Time for a New Business Model for Old TV
Monday, May 21, 2007
Ok, I'll admit it. I was a huge fan of Jericho, the CBS show about life a small town after a series of nuclear terrorist attacks in the US. The show was a mix of 24, Battlestar Galactica, and Dallas. Intrigue, how people deal with the holocaust, and personal relationships. Season 1 ended with a huge cliff hanger -- everything was completely wide open with several plot lines left unresolved. So CBS canceled the show. We never found out who dropped the bomb.
CBS execs say it was because the ratings were low. Hard to imagine, since as soon as the show was starting to gather a viewership they put it on a two month hiatus. Then they brought it back against the juggernaut of pop TV -- American Idol. Here's a news flash CBS -- you aren't competing with American Idol, you're competing for what's left.
But the most interesting part of this story isn't that some fans got left high and dry, it's that the business model failed everyone. The Nielson Ratings system, which hasn't changed much since their introduction in the 1940s and violates every possible rule on randomness of sample (can you say "self selected"?), has only recently started tracking time shifted viewing. And the networks don't take that into account in their advertising rates. So take a show that will appeal to well-off, intelligent people with disposable income and put it up against a pop pablum spree like American Idol, and you'll conclude that no one is watching. I'll posit that Jericho viewers are much more likely to have a DVR and less likely to be Nielson families. And they're far more likely to have a broadband internet connection to view the shows off services such as Itunes. The concept of watching two shows at once, which is now quite commonplace, just isn't built into the ratings system.
The Jericho fans have mobilized. There were around 8 million regular viewers, but they were NUTS for the show (NUTS refers to a story in the last episode where the grandfather tells the story of an American commander's response to a German call for surrender in the Battle of the Bulge). Remember the letter writing campaign that produced a third season of Star Trek? Everything I've been able to read talks about "thousands" of letters. Jericho fans are using the internet equivalent -- an online petition, which is up to around 60K in the first week. More interesting, Jericho fans are planning on sending bags of nuts to CBS on June 5 to show their support for the show. But frankly, I'm doubtful it will have any effect. CBS has already put their schedule into production and the resources for Jericho are off to the four winds. We'll never know if Hawkins was a good guy, if Jericho survives, or if Johnston is really dead.
Which leads me to a conclusion: Old media really is dead. The idea of selling advertising in exchange for eyeballs just isn't going to make it. The "science" for measuring performance hasn't kept up. Anything you do to try to measure viewership will be self selected, by definition. It takes a certain kind of person to put up with a monitoring box in their house or to keep a diary. And those aren't the same people that are spending money on high tech gadgets like DVRs and Slingboxes. Or burning episodes to DVD from their Tivo so they can watch them on a plane.
Eventually "free" TV is going to be useless. The quality of shows will continue their downward trend as the intelligent and well-off move into other forms of entertainment. The old media will just keep producing more reality shows or mean comedies because they're the least expensive to produce. When your market is dwindling, the urge to cut costs is overwhelming. Look at the difference between the programming on paid channels (SciFi, HBO, Showtime) vs the old media. This trend has been going on a long time.
So what would I do if I was a TV exec? The solution seems pretty obvious to a techie. TV is a limited resource -- there are only so many timeslots and you have to make choices. Your advertisers pay for ratings at a certain time, so they could care less about the quality of the shows. But you can't do anything to increase your number of time slots, which is the only real way for you to increase your revenue stream. Think of the difference of competing shows where a few percentage points is make or break, and then compare that to being able to get revenue from both shows.
It's time for the old media to realize that they're not in the business of broadcasting. They've focussed on the medium. They're really in the business of providing content. Traditionally, they've capitalized this content by selling advertising. That can still work, but eventually they'll have to figure out who their real customer is. Their real customer is the viewer. We put up with watching commercials in exchange for the content. Frankly, I think they're leaving a lot of money on the table.
Let's say you've got the Number 1 rated show, American Idol. Last year, a 30 second commercial on American went for $705K. At 18 minutes of commercials/hour they pull in $25M in revenue for an episode. Not bad, considering that most of the cast works for free. Or perhaps you've got #10, Two and a Half Men, at $293K for 30 seconds and a total revenue of $10.5M. But that's the maximum you can do -- it's a zero sum game. There will be only one number one. And you can't run two shows at 8:00PM on Wednesdays.
Now what if the 7,000,000 fans who are nuts about Jericho were given the chance to download the content over the web? Let's say just 1/3 of them are willing to pay $4.99/episode. That's $11.6M in revenue, and they just beat #10. If you could get half the Jericho fans to pay $7.50/episode then you've just soundly beaten #1. And they can use that formula over and over without the constraint of a particular time slot.
The networks are in a unique position because they've already got a huge audience. If some start-up could get the funding and create an awesome weekly TV show for distribution over the web, they probably couldn't get enough buzz to make it work. But what if at the end of Season 1 for Jericho, when the CBS execs already knew they were going to cancel the show, if they had run a commercial that said "Want to see another season of Jericho? Go to www.makeCBSrichFromJericho.com and purchase a subscription for next season." How much do networks lose because they bet on shows that don't produce the ratings they think they'll get? Under this model, if the revenue isn't there to fund the show, they just refund the subscriptions. Or negotiate with the producers to bring costs in line. They also get the added reach of the global internet.
I'm doubtful that the old media TV execs are adroit enough to tackle this business model. Just look at how horrible their web sites are. Or how badly CBS has handled the fan backlash over the canceling of Jericho. These are the same people that think that what the world really needs is another episode of Survivor, or CSI in another city. But eventually someone is going to figure this out. With broadband becoming increasingly available, especially to the demographic that has money to spend, it's inevitable that entertainment goes in this direction. Free TV will be nothing more than a strategy for the networks to draw you into a show so that you'll start paying for it.
