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Series Gold

Big Money-Makers Like NBC's 'ER' Help Production Companies Finance the Many Shows That Don't Survive


Warner Bros. will earn a huge windfall from the $850 million in licensing fees it will take in over the next three years for producing "ER" for NBC under a new contract. But so will Steven Spielberg, author Michael Crichton and Creative Artists Agency.

But the agents, producers and writers who put "ER" together and keep it going year after year get a bigger cut of the profit than is typical in these television agreements, reducing Time Warner's take from the deal to roughly $300 million or so over the next three years, according to industry estimates.

That is still impressive considering that production companies generally don't make money on prime-time series until their repeats are sold in syndication and that dramas like "ER" usually have little life after their network runs.

So far Warner Bros. hasn't made a dime on "ER," while NBC will have racked up about $1 billion in advertising revenues over the medical drama's first four years. Warner took advantage of a standard industry agreement allowing producers to renegotiate for higher license fees after four years so they can cover more of their costs of production.

For television production studios, the reality is still that big winners simply help make up for the scores of losers. In television, the duds are the pilots that are produced and financed by the studio but never find a time slot and the TV shows that are pulled by the networks after less than a year or two on the air.

"To be successful in the television production business, you have to make 250 episodes [of 10 or more shows] a year and hope you get one hit," said one television executive. "That's what it takes to spread the indirect costs, to build a cadre of creative talent, to sign up writers and directors, and to have the leverage with the networks to be taken seriously."

For instance, Walt Disney Co. spent heavily in time and money to build a television comedy business before striking gold with "Home Improvement," the Tim Allen hit on ABC. The $800 million Disney and creator Matt Williams will share in syndication profit will wipe out years of production deficits to produce the show as well as the scores of the studio's flops that preceded it.

To be sure, Warner Bros. Television has fared better of late than most in the television business, where the success rate, as in music albums and movies, is 10% at best.

Industry sources say the Time Warner unit will bring in about $4 million an episode for "Friends" in syndication this fall and should score with "Drew Carey," which is produced by its Castle Rock arm, and its daytime talk show hosted by Rosie O'Donnell.

In addition to the $13 million for each of 22 episodes of "ER," Warner Bros. is making an additional $600,000 an episode on the drama overseas and $1.2 million an episode in syndication, according to industry sources. (Time Warner bought the rights for its TNT and TBS cable networks, which will begin airing the repeats this fall.)

"It doesn't compensate enough, considering that "The Postman" has dropped off the charts," said Harold Vogel, an analyst at Cowen & Co., referring to Time Warner's new Kevin Costner movie, which flopped. "After paying the stars and the producers and everyone else who takes a chunk in "ER," Warner Bros. will be left with between $100 million and $120 million in profit a year--the cost of one movie. Against Time Warner's $5 billion in cash flow, it's not more than a decimal point."

Over the history of the show, NBC will come out on top with "ER," despite the record-setting price. Sources say Warner Bros. and NBC arrived at the $13-million figure by adding up all the proceeds from advertising, syndication and overseas sales and splitting them down the middle. That includes the revenue NBC will generate from charging advertisers up to $500,000 per 30-second spot in future shows. NBC could add a minute of advertising time to the hour show, allowing it to rack up $10 million in advertising every hour.

Sources said NBC and Warner Bros. each will make $660 million over the life of the series. Of Warner Bros.' $660 million, Crichton, who wrote the original script, and Spielberg's Amblin Television, which bought the rights, stand to take $120 million apiece, while John Wells, who executive produces each episode, will earn roughly $60 million. CAA will end up with $60 million, making "ER" one of the single largest pieces of business for the agency--equivalent to 22 Tom Cruise movies.

Those figures all depend, of course, on modest rises in star salaries. The biggest variable is star George Clooney, whose contract is up next year. Agents say all the other stars are locked in for two more years. They say the "ER" ensemble doesn't have the same clout as smaller casts like "Seinfeld."


Dividing the Wealth

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