PBS divorces its home video distributor
Originally published in Current, Oct. 18, 1993
By Steve Behrens
PBS last week dropped Pacific Arts Video as distributor of the PBS Home Video line, citing an inability to reach an agreement "that would assure PBS and our producers timely royalty payments."
An unknown number of public TV producers also voided their deals with the Los Angeles-based distributor on Oct. 11, after PBS notified them the previous Friday that it was planning the termination.
Word of Pacific Arts' late royalty payments and apparent financial weakness leaked out in June, when the PBS Board appointed a subcommittee to monitor the situation. [earlier article].
At the time, PBS was projecting a net loss of $542,000 for its home video operations for last fiscal year. Last week PBS declined to release updated figures or indicate how much the Los Angeles-based distributor owed to producers and PBS.
Spokesman Robb Deigh said the network was talking to other potential distributors. "We are still very committed to home video," he said.
A Pacific Arts spokesman said only that the company "is continuing its discussions with PBS and remains hopeful that a resolution can be found that will be satisfactory to all parties." As of last week, discussions had failed to yield a plan for continuing the three-year-old distribution pact.
"PBS put together a framework for a plan that could have relieved the current financial distress," said Chuck Allen, a member of the PBS Board subcommittee monitoring the situation. In a plan proposed by PBS, the network would have taken "a close interest in the ongoing management" of the distributor and provided "some sort of line of credit," and Pacific Arts' creditors would have agreed to accept partial payments. "Whether or not everyone who had to agree to the plan would have is unknown."
The plan couldn't go forward anyway because Pacific Arts Chairman Michael Nesmith didn't accept it, Allen said. "He was upbeat and positive that a major studio would step forward and provide capital."
The breakdown at Pacific Arts gives PBS the chance to take a new approach to home video that would meet objections of independent video distibutors and some producers, who say the deal was a misconceived attempt to dominate a sector of home video.
"They did a fairly good job about carrying out a fairly bad strategy," said Larry Adelman of California Newsreel, an independent distributor in San Francisco. He contends PBS made a mistake when it licensed its name to a single distributor instead of creating a cooperative or clearinghouse of specialized distributors.
Though PBS Home Video foundered financially, network execs and some producers said they were pleased with other aspects of Pacific Arts' work in establishing the video label.
"They've helped create a retail environment for documentary programs," said Robert Gold, an attorney who represents several star PBS producers waiting for checks from the distributor. "I think Pacific Arts is a strong company, and I hope they survive."
PBS Board member Allen, president of KAET in Phoenix, credits Nesmith for breakthroughs such as selling nonfiction cassettes through mass merchants and ingenious marketing, such as creating a four-cassette set on American Indian tribes that sold more than $1 million.
KAET is still waiting for $30,000 in royalties from its Navajo film, however.
Allen said the deal that public TV struck with Pacific Arts in 1990 was "one of those too-good-to-be-true deals."
"In hindsight, somebody should have said you simply can't make these kinds of advances," said Allen. "It's going to catch up with you."
PBS acknowledged this summer that Pacific Arts had been undercapitalized to pay the advances and other up-front costs of rapidly building a broad home-video line.
PBS partner in home video seen ailingOriginally published in Current, June 28, 1993
Pacific Arts Video, the California company that operates PBS Home Video under contract with the network, has fallen behind in paying royalties to producers and has "many problems" remaining, PBS Vice Chairman Maria Elena Flood told the network's Board of Directors June 18.
PBS home video operations are projected to show a net loss of $542,000 this fiscal year, network management said in a memo to the board.
Officials of Pacific Arts, a private company, declined to discuss the situation.
"They do have a capitalization problem, and we're working our way through it," PBS Senior Vice President Eric Sass told Current. High costs for video rights and marketing must be paid up-front, long before revenues come in, especially when a distributor tries to expand its line quickly.
But the PBS cassettes are selling well, Sass said, and have earned about $5 million for producers and for PBS in the first half of the six-year pact with the company. "They are doing the job we want them to do, and we could find no one who could do as good a job."
PBS signed with the relatively small Pacific Arts firm in 1990, Sass said, because the network expected to get a more concentrated marketing effort than a bigger video distributor would devote to the limited PBS market. The tradeoff was that Pacific Arts lacks the "deep pockets" of a major label.
