Monday, August 13, 2012

The Continuing Evolution of TV Economics

348,000 people in the U.S. cancelled their cable in three months time.  Why?  This article suggests that the use of OTT (which stands for over-the-top) boxes, used to access Netflix and Hulu, are responsible for the drop.

To date, the majority of what's available on Netflix and Hulu is pre-existing material.  In other words, the production of this content was paid for under the existing TV model, where broadcasters pay a license fee and producers sell to multiple markets in order to finance their shows.

But if the number of cable subscribers continues to drop, subscription fees and advertising revenues will also drop, making it even more difficult to finance original programming.

TV's evolution from a business standpoint has been very interesting.  Initially, when there were limited choices over the air, every program got a substantial audience.  A show didn't have to be the best, it only had to be the best in it's time slot, and the competition was less than half a dozen shows.  Everything had a sizable audience, which meant that everything was able to attract solid advertising revenue.

Then came cable and the 500 channel universe.  With more choice, viewership for individual shows fell.  That meant less advertising revenue and budgets were reduced as a result.  That's where reality programming came from, whether it was Survivor or the Home and Garden channel.  Cheap programming became the standard instead of the exception.

Now, with OTT, the ground has shifted again.  In a 500 channel universe, competition was still somewhat limited.  A show was still competing against everything on in the same time slot, there were just a lot more shows.  OTT is built on the idea of on-demand programming, which means that a show is now competing against everything on at the moment and everything in the libraries of OTT service.  And if people continue to dump cable, then newer shows are cut off from that revenue stream.

The trend has been towards a continuing fragmenting of the audience into smaller and smaller chunks for each show.  We could theoretically reach a point where a show is competing against every show ever made as well as every movie ever made.

As the audience for each show gets smaller, how do you finance a show?  Lower budgets are not the answer if you're competing against past product made with good budgets.  This is especially true for  animation, as older shows date less badly than live action and children are less sensitive to when a show was made anyway.

I'm very glad that I'm not depending on the TV market for my livelihood anymore, and I wonder how aggressive TV animation studios are at finding new revenue streams.  Budgets have been shrinking for years and will continue to shrink.  Even The Simpsons is being done for less money (since 1991, viewership is down by 66%).  At what point does the creation of animated TV become unsustainable?  And what replaces it?


Charles Kenny said...

It's a tough proposition alright, although I don't think we're peering into the abyss just yet.

While the size of the audience is certainly changing, it is only in regards to who is watching at that particular time. Networks whine that live viewing is down, but DVR viewing bring numbers back up.

In addition, people will demand new content. They always have and I see little reason that they will stop any time soon. Perhaps with a 500+ channel universe there is an incentive to over-create new content. Perhaps the market is currently too large and we will see a "correction" to a more reasonable sized one.

Now I will point out that I am a "cord never"; a consumer that does not and has not ever had a cable subscription. You can be certain that a pretty much every teenager today will be a "cord never" having been immersed in the internet since birth. I'm doubting that networks, studios and cable companies are even contemplating this and as such are in for a big shock over the next 5-10 years.

The problem with cord nevers today is that their legal options for viewing new content are extremely limited. E.g. Netflix lacks a lot of new shows and I've had to wait two whole years for an Adventure Time season boxset. That's hardly doing Cartoon Network any favours is it?

The way I see things, the ultimate model that will develop is one whereby a significant chunk of a show's funding will be put up by fans beforehand, a la the Kickstarter model. Since animation, like you say, has a longer shelf-life than live-action, the remainder of the revenues can be made up in the long tail.

In any case, having more content to compete with should ensure that the quality of newer stuff is ever-increasing. Rising tide lifts all boats, etc.

JPilot said...

Add to that content being also streamed, or purchased on iTunes/Apple TV, content created specifically for the Web such as Seinfeld's Comedians in Cars getting coffee. Cable specialty channels will forever be the home of the Kardashians and Here comes Honey Boo Boo. Are we really going to miss them?

Pete Emslie said...

