Mr. Braun stepped in to steer the ABC network deal to his studio. ''This kind of vertical integration is coming,'' he said. ''In the end, the most valuable real estate for us is ABC real estate.''
Mr. Braun's pursuit of ownership rights of shows set for Disney's network dovetailed with a plan hatched by Mr. Zwick and Mr. Herskovitz and their agent, Alan Berger, and lawyer, Craig Jacobson.
''Both our fathers had their own businesses,'' Mr. Herskovitz said. Mr. Zwick added, ''We wanted to be more entreprenuerial.''
On ''Thirtysomething,'' the two writers had taken what Mr. Zwick called ''sizable fees'' to produce the show. But while the show went on to make tens of millions of dollars in syndicated and foreign sales for its repeats, ''We made tens of dollars,'' Mr. Zwick said. That was because they retained such a small percentage of the profits from the show.
The experience left the two writers intrigued by the possibility of taking some upfront risk for the potential of millions of dollars in future profits. ''We've had creative autonomy,'' Mr. Zwick said. ''Financial autonomy has also been a dream.''
Mr. Berger and Mr. Jacobson said they had pitched to several studios the idea of forgoing any upfront fees to Mr. Zwick and Mr. Herskovitz in exchange for more than 50 percent of later profits -- if there were any.
''We had a fully negotiated deal with another studio with guaranteed money,'' said Mr. Berger, who is executive vice president of International Creative Management. But when he and Mr. Jacobson tried to rework the deal to eliminate the upfront money in exchange for bigger rights to rerun profits, the studio balked, he said.
Mr. Jacobson, of the law firm Hansen, Jacobson, Teller & Hoberman, said: ''Other studios told us: 'We're not in that business; we spend the money and we get the lion's share in the end.' '' The odd thing, both men said, was that in the movie side of their business, studios made similar deals all the time, ceding big percentages of gross profits to actors and directors in lieu of upfront fees.
With Mr. Braun involved, Mr. Jacobson said, things began to change. ''First of all, it was made clear to us that the shows Marshall and Ed did for ABC were going to go to the Disney studio and the ones for the Fox network to Fox studio,'' he said.
Indeed, Mr. Braun said he saw no reason to insist that all the new Zwick-Herskovitz shows be controlled by his studio. Other producers have shows at two networks at the same time. David E. Kelley, for example, has ''Ally McBeal'' on Fox and ''The Practice'' on ABC. Both shows belong to Fox Television.
That kind of split is less likely to be seen in the future, as studios hold onto shows for their own networks, Mr. Braun said. ''If we produce a hit show for another network, it is going to take some pound of flesh from ABC,'' he said.
Mr. Berger questioned how many show creators would forgo the big initial fees for a chance at much bigger, but much riskier future profits, as Mr. Zwick and Mr. Herskovitz did. Mr. Zwick said the deal depended on his and Mr. Herskovitz's controlling the shows' production costs.
''This is a very different type of arrangement,'' Mr. Braun said. ''But the business is being driven by insecurity and defensiveness. People want the safety net of saying, 'We got the guy everybody was going after,' even if it costs $4 million a year to sign him. No one has looked at the business and said it doesn't make sense to do things the same way anymore.''
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