A million deferred
PBS expects to book the $542,000 loss this fiscal year because it has deferred receiving approximately $1 million in sales-based license fees due this year from Pacific Arts, according to Sass. (The network will be able to cover the unexpected loss because of large savings obtained when it renegotiated and extended its headquarters lease by 10 years, Executive Vice President Bob Ottenhoff said.)
Producers have received some but not all of the royalties due to them from Pacific Arts, Sass said, but he declined to estimate the amount in arrears.
One major producer, WGBH, is waiting for "several hundred thousand dollars" from Pacific Arts, said Andrew Griffiths, v.p. for finance and administration at the station.
PBS has hired consultants to explore "alternatives" for PBS Home Video, Flood told the board. The alternatives include means of raising new capital "so we don't have problems again" and do not include dumping Pacific Arts, according to Sass.
The contract between PBS and Pacific Arts expires in 1996, he said.
While PBS works out the problems with Pacific Arts, a committee of board members will monitor the situation, said Flood, a Texas medical school administrator. The committee will include herself, KAET General Manager Chuck Allen, KNPB General Manager James Pagliarini, former Mobil Corp. Vice Chairman James Riordan, WETA President Sharon Rockefeller, Chubb LifeAmerica President John Swope and former CPB Chairman Marshall Turner.
Is pricing the problem?
A prominent critic of PBS's video ventures, San Francisco video distributor Lawrence Daressa, said that Pacific Arts' capitalization problem is really a pricing problem.
Daressa said PBS and Pacific Arts had little choice but to price their cassettes around $19.95, as they did, to get consumers to buy them. But he questions whether the consumer market for such limited-audience programs is big enough to cover the marketing costs and producer royalties, too.
"Pacific Arts increased volume, but the price of increasing volume was so heavy that they can't pay it," observed Daressa.
As a result, he said, PBS Home Video not only ran into a financial squeeze, but also "lacerated" the educational market for cassettes, where his company does much of its business, by undercutting prices that range from $60 to $100 and up.
Still, there are other media organizations that, like PBS, are betting on low cassette prices. WGBH announced this month that it will sell cassettes of Nova's next season at $19.95 in the school market.
Previous seasons have sold at $149 per cassette--seven times as much--through the Princeton-based distributor Films for the Humanities and Sciences. Barry Cronin, executive director of marketing and technology at the Boston station, said the one-year experiment can work financially only because WGBH took over distribution of Nova's new season and will be able to keep all of its net revenues rather than receiving only the 15 or 20 percent fee that distributors typically pay.
Negotiated with competitors
Pacific Arts' apparent financial weakness adds a new set of problems for PBS's efforts in the cassette trade.
Competing independent video distributors already are upset with the network's plan, announced last August, to acquire video rights simultaneously with broadcast rights for selected PTV programs. A coalition of distributors and producers charged that PBS was angling to dominate the special-interest cassette market and threatened to lobby Congress for relief.
Instead, the Coalition for Public Television Program Access and Diversity began negotiations with PBS last winter, and hopes to resume talks after PBS gets its new president. "We want to work in good faith," said Charles Benton, chairman of the video distributor Public Media Inc.
Both Benton and PBS Senior Vice President Peter Downey said there was progress toward an agreement about on-air blurbs selling cassettes. From the independent distributors' viewpoint, the on-air spots ideally would feature the 800 number of a clearinghouse that would take orders for multiple cassette distributors, said Benton. The coalition is talking with a Rockefeller Foundation spinoff, National Video Resources, about playing a role in the solution, Benton said.
But negotiations went nowhere on PBS's policy of buying video and broadcast rights together--a policy that the coalition vehemently opposes, according to Benton.
"In the new multichannel environment, the old rules of the single-channel environment should be reexamined," he said. "This is a chance to bring in new partners, new talent, new money to the table, to help PBS achieve its mission," Benton added. "The idea that they should control everything is silly."
Web page revised Feb. 12, 1999
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Earlier news: PBS seeks video rights along with broadcast
rights for programs; competing video distributors object, 1992.
Later news: PBS hooks up with Ted Turner as new home-video
distributor, but with a different kind of deal, 1994.