Endemol Entertainment Holding NV

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Endemol Entertainment Holding NV

Bonairelaan 4
1213 VH Hilversu
The Netherlands
Telephone: +31 (0) 35 53 99 999
Fax: +31 (0) 35 53 99 980
Web site: http://www.endemol.com

Wholly-Owned Subsidiary of Telefónica S.A.
Incorporated: 1994
Employees:
Sales: $468 million (2000)
NAIC: 512110 Motion Picture and Video Production

Endemol Entertainment Holding NV is a Dutch television production company, which in the summer of 2000 became a subsidiary of Spanish telecommunications giant Telefónica. As a result of the deal, Endemol’s founders are Telefónica’s largest single shareholders, together controlling a majority of its stock. Endemol operates independently, pursuing its goal of becoming a global force in multi-platform entertainment, combining television programs with the interactivity capabilities of the Internet. Rather than following the Hollywood model of producing a single version of a television show, which is then dubbed into other languages for foreign distribution, Endemol prefers to create formats that can be “localized” by domestic production companies. Although much of what it produces are traditional game shows and soap operas, Endemol has made its name with reality-based programming, in particular Big Brother, which stirred debate throughout Europe in its localized versions. Big Brother also became Endemol’s first sale to the U.S. market, although the show failed to produce the kind of success enjoyed in Europe. Endemol claims to have 400 formats that it can adapt around the world. With a stronghold in Europe, Endemol has made inroads into Latin America as well as China and India. Altogether it boasts subsidiaries and joint ventures in 21 countries.

Origins

The creative force behind Endemol is its chairman, CEO, and cofounder John de Mol. He was born in The Netherlands in 1955, part of a family that was quite familiar with the entertainment business. His grandfather had his own orchestra, and his father was a popular singer, a Dutch version of Frank Sinatra. When de Mol was in high school his father served as director of Radio Noordzee. According to de Mol, “I would go hang out at the station after class. I was totally captivated by the atmosphere. He wanted me to go study law or something like that. But my mind was made up, I wanted to be in radio. So I never went to college.” After getting his start as a program technician with Radio Noordzee, de Mol went to work for a pirate radio station that broadcast rock music from a ship moored in the North Sea in order to get around Dutch laws that only permitted public broadcasting. Soon pirate stations were banned and shut down, and de Mol at the age of 19 was out of work. He married singer-actress Willke Alberti, a major Dutch celebrity who was ten years older than he. During the five years of their marriage he became familiar with the glare of publicity, as the press followed his wife’s every move, and he grew to resent the insinuations that he was simply living off her money. “That experience inspired me to work hard,” he later wrote, “I’m very old-fashioned in the sense that I want to be the moneymaker.”

De Mol became a radio sports editor of soccer broadcasts, then branched into television when he took a job with Dutch pubcaster TROS, where he learned to become a producer. He told Variety that in the beginning he hated working in television, remarking, “Then one day we were working on a Miss Holland program, and I felt this strange nervousness and butterflies in my stomach and realized that, in 10 minutes, 5 million people would be watching us. That’s when the fever started.” De Mol soon decided to strike out on his own, with the intent of selling Dutch programs to other European countries. Unable to secure bank financing he finally gained backing from entrepreneur Willem van Kooten, who he had known since his teenage years, and in 1979 established John de Mol Produkties B.V. The first major break for the company was buying the European broadcast rights of a John Denver concert in Amsterdam, which de Mol was able to sell across the Continent.

For the first few years, de Mol produced one-off special events, then in 1984 began to produce weekly television shows for TROS, including Medisch Centrum West and Popformule. His company was now well positioned to take advantage of significant changes in European television, which for decades had been state-run and funded by taxpayers, and skewed more towards educational fare than entertainment. In 1980, there were only 25 stations operated by European Community members, but after governments in the mid-1980s began to grant commercial licenses, and cable as well as satellite operations began to make a multitude of channels available to European viewers, the need for programming increased dramatically. Although Hollywood was more than ready to fill the need, small European production companies like John de Mol Produkties were also able to find a niche producing inexpensive programming. In 1985, de Mol began to produce 30 minute shows with a $6,000 budget for Sky Channel, the first commercial broadcaster in The Netherlands. Rather than just producing original programming for the Dutch audience, however, he began to take advantage of the right to license programming formats to other countries. Seeing the Dutch audience as a perfect barometer, he believed that if a show worked in The Netherlands it would likely work elsewhere in Europe. In 1990, his show Love Letters was the first format to successfully cross over to Germany, where it won a number of awards for RTL TV. Other de Mol formats that spread across Europe included Forgive Me, All You Need Is Love, Lucky Letters, Blind Date, and It’s Your Turn.

