Mosko, the capital of Sony TV

In 2001, Sony boss Sir Howard Stringer closed most of Sony’s TV production business. Just over a decade later the studio is coming off its best year ever in television and is back in the network game, striking deals with Netflix and preparing to launch a spin-off of perhaps the most iconic cable series ever. Steve Mosko tells Stewart Clarke how Sony bounced back.

For seasoned Sony-watchers the content and technology company’s investor day last November marked a watershed. It provided a confirmation of a corporate volte-face that has seen television production and distribution shift from an economically unsustainable part of the company to the engine of the entertainment group’s growth.

Amid calls from renegade shareholder Daniel Loeb, who owns about 7% of Sony through his hedge fund Third Point, to separate the company’s technology and entertainment operations, Sony Corporation’s president and CEO Kazuo Hirai told investors that entertainment was part of the fabric of the business, was “key to its future growth” and that there are growing opportunities to combine content and hardware.

What was then made clear is that the ‘Entertainment’ in the Sony Pictures Entertainment moniker is increasingly about television and not content from the challenged motion pictures division, which arguably is in need of the same kind of root and branch restructure the TV unit has undergone.

Michael Lynton, CEO, Sony Entertainment, confirmed the change in focus, telling investors that there will be “a significant shift from motion pictures to higher margin television production and networks”.

Rewind to 2001 and the picture was very different. “Sir Howard Stringer took a look at a TV business that was going through dynamic changes and said ‘economically this is not headed in the right direction’.  We had a lot of very expensive overall non-writing producer deals and essentially he called me up one day and said ‘we need to fix this business and you’re running it’,” explains Steve Mosko, president of Sony Pictures Television.

At a time when regulatory changes were allowing networks to produce and own more of their own programming, the notion of investing in expensive and risky pilots – at that point Sony was making twenty or more a year – stopped making sense for the only major Hollywood studio not affiliated to a US broadcaster.

What followed was, Mosko admits, a painful period of shedding jobs and overhauling the business as the network production arm was effectively closed and expensive overall writer and producer deals sold off.

What was left was the bones of a production and distribution business, albeit one with a titles such as Jeopardy!, Wheel of Fortune and Seinfeld, which was churning out decent syndication revenues.

Mosko says: “We knew there were parts of our operation that were successful and making money but we had to fix this other piece, so we went through the painful process of reengineering the business. We all knew we had to go through it and the building process was both difficult and exhilarating. What it allowed us to do was to start from scratch.”

Sony also put its weight behind The Young and the Restless and Days of our Lives when the viability of daily soaps was being questioned. Both are still running today. However, the key move was working with a new breed of talent and working for a new type of customer:  the then-emerging basic cable channels.

Instead of striking deals with established writing talent, Sony gambled on the likes of Shawn Ryan, the KZK team of Daniel Zelman, Glen and Todd Kessler and a moderately successful scribe by the name of Vince Gilligan. The results were The Shield, Damages and Breaking Bad.

“We were the first major studio to look at the basic cable business with the likes of The Shield [on FX], Strong Medicine for Lifetime and Damages and Rescue Me [both for FX]. We looked and said, ‘here’s a business that is getting dual revenue streams; the ratings are climbing and these channels want to distinguish themselves and original programming is the way to do it’. We were in the right place at the right time and took full advantage of it,” says Mosko.

“So we did that, got in early and slowly worked our way back into the network business. Here we sit today with the most successful show of the fall season with [NBC drama] The Blacklist.”

In the time away from network TV, the dynamics of the US business have changed and what was seen as a weakness – not having a broadcaster in the family – is now, Sony says, a strength. All things being equal a network show from an external supplier may be more likely to get cancelled, but the model gives SPT complete freedom to pitch to broadcast, basic and pay cable and the new wave of streaming platforms.

“I can count on one finger the number of studios that don’t have any obligation to a broadcast network,” Mosko says. “Not being attached to a network when we started this process ten years ago was viewed as an obstacle; today it’s a huge advantage and we have made deals with Netflix, Hulu and with 15 or 16 other channels, both from the broadcast and cable space.

“We’re hiring people who are writing great television shows and  whether its cable or network, Netflix or Amazon, we let the chips fall where they fall. The beauty is the people we work with know it’s an open playing field when it comes to pitching their stuff. That is extraordinarily appealing to some of the better writers, particularly the younger ones who look out there and don’t want to be producing just for broadcast networks or for cable or streaming.”

The Sony modus operandi of pitching to all channels and services  is how a recent deal for KZK to make a new original thriller series for Netflix came about (SPT also distributes Netflix’s House of Cards). There are several other new shows guaranteed to air with Outlander at Starz coming through SPT’s Left Bank, Ron Moore series Helix at Syfy and Vince Gilligan’s cop series Battle Creek, which he is working on with House creator David Shore, going straight-to-series at CBS.

