StoryScout 2024

Documentary Business

Peter Hamilton Consultants, Inc

The Preferred Producer System: Credit for Credits / ‘Preferred’ Doesn’t Mean ‘Forever’!

Our friends called in with two important insights into the networks’ ‘preferred producer’ system.

1. Line of Credit

We missed a big motivating factor for why networks work with preferred vendors: Access to Credit

  • Networks used to pay producers 45+/- days
    • provided that the contracts/ invoices/ workflows/ omens were all aligned
  • Payment terms have since slipped.  And slipped.
    • 120+ days is common
  • Producers rely on crews of staff and freelancers, who tend to live from paycheck to paycheck. 
    • Waiting for 4 months is not an option
  • Producers cashflow all the other operating costs
  • Production companies also need credit lines for large equipment purchases
  • Banks are stingier in offering credit than in working memory

Only ‘preferred producers’ enjoy the scale and stability to qualify for the $1+/- million line of credit needed to cashflow series for the systematically late-paying networks

Producer’s Feedback  So why don’t producers just wait it out and start work when the cash flow begins?

Producer  Networks do whatever they can to maintain control. They make sure that their production companies’ payment milestones are actually behind their project expenses. That way they have greater leverage and can preserve their own cash flow. 

Producers almost always start a production before the contract is signed and first money is received

  • They can front hundreds of thousands of dollars for a single project, and this doesn’t even include development costs

The whole system creates a disincentive for delay:

  • If you start late, you will deliver late and make a worse product  
  • To fix that problem you will need to spend more
  • So you might as well get going and take the risk

2. What Goes Up …

The ‘preferred vendor’ system is not a one-way street:

  • The most successful producers seek a premium from the channels
  • They say:
    • “Look at our track record! We can make you a hit. Or we’ll save your job if the show bombs.”
    • “Because we have these special qualities, we deserve a premium.”
    • “We want you to pay us 10 percent more than you would pay a non-star producer for the same series.”
    • “And let us retain music publishing and a few other benefits.”
  • The networks – like all businesses – become unhappy when their vendors exercise such leverage
  • They say: ($,000)
    • “Hmmm. The ‘real’ cost for this 12-part primetime series is $400/episode.” 
    • “The 10% premium for the entire series is $480!”
    • “Plus those other special benefits!”
    • “That’s a lot of upgraded sizzle reels, pilot segments, temps, lost margin, whatever!”
    • “We want options!!”
  • And so the networks are always grooming tomorrow’s ‘preferred producers’:
    • The emerging stars are thankful for their big step up in scale
    • And in their gratitude, they would never angle with their mentors for a 10 percent premium
    • Until …