Controlling the budget of a TV production is like curbing the spending of a teenager armed with a Barclaycard – a task that most financial types would be keen to avoid.
For Jonathan Kemp, however, controlling the expenditure of creative types with a penchant for extravagance is a task he relishes.
Kemp is the financial director of Shed Productions, the production company behind TV hits including Bad Girls and Footballers’ Wives, which recently listed on AIM.
It’s his job to keep an eye on the finances of the programmes, a job that can have a direct influence on the storyline of a show. From time-to-time he even gets to bump into the show’s stars, Zoe Lucker and Jack Ellis.
It is all rather different from the traditional job of an FD, which is perhaps why Kemp fits the role so well. Talkative and lively, he prefers denims and a jumper to the traditional uniform of a jacket and tie and is passionate about programme formats and drama styles.
‘Media is fascinating,’ he says. ‘There is a business to run but you also have creatives who want to spend lots of money making their programmes. At the same time, you need business people to realise that you can’t afford to strangle creativity and produce a series that doesn’t look good on screen.’
Kemp, who qualified with CIMA, is well-equipped to strike the balance between the suits and the stars having spent time at Nickelodeon, Capital Films and Fox Kids. He not only built up his accounting experience, but also learnt the technical aspects of shooting a film, and got the opportunity to sit down with big screen heavyweights Robert Altman and David Cronenberg.
The experiences have helped Kemp develop an understanding of a complex, fluid industry where in-depth knowledge of the creative process is as important as getting the accounts to balance and working out the cashflow.
‘If you are working for the finance department of a widget company. You know you can increase output by buying a new machine. It is very different in media, you can’t improve input by buying more cameras,’ Kemp explains.
‘You have to be involved in the creative side and find out what the ideas are, what projects are on the table and what it will take to make those projects happen from the finance side.’
Such is the influence of his role, that what happens in our favourite TV dramas often comes down to how well Kemp has managed the finances. ‘I am in constant contact with the creative team. If we are under budget on a production, I can go to them and say that there is spare money to spend, which frees them up to do something more with the story,’ says Kemp.
Good financial management allowed the creatives to write in a spectacular fire scene at the end of a series of Bad Girls. ‘Because we built the set for Bad Girls in the first series all those costs were self-contained, so when it was re-commissioned the series was much cheaper to shoot. We had the extra money so we could afford to include a scene where the prison was burnt down and give the viewers something more visually interesting.’
For Kemp, making the decisions on when to hold back and when to let the money go for something spectacular is what makes media finance so interesting. ‘You have to find the balance between controlling the finance, but spending big when it is required.’
Adhering to this philosophy has, Kemp believes, underpinned the success of Shed Productions, which was formed by former Granada employees Maureen Chadwick, Brian Park, Eileen Gallagher and Ann McManus in 1998.
‘The great thing about Shed is that the founders all have the creative credentials but are business led. They understand that budgets are important for profitability, but know that producing a programme on the cheap could be bad,’ Kemp says.
It is this kind of message, no doubt, that Kemp would have been sending to the City in the run-up to Shed’s flotation on AIM last month. The listing raised £22m, with the share price, offered at 88p, hitting a high of 112p. The company’s total value now stands at £42m. Kemp says the listing was six-times oversubscribed and that 40% of the stock was sold on the first day of the listing.
Despite the success of the flotation, going to the market was not always on the cards. The decision to take Shed to AIM came after much deliberation and only materialised after exploring the possibility of selling out to rival production house Hat Trick Productions and securing venture capital funding.
Deeply involved in all the processes, Kemp says that while the Hat Trick merger would have worked creatively, the two companies would not have been compatible financially. The venture capital route, meanwhile, would have landed Shed’s founders with a diluted stake in the business and a notable amount of debt.
That left the AIM option, a route which Kemp says has turned out to be an excellent partnership. ‘The AIM market had grown and interest in media companies had grown too. It was a good match so last November we decided to go for the float,’ Kemp says.
Within the short period of just five months, which included a break over Christmas, Shed had convinced the investor community and was trading on the boards.
‘We did get the listing done swiftly, but it was made easier by all the work we had done in the discussions with Hat Trick and the venture capital companies. We had just released a set of accounts and had done the due diligence so everything was in place,’ Kemp explains.