Year-on-year comparisons will be tough given 2013 was the best ever for the TV unit and it came to the May Screenings with a bumper crop for international buyers to peruse including the aforementioned Blacklist, recently picked up for a second season by NBC and acquired in more than 150 international territories. It also had series including Masters of Sex, recently confirmed for a second series on Showtime, Australian drama remake Rake for Fox and returning series Community, Justified and Franklin & Bash among others.

Other new confirmed series include Better Call Saul in which Bob Odenkirk will reprise his crooked lawyer character from Breaking Bad. Netflix will show it in Europe and Latin America soon after the US TX on AMC.

The TV business outside the US was also developing fast through the restructuring period, highlighting another key difference between Sony and its studio peers: that despite the Culver City address of the entertainment business, it is an international operation, ultimately listed in its home country of Japan. A notable step in the recalibration of the TV business was more closely aligning domestic and international almost five years ago, when the different sides of the business were integrated.

“We merged domestic and international so we now have one global TV business,” says Mosko. “We now have successful channels businesses in 159 countries, [online network] Crackle and we have production businesses in the US and internationally, with seventeen production companies in twelve countries and a distribution business.

“Being a global business allowed domestic and international production teams to work more closely on a much more unified effort across our business.”

As with the US content, there has been an uptick in the volume of content coming out of the international formats business with new titles such as Release the Hounds, Milky Way Mission and Tough Young Teachers, while Who Wants to be a Millionaire remains a key franchise in the Sony library. Other stalwart performers include Dragons Den (aka Shark Tank), which recently sold to TVE in Spain and Vox in Germany.

On the scripted formats side there are local versions of Everybody Loves Raymond in Russia and the Middle East. In Latin America Sony is focused on local productions such as El Mariachi, the scripted series based on the Robert Rodriguez action movie of the same name, which will bow on the Sony Entertainment Television pay TV net across the continent.

That will be made by SPT’s Colombia-based prodco Teleset, which is also producing a Spanish-language Breaking Bad, Metástasis, with Diego Trujillo (El Capo) in the Walter White role and the project is creating a huge buzz in the Latin markets where it will play.

A cynical observer could view Kazuo Hirai and Michael Lynton telling the financial community that TV is now the focus of the entertainment side of the business as a way of drawing attention away from the underperformance of the motion picture division as much as to the performance of the TV operation and to the opportunities the TV market holds. In some senses all that changed following the headline-making investor conference was that the performance of the TV division was finally being talked up in public.

Whatever the motivation, the result has been that the TV industry is looking to Sony and asking what the proclamations about the importance of TV mean in practice. The answer is that the increased TV focus will not mean a huge injection of additional funds and investment but it does mean the already lean TV division will be safeguarded from wider cost savings promised to shareholders.

One area where there will be activity is international M&A. Having acquired Left Bank, Silver River and others, SPT has an international footprint of production business and is looking for more, having worked on a couple of big deals in 2013 that did not come to fruition.

Geographically, gaining greater exposure to certain markets is top of mind, according to Mosko. “We’re looking to expand our international business so if there are opportunities through acquisition we’re looking at them. If there’s one area that’s front and centre for us it’s looking at expanding in Scandinavia, whether through acquisition or organically, that’s one area in particular.”

On the channels front Sony recently added the GEM brand to the mix in Asia, while AXN Black and AXN White, which replaced AXN Sci-Fi and AXN Crime, were launched in the central and eastern Europe region last year. There are also SVOD services such as the Animax-branded one just launched in the UK, where a carriage deal for the Sony Entertainment channel was also recently concluded with pay TV upstart BT. On the programming front the channels are also now co-commissioning original series such as Hannibal and Crossing Lines, both are on NBC in the US and both are now confirmed for second seasons.

An area Mosko is keen to focus on in 2014 is raising awareness of the scale of piracy of TV series and looking at what can be done to mitigate its effects. For Sony the issue is a particularly thorny one as it has 124 channel feeds in 159 territories, making it producer, distributor and broadcaster of content around the world.

The Sony TV chief says the scale of the piracy problem was brought home while it was distributing the final instalments of Breaking Bad last year and that the solution is to go as close to day-and-date of the original broadcast – with all of the challenges that brings.

“Everybody is focussed on motion picture piracy but television is a huge business and hasn’t been as front and centre as it should be. It is a big deal in territories where we have output deals and a show is not scheduled to air for a couple of months and then turns up on the internet.

“Studios need to make a concerted effort to commit to the fact we’re going to make shows available day-and-date. We can’t be half-assed about it. It’s a tough process and requires changes in production schedules but we need to protect this content as if every TV series we send out is Spider-Man.”

Raising awareness of piracy and getting new channels and shows away are, then, the order of the day this year, with the possibility of buying a production company in Scandinavia very real as well.  The difference in 2014 is that the executives that run the corporation have thrust the TV unit into the spotlight, touting it as the growth engine of the entertainment business. Mosko is confident of delivering in the face of greater shareholder and analyst scrutiny.

“What came out of rebuilding the business was making sure we are responsible in terms of making money, not doing a ton of overall deals and doing very strategic deals. Yes, we’re in it for the art of it but also in it for the money and to grow out margins.”