De Mol’s prospects for becoming a European television powerhouse were greatly enhanced in 1991 when the European Community initiated “television without frontiers” mandates. Not only did all EC countries open their borders to programming from others, they now called for at least half of all air time to be devoted to programming produced by European companies. Two of the strongest players on the Continent were de Mol and another Dutch production company named JE Entertainment, which produced even more programming than its rival. The two companies often found themselves in competition with one another, and by 1994 they decided that they would be better off by combining their efforts and agreed to a merger of equals. The result was Endemol Entertainment Holding NV, the name created by combining de Mol with JE Enterainment’s founder, Jan van den Ende.

1980s–90s: Going Public

In the mid-1970s Van den Ende was primarily a theatrical producer, but by the end of the decade was producing dramas for Dutch public television. In the early 1980s, he built one of Europe’s largest television production facilities in Aalsmeer, converting a massive indoor flower market into a complex that included seven sound stages, editing suites, prop and storage facilities, and office space. With the rise of European commercial broadcasting in the mid-1980s he was also well prepared to take advantage of the need for entertainment programming. Like de Mol, he created formats that could be sold to other countries, including Ron’s Honeymoon Quiz and Soundmix Shows. In the meantime, he continued to stay involved in theater, becoming The Netherlands’ largest theatrical producer while also establishing a presence on London’s West End as well as Broadway.

With the merger complete, Endemol became Europe’s largest independent television production house, able to produce 2,500 hours of programming a year. The merged companies continued to operate separately in order to maintain a mix of programming and stimulate creativity by maintaining a friendly rivalry between the two operations. A long-term goal, however, was jointly held: global expansion, starting with the five top European markets of Germany, France, the United Kingdom, Spain, and Italy. Endemol initiated an acquisition program in which it purchased stakes in target production companies, working with current management teams to foster fast growth, and eventually acquiring majority interests and absorbing the companies into the fold. Over the next four years Endemol would spend $264 million for interests in production companies located in Britain, Germany, Italy, Spain, and Poland. Eventually the company would also gain a production presence in France.

To fund expansion, Endemol went public in 1996, but some disappointing ventures would prove to have an adverse effect on the performance of the company’s stock, which traded on the Amsterdam Stock Exchange. Shortly before the IPO, the company’s theatrical arm, Life Entertainment, overpaid for Holiday on Ice. The touring show produced poor results, as did the theatrical business in general. Endemol also suffered from an ill-advised entry into sports programming. In 1997, it attempted to launch Sport7, a pay-TV station, but its bid for Dutch soccer rights failed. Sport7 lasted just five months. To cushion the financial blow to Endemol’s shareholders, van den Ende and de Mol took personal losses of $20 million each. The price of Endemol shares rebounded in 1998 as the company showed that it was returning its focus to its core TV production business by adding a distribution operation and announcing that it would spin off its live entertainment business, which was eventually sold to van den Ende in February 1999. De Mol had already become sole chairman of Endemol’s Executive Board, and now van den Ende became less involved with the day-to-day operations of the company, devoting much of his time to his theatrical endeavors. In March 2000, van den Ende completely withdrew from the company, citing health concerns.

Company Perspectives:

The combination of Interactive with TV makes Endemol one of the few global players who can deliver a true multimedia offering which encompasses audio and video on traditional as well as on the new interactive platforms.

