As the media economy downturn in the U.K. and Germany continues to bite – and with no let-up expected until next spring at the earliest – producers and distributors, beset by falling license fees from broadcasters, are sweating it out in what may be the toughest climate in market history.

With the failure of EM.TV parent company Kirch, problems at Bertlesmann, and the near bankruptcy of RTV Family Entertainment (saved by a US$3-million loan from owner Ravensburger) dominating the financial pages in recent months, it’s obvious that the German television industry is feeling a big pinch.

The problem started when the country’s big kids players began relying too heavily on funding generated on the Neuer stock market to finance huge slates of up to 10 animated co-pros a year. But the domestic and international broadcast markets couldn’t support such a huge volume of product, and many of the shows didn’t sell. At the same time, Germany’s public broadcasters cut back on kids commissions and license fees came down, constricting the next most viable funding source once the stock market dried up.

The economic difficulties seem poised to claim still more casualties in the production community in the months ahead, with TV-Loonland’s position causing some concern. Key executives such as director of programs John Bullivant and senior VP of creative affairs Ken Olshansky have recently left, and the company has reported losses of US$7.83 million for the first half of 2002, despite having taken measures to reduce operating costs by 20%.

‘But Loonland is still holding its own better than anyone else in Germany,’ says Olshansky, who has now joined Scholastic Entertainment as senior VP of television programming. ‘It’s having to concentrate on its core business of production and has realized that ambitions of becoming a full-service kids business need to be put on hold for the moment.’

Loonland currently has 78 half hours in production, around half of its anticipated volume for 2002. COO David Ferguson acknowledges that the environment is difficult, but insists TV-L is through the worst. ‘We are now at a point when things are manageable,’ he says. ‘We don’t make a show unless we’re totally convinced we can sell it.’

Though not as dramatic as events in Germany, the state of affairs in the U.K. is still testing the determination of many program-makers. Despite CBBC investing record sums of its US$150-million operating budget in production following the launch of diginets CBeebies and the CBBC Channel last winter, many question whether this spending actually benefits independent producers.

‘The BBC has just invested around US$6 million in Fimbles, which is being hyped as the next big preschool show after Teletubbies and Tweenies, but Novel Entertainment (the producer) won’t be allowed to keep any meaningful rights,’ claims Bullivant, who launched a new company called Kickback Media last month (see ‘Bullivant’s new Kickback shingle not hinged on TV,’ page 40). ‘When the BBC controls all the rights, you’ve got to ask yourself how much money is really being pumped into independent British production.’

For his part, CBBC head Nigel Pickard says that the broadcaster’s huge spend on Fimbles proves its commitment to firing up the indie business, and the BBC’s rights policy is simply designed to deliver maximum value to the license fee payer.

Regardless of viewpoint, help for cash-strapped producers may be close at hand. A recent parliamentary report recommended that regulators do more to ensure the BBC gives indies a better deal in recognition of their contribution to the creative economy. Producers’ lobby group PACT welcomed the move. ‘Regulation to date has failed to spot a very real problem in the U.K. content supply market – there is no market,’ said PACT chairman Eileen Gallagher. ‘Now we could see a new era where we all work together.’

On the commercial side of the fence, ITV, the second-largest financier of children’s programming in the U.K. after the BBC, is struggling to put the pieces back together after the catastrophic failure of pay service ITV Digital, owned by Carlton and Granada. CiTV is reckoned to spend around US$55 million a year, but the downturn in advertising revenues, coupled with the digital fiasco, have led to severe cuts.

With more than 15 kids channels toughing it out in the U.K. market, there are those at ITV who feel that some of CiTV’s airtime could be put to better commercial use if it were devoted to mainstream entertainment shows. One possibility could see CiTV shunted out of weekday afternoons to weekend-only slots, and a new Communications Bill that’s being considered by the British government may make this easier.

But ‘there is concern among children’s specialists that what’s proposed is not enough – that the public service remit of ITV in terms of children needs to be mandated as regards hours, variety of programming, spend and U.K. content,’ says Anna Home, ex-head of CBBC and a consultant for Welsh broadcaster S4C. ‘There needs to be some form of protection. There doesn’t appear to be any obligation on the part of the non-public service channels to commission material that’s relevant to the U.K. culture or to spend in the British market.’

Pickard, who used to run CiTV, agrees: ‘There is a real danger than unless CiTV’s contribution is mandated, its budget could be decimated. The market would then shrink, and there is a risk that children’s would be marginalized.’

Adding to the gloom is the fact that Channel 4, never a big player in children’s but at times a keen supporter of animation, recently reported its first loss in 20 years and has announced a round of job cuts.

In contrast, C4’s archrival Channel 5 has emerged as a reliable (if small) backer of kids programs, especially in the preschool market since its Milk Shake block is beginning to make an impact.

‘I’m spending US$10.5 million a year, including acquisitions,’ says head of children’s Nick Wilson. ‘We’re not making high-end shows, but we are fully funding a large proportion of the programs we’re involved with. Apart from money, we can also offer exposure – a show stripped five days a week may help a producer raise financing elsewhere.’