Why the 'x factor' is A licence to print money
John Meagher crunches the numbers of this television phenomenon
Published 30/10/2010 | 05:00
Elton John has labelled it a "cruise ship show". Folk veteran Richard Thompson says it "lacks musical intelligence". R&B star Usher says it is "killing music". There is no shortage of music heavyweights ready to lash out at The X Factor, but love it or loathe it, there's no stopping this cultural juggernaut.
From now until the season's end on December 12, The X Factor will be essential weekend viewing for a large chunk of the population here and in the UK. Irish interest has been heightened by the fortunes of 50-year-old Dublin supermarket employee Mary Byrne.
The show is a ratings phenomenon. On Sunday it pulled in 13.6 million people in Britain, an extraordinary 47% of the available television audience that night, while TV3, who show the series here, trounce RTE in those time slots. Its spin-off -- The Xtra Factor -- also commands a sizeable audience.
And while it commands more advertising revenue than any other show for ITV (and, presumably TV3), it is a phenomenal money spinner too when one considers the vast merchandise it has spawned and the fact that the format has been sold around the globe, to such territories as Armenia and the Ukraine, where it is also enjoys huge viewerships.
And the huge numbers of telephone voters -- this year including calls from Ireland -- add another hefty whack to the show's coffers.
Devised in 2004 by the show's judge Simon Cowell, it has become one of the hottest properties on television and its money-earning potential is set to go stratospheric next year when the first US season kicks off. Cowell will be among the judges and his personal wealth is set to increase yet further.
Reality TV shows had existed long before Cowell's creation, including Pop Idol and Pop Idol: The Rivals (both of which featured Cowell as a judge), but none has had the mass appeal of The X Factor, and none has been commercially exploited so successfully.
Through his production company Syco, Cowell is estimated to be worth €200m, making him the 11th wealthiest entertainer in the latest Sunday Times Rich List. As well as a music roster that includes Westlife, Susan Boyle and Il Divo, Cowell's main source of revenue is from his TV empire. He is also behind Britain's Got Talent and its international editions.
For the music division of his company, he has a long-standing relationship with Sony, one of the so-called 'Big Four' record companies, and that deal includes first dibs on X Factor winners and various also rans (including last year's runner up, Olly Murs). For television in the UK, he deals exclusively with ITV, and in partnership with Talkback Thames. In the US, he has relationships with four networks -- a practically unheard of level of media penetration.
Earlier this month it was rumoured that he had signed a €120m deal with ITV to keep The X Factor and Britain's Got Talent on the network until 2013. Under the deal, ITV2 will show the US version of The X Factor and America's Got Talent. And that's not counting his appearance fee as a judge, thought to be about €20m over the same period, even though he won't be appearing on the heat stages of Britain's Got Talent.
For the TV channel, it was a no brainer. "The X Factor and Britain's Got Talent have helped define the last decade of television in the UK," according to ITV boss, Peter Fincham. "They have become more than just a talking point -- they are a national obsession. I'm delighted our viewers can continue to enjoy them on ITV over the next three years."
Despite the huge money generated by The X Factor there are significant production costs, with salaries to be paid to the 116 backroom staff, plus a rumoured €100,000-a-day rental cost for Fountain Studios in Wembley, the show's home until Christmas. Then there's the hefty fee commanded by the other judges. Cheryl Cole makes an estimated €1.2m per season, while Louis Walsh is paid €900,000.
But the programme's astonishing popularity can be gleaned from the fact that one 30-second ad break on ITV costs €160,000, while that figure rises to €300,000 for the final. Last year, it was reported that ITV made €13m in ad sales revenue on the season final alone.
Further revenue for ITV, Syco and Talkback is derived from the sponsorship with telecommunications operator TalkTalk. The company pays €22m for the privilege over three years, while Nokia has a sponsorship arrangement with The X Factor website for around €400,000.
There are further deals with Very -- the mail order retailer -- who stock X Factor merchandise and show viewers how to achieve the look of their favourite contestant, and with L'Oreal, who have exclusive rights to the hair and make-up demands of the contestants, judges and presenters.
In a new initiative this year, live performances are available for download from Apple's iTunes. Each song costs 99p to download. The singers get a tiny portion of the revenue -- 0.01p per download. The rest of the fee will go to iTunes (around 30p), ITV, Syco, Talkback and the artist who owns the rights to the original song.
Then there's The X Factor magazine, which has a reported circulation of 300,000 in the UK and costs £1.95 per issue. Few start-up magazines could dream of such a large readership.
And once the series has been completed, there's yet more cash cows to be milked, not least through single and album sales, but more lucratively through the X Factor tour. Even before the finalists had been named this year, tickets for the tour went on sale. Some €3.5m has been taken already and that figure is likely to double once the merchandise sold at each concert venue is taken into account.
For the acts themselves, there is no guarantee of big money -- the first winner, Steve Brookstein, sold just 100,000 albums before being dropped -- but others, not least Leona Lewis, have truly hit the big time sales-wise.
Even Jedward, last season's token novelty act, have shown that it is possible to enjoy substantial earnings once the TV cameras have turned elsewhere.
Managed by Louis Walsh, they have played a series of sold-out tours in Ireland and the UK and have signed endorsement deals with a plethora of consumer brands.
Meanwhile, big-name acts now queue up to be involved. Robbie Williams made a much-derided appearance on last year's series and this Sunday, 1980s rockers Bon Jovi will perform on the results show.
Who knows, maybe Elton John may yet be coaxed to join in on the fun. After all, he has a new album to promote and he would have a captive audience of millions.