Big Brother’s 1999 Launch

Although Endemol was already a powerful force in European television, it would reach an entirely new level of influence with the introduction of a reality-based television show, Big Brother, which premiered in The Netherlands in late 1999. Endemol was not alone in developing reality-based programming. There had been a spate of reality shows in the mid-1980s, the Japanese had long been notorious for their reality programming that was unquestionably bizarre, even bordering on the cruel, and America’s MTV already had a success in its Real World series. Now a number of European television production companies began to develop a new wave of reality shows. At first called The Golden Cage, Big Brother had been in development for a couple of years, the idea triggered by a magazine article about Biosphere II. Endemol originally considered placing ten strangers in a controlled environment, following their interaction over the course of a year, but eventually opted for a more practical 100-day period. Each night the day’s events in the Big Brother house would be summarized in an hour program. The refined game show format included assignments, such as chopping wood to keep a fire going for an entire day, in order to stimulate tension and conflict. More importantly, the audience became involved, voting on which of two contestants would be periodically removed from the house. The last person remaining won a cash prize. Big Brother allowed the audience to participate by using the Internet, the first step in Endemol’s plan to create multi-platform programming. As the Big Brother format developed in other countries, and a subsequent Dutch season began, web cams were added, as were additional cable channels to follow individual contestants.

Following Big Brother’s successful introduction in The Netherlands, Endemol was able to sell the format to a number of European countries. The show also paved the way for Endemol’s entry into the United States’ market. Fox, CBS, and ABC bid for the right to bring Big Brother to America. CBS was the winner, agreeing to pay over $20 million for a U.S. version of the show. In the end, the money was less important to Endemol than CBS’s commitment to a daily show, which the company felt was an essential element of the Big Brother format. Earlier CBS had acquired another reality show called Survivor, which would premiere before Big Brother in the summer of 2000 and become a major success, generating the kind of national debate that was important to the Big Brother phenomena in other countries. Overshadowed by Survivor, Big Brother failed to live up to expectations in America, although CBS claimed the show to be a success because it managed to generate higher ratings than the network normally produced during a comparable period. Nevertheless, Endemol had broken through in Hollywood after years of fruitless attempts. In August 2000, the company signed a deal with NBC to provide two new reality shows, one of which would ultimately be traded for two formats that became NBC shows: Spy TV and Fear Factor.

Big Brother was also important to Endemol in attracting the attention of Telefónica, which in early 2000 agreed to pay $5.4 billion for the company, making billionaires out of de Mol and van den Ende. Telefónica hoped that by acquiring Endemol it gained content for its Internet interests, giving it a future edge when the telecommunications company believed that television and the Internet would converge. Endemol, in turn, strengthened its Internet position and gained access to Spanish-speaking markets, in particular South America, where Telefónica had established a strong presence. Telefónica also allowed de Mol to run Endemol with much the same kind of independence as before the acquisition. The company did, however, sell off its distribution operations in order to focus on content development, Telefónica’s main reason for buying Endemol.

Mostly on the strength of Big Brother, Endemol enjoyed a strong year in 2000, with revenues growing by 57 percent over the previous year to $468 million, while posting a profit of $47 million. Attempts to spin-off new Big Brother concepts failed to succeed, however, and reality programming in general began to lose its edge in 2001, resulting in a drop off in ratings. In recognition of a changing environment, De Mol announced that Endemol planned to increase its fiction programming.

Nevertheless, the company continued to look forward, developing what it called “entertainment concepts” that could run on platforms other than just TV. Talk of convergence, in the meantime, had cooled considerably, and Telefónica suffered from a general downturn in the price of telecommunications stocks, opening it to criticism that it overpaid for Endemol, which had been purchased at the height of a market boom. Nevertheless, Endemol remained a valuable property that clearly established itself as an international production company with the kind of creative spirit essential in adapting to the fast-changing world of popular entertainment.

Principal Competitors

TaurusHolding GmbH & Co. KG; RL Group S.A.; United Paramount Network (UPN).

Key Dates:

1979:: John de Mol establishes John de Mol Produkties B.V.
1985:: De Mol begins to produce programming for Sky Channel.
1991:: European Community initiates “television without frontiers” mandates.
1994:: De Mol merges with JE Entertainment to form Endemol.
1996:: Endemol goes public.
2000:: Telefónica acquires Endemol.