For the TV production house FD, though, the listing is the least of his concerns for 2005. ‘People come up to me and say: “The listing is done, the hard work is out the way,” but for me the hard work is just beginning,’ he says.
Kemp will come face-to-face with the tough governance and reporting requirements that come with being the FD of a listed entity for the first time ð but it’s a challenge he appears unfazed by. ‘I have spent the last 12 years working for small production companies, so there is a lot for me learn, but it is a great opportunity,’ Kemp says.
He will also be involved in what is anticipated to be a busy time assessing and closing potential acquisition deals, which is a crucial part of Shed’s growth strategy and future security and was a major rationale behind the listing.
In its accounts for the year ended 21 August 2004, the independent delivered a sizeable turnover of over £14.8m and a bottom line profit of £1.2m. Compared with 2003 turnover (£14.1m) and profit (£1.1m) the increases were moderate ð mainly because the company has concentrated on just two key dramas.
The listing should help Shed pull in more talent and help it develop more programmes ð which means more commissions, more creative rights and, ultimately, bigger profits.
‘One phone call is all it takes to end a programme. It’s important to have a number of series on the go so if you lose one you still have the others,’ Kemp says.
‘Our business strategy has revolved around producing high-quality, long-running dramas and if we want to do that with new programmes we will need the best creative people.’
Revised terms of trade for the media industry is another big reason for making recruitment and acquisition a priority. By the end of 2004, the BBC and Channel Four agreed to cede creative rights to the producers, whereas previously the broadcasters had always held onto them. ITV, however, did not take this line.
‘We always worked exclusively with ITV because we could retain our rights and exploit them commercially. With Footballers’ Wives and Bad Girls, Shed is now based in 25 territories,’ says Kemp, ‘DVD sales and other spin-offs like books and calendars provide us with further opportunities. Holding onto the creative rights has been a very important part of building a sustainable business model.’
With other channels now following the ITV example, opportunities have opened up for Shed to build on the success of its current dramas. ‘The reason our programmes run for so long, enjoy good DVD sales and generate so many spin-offs is because the formats and writing are really good.
‘There is no point in owning the rights to a programme if it is badly done and no one wants to watch it. That is why we need to attract the best creative people. We need good ideas and good scripts if future projects are to be successful,’ he adds.
Looking at the way Shed is growing, Kemp is right when he says the company is going to need all the talent it can get. In addition to a new series of Footballers’ Wives and Bad Girls, Shed has produced the military drama Bombshell and has taken its first step into children’s programming with a series called The Fugitive, due to hit screens later this month.
The company is also talking to the BBC about producing a Sunday-evening drama, developing a programme called Tainted for Channel 4 and a working with Simon Nye, the creator of Men Behaving Badly, on a documentary-drama called Dogshow.
‘We are expanding what we do. We want to keep going with our successful long-runners, and offer bigger value on other projects by working with named writers,’ Kemp says.
If that is anything to go by, it looks as if budget for Tanya Turner’s wardrobe is going to be one of the many tasks facing the blue-denimed FD’s budget over the coming months.
Jonathan Kemp believes the media sector is on the brink of a renaissance after six years in the doldrums.
In his presentations to the City leading up to Shed’s listing on AIM he encountered an ‘appetite’ for the media industry from investors.
‘About five years ago the City went media crazy and bought media stocks for massive multiples without understanding the risks of production in TV. The City was stung and has held fire on media to see what happens, but it seems attitudes are changing,’ Kemp says.
The growth of other strong independent media companies, he believes, has helped to rebuild confidence in sector.
‘ There have to be healthy, profitable companies for the sector to be taken seriously. There have been too many flaky companies amongst the good ones, but now there is a strong, competitive sector that the City can get behind.’
New terms of agreement between broadcasters and producers, meanwhile, have added to the new-found belief. With production companies now allowed to hold on to creative rights, their business models are more robust and sustainable. ‘There are plenty of hours to fill on television and a demand for quality independents to fill those hours is good,’ Kemp says.
Shed’s successful listing and the subsequent manoeuvring by other independents vindicates Kemp’s optimism.
The UK independent production sector is now valued at £1.5bn and others are looking to attract stock market backing. RDF Media, the producers of Wife Swap, will follow Shed’s lead and list on AIM, with analysts estimating its value at £60m. Endemol, the makers of Big Brother, is also believed to be looking into a listing.