Independents ready for TV profits boom as sales rules change

The independent television sector is on the verge of an unprecedented boom. Analysts say that City investors will pour millions into private production companies after the introduction of rules allowing them to make greater profits.

Ofcom, the communications watchdog, is drawing up codes of practice that will allow independent companies to sell programmes overseas, even after they have been shown on British channels. It will enable production companies to make huge profits from spin-off sales of DVDs, videos and books, based on the programmes they create.

But the changes are a blow to the BBC and Channel 4, which may lose up to £36m a year under the arrangements.

A report by Mark Oliver, of the media consultancy Oliver and Ohlbaum Associates, says the BBC will lose £19m of programming rights and have to spend an extra £6m a year on payments to independents for showing repeats. The report says Channel 4 will lose £11m.

The boom for makers of independently produced shows such as Wife Swap and Bob the Builder, is signalled in a separate report by the City analysts Bridgewell Securities. It says the property rights market is worth up to £3.2bn.

Patrick Yau, a media analyst, writes: "We believe City investors are circling indies because new legislation will enable producers to keep more intellectual property rights. This should enable them to generate greater revenue streams in profitable areas such as format sales, video/DVD/book spin-outs and interactive revenues." The revolution is under way, with the £45m acquisition last month of Chrysalis, makers of Midsomer Murders and Richard and Judy. Weeks earlier, Hat Trick, whose successes have included Have I Got News For You and Father Ted, sold 45 per cent of the company for £23m.

Jimmy Mulville and Denise O'Donoghue, who set up the company in 1986, sold the stake to the venture capital firm Kleinwort Capital. Last year, the Brookside creator Phil Redmond sold part of Mersey TV, which also makes Hollyoaks, to Lloyds TSB Development Capital for an undisclosed fee. In the biggest deal so far, Talkback Productions, makers of Smack the Pony, was acquired by Pearson in 2000 for £62m.

The Bridgewell report says the biggest earners for DVD and book sales are dramas, comedies and landmark factual series. But the best genres for format sales abroad are reality shows, quiz programmes and lifestyle series. Mr Yau said: "The biggest boost for indies will be from new terms of trade allowing them to hold on to those all-important intellectual property rights."

The BBC and Channel 4 can charge a 30 per cent commission for using their distribution arms (BBC Worldwide and Channel 4 International) to sell a show overseas. The broadcasters then take a further 70 per cent of the fee that is left, so the production company receives £21 out of every £100 paid for its programme. ITV and Five retain only primary rights to commissioned programmes and are largely unaffected by the new terms.

Under the changes proposed in the Communications Act and being finalised by Ofcom, the independents will own secondary rights and broadcasters will have to publish price lists showing what they will pay for rights.

Broadcasters are lobbying to ensure terms of trade remain as favourable as possible. Stephen Lambert, of RDF Media, makers of Perfect Match: New York, Faking It and Masters and Servants, said: "What will be interesting when these rights kick in is whether broadcasters play the game or whether they try to force prices down because they have lost the secondary rights income. And will Ofcom be effective in policing that?"