CBS execs say it was because the ratings were low. Hard to imagine, since as soon as the show was starting to gather a viewership they put it on a two month hiatus. Then they brought it back against the juggernaut of pop TV -- American Idol. Here's a news flash CBS -- you aren't competing with American Idol, you're competing for what's left.
But the most interesting part of this story isn't that some fans got left high and dry, it's that the business model failed everyone. The Nielson Ratings system, which hasn't changed much since their introduction in the 1940s and violates every possible rule on randomness of sample (can you say "self selected"?), has only recently started tracking time shifted viewing. And the networks don't take that into account in their advertising rates. So take a show that will appeal to well-off, intelligent people with disposable income and put it up against a pop pablum spree like American Idol, and you'll conclude that no one is watching. I'll posit that Jericho viewers are much more likely to have a DVR and less likely to be Nielson families. And they're far more likely to have a broadband internet connection to view the shows off services such as Itunes. The concept of watching two shows at once, which is now quite commonplace, just isn't built into the ratings system.
The Jericho fans have mobilized. There were around 8 million regular viewers, but they were NUTS for the show (NUTS refers to a story in the last episode where the grandfather tells the story of an American commander's response to a German call for surrender in the Battle of the Bulge). Remember the letter writing campaign that produced a third season of Star Trek? Everything I've been able to read talks about "thousands" of letters. Jericho fans are using the internet equivalent -- an online petition, which is up to around 60K in the first week. More interesting, Jericho fans are planning on sending bags of nuts to CBS on June 5 to show their support for the show. But frankly, I'm doubtful it will have any effect. CBS has already put their schedule into production and the resources for Jericho are off to the four winds. We'll never know if Hawkins was a good guy, if Jericho survives, or if Johnston is really dead.
Which leads me to a conclusion: Old media really is dead. The idea of selling advertising in exchange for eyeballs just isn't going to make it. The "science" for measuring performance hasn't kept up. Anything you do to try to measure viewership will be self selected, by definition. It takes a certain kind of person to put up with a monitoring box in their house or to keep a diary. And those aren't the same people that are spending money on high tech gadgets like DVRs and Slingboxes. Or burning episodes to DVD from their Tivo so they can watch them on a plane.
Eventually "free" TV is going to be useless. The quality of shows will continue their downward trend as the intelligent and well-off move into other forms of entertainment. The old media will just keep producing more reality shows or mean comedies because they're the least expensive to produce. When your market is dwindling, the urge to cut costs is overwhelming. Look at the difference between the programming on paid channels (SciFi, HBO, Showtime) vs the old media. This trend has been going on a long time.
So what would I do if I was a TV exec? The solution seems pretty obvious to a techie. TV is a limited resource -- there are only so many timeslots and you have to make choices. Your advertisers pay for ratings at a certain time, so they could care less about the quality of the shows. But you can't do anything to increase your number of time slots, which is the only real way for you to increase your revenue stream. Think of the difference of competing shows where a few percentage points is make or break, and then compare that to being able to get revenue from both shows.
It's time for the old media to realize that they're not in the business of broadcasting. They've focussed on the medium. They're really in the business of providing content. Traditionally, they've capitalized this content by selling advertising. That can still work, but eventually they'll have to figure out who their real customer is. Their real customer is the viewer. We put up with watching commercials in exchange for the content. Frankly, I think they're leaving a lot of money on the table.
Let's say you've got the Number 1 rated show, American Idol. Last year, a 30 second commercial on American went for $705K. At 18 minutes of commercials/hour they pull in $25M in revenue for an episode. Not bad, considering that most of the cast works for free. Or perhaps you've got #10, Two and a Half Men, at $293K for 30 seconds and a total revenue of $10.5M. But that's the maximum you can do -- it's a zero sum game. There will be only one number one. And you can't run two shows at 8:00PM on Wednesdays.
Now what if the 7,000,000 fans who are nuts about Jericho were given the chance to download the content over the web? Let's say just 1/3 of them are willing to pay $4.99/episode. That's $11.6M in revenue, and they just beat #10. If you could get half the Jericho fans to pay $7.50/episode then you've just soundly beaten #1. And they can use that formula over and over without the constraint of a particular time slot.
The networks are in a unique position because they've already got a huge audience. If some start-up could get the funding and create an awesome weekly TV show for distribution over the web, they probably couldn't get enough buzz to make it work. But what if at the end of Season 1 for Jericho, when the CBS execs already knew they were going to cancel the show, if they had run a commercial that said "Want to see another season of Jericho? Go to www.makeCBSrichFromJericho.com and purchase a subscription for next season." How much do networks lose because they bet on shows that don't produce the ratings they think they'll get? Under this model, if the revenue isn't there to fund the show, they just refund the subscriptions. Or negotiate with the producers to bring costs in line. They also get the added reach of the global internet.
I'm doubtful that the old media TV execs are adroit enough to tackle this business model. Just look at how horrible their web sites are. Or how badly CBS has handled the fan backlash over the canceling of Jericho. These are the same people that think that what the world really needs is another episode of Survivor, or CSI in another city. But eventually someone is going to figure this out. With broadband becoming increasingly available, especially to the demographic that has money to spend, it's inevitable that entertainment goes in this direction. Free TV will be nothing more than a strategy for the networks to draw you into a show so that you'll start paying for it.
Labels: Jericho
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1 Comments:
At 4:05 PM,
Spudskie said…
Thank you for the article on Jericho. It was the only program worth watching on television. It is sad how CBS really screwed with the series. I hope the network reconsiders. Until then, I will boycott CBS.
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