As I just recently mentioned on my blog, as of several weeks ago I have now joined the ranks of those that have cut the cable. Despite the hundreds of channels that were available, I found that I was really only watching less than a handful on a regular basis. Mostly I watched CNN and CBC Newsworld, with only Turner Classic Movies providing my entertainment.

I never developed a taste for "reality" shows, as I saw them early on for what they were - cheaply produced dreck, requiring no talented writers or performers in their creation. As TV became more and more saturated with this low-budget nonsense, I found there was no justification in my paying the exorbitant monthly fee for cable anymore. I suspect that many of my generation, those who grew up with the great shows of the 60's and 70's, are likely feeling the same way and also canceling their cable.

The old model worked. I was happier when we had no more than a dozen channels, with the big three American networks (before the idiotic Fox came along) producing shows of quality entertainment and lasting value. Back then we all watched the same shows and could discuss the latest episode of "All In The Family" or "MASH" the following day. We had a shared culture in those years that sadly is missing today. The audience is so fragmented now that, as a society, we can't relate to each other much anymore.

I'm afraid I don't see much value in the "new model" of today. With bigtime corporate advertisers pulling out of television, nobody will have any money to produce anything of quality. I respectfully disagree with Charles, as this "Kickstarter" phenomenon is a passing fad that cannot come close to replacing paid advertisers. The inherent problem with crowdfunding is that everybody is contributing out of goodwill, at best receiving trinkets in return for their donations. These are not investors, and should a crowdfunded project actually achieve wild success, those that made it possible will not share in the spoils. As soon as that bitter truth becomes apparent, crowdfunding is going to go away.

Matt said...

Pete Emslie said:
"The inherent problem with crowdfunding is that everybody is contributing out of goodwill, at best receiving trinkets in return for their donations. These are not investors, and should a crowdfunded project actually achieve wild success, those that made it possible will not share in the spoils. As soon as that bitter truth becomes apparent, crowdfunding is going to go away."

Dun Dun DUUUN!!!

It's the cart before the horse...purchasing the item before it's hatched, and the fact that no one really spends $20,000 on a hammer or $30,000 on a toilet seat when completing their said project.

And indeed, what does the future hold if regular ol' TV's growing mold? Will everything media, news or shows eventually become like music on I-Tunes? With 10% of every show/pilot/doco/film going to Apple upon purchase? And a crazy virus filled online torrent black-market running along side it? With a system like that it'd completely devalue our whole gig. What a shame, what a shame.

Thad said...
This comment has been removed by the author.
Thad said...

I agree with most of what Pete Emslie wrote.

There are also no legal obligations in crowdfunding, which makes it seem like a scam to me. (The Onion has already tactfully pointed this out.) Kickstarter absolves itself from all responsibility in spite of being the platform. They will not force the creator to commit to his or her project. The creator doesn't have to stay on-schedule, or even deliver the promised goods and project! How long will that stable model last?

warren said...

I'm just glad I'm not in TV animation work anymore. I'm worried that market is Canada is gonna erode even more.

Before I skipped South, the going rates for TV storyboards were on a steady decline, budgets were shrinking, and cost-of-living inflation does exactly the opposite of that.

HOWEVER - the big congloms like Cartoon Network keep doing new stuff fairly regularly - even if their Cartoonstitute attempts are sporadic, WB is doing well with the DC Nation merge, Nickelodeon struggles by the looks of the rate at which they they cancel shows, and Disney seems to be trying hard to pass those guys and compete with CN.

Movie studios like DreamWorks are also flipping franchise characters into new shows,using assets built for film and modified for TV production.

All of those networks still operate on the old model. You'll be fine as long as the ONLY place to get that new stuff is on your channel. Kids will want to see 'Adventure Time', so parents subscribe to the channel package that has CN because it's the easiest and most reliable way to get it.

AND we still have Netflix, for other TV cartoons that aren't in rotation anymore - like the French co-production of 'Iron Man Adventures'. Pretty handy when you don't have the Boomerang subscription.

It's the small fry producers that'll get pinched, as usual. I wonder how Teletoon and YTV are planning to handle Cartoon Network North?

Indie artists will always find a way to make the stuff they want to make and get it seen, somehow. I think the Kickstarter thing will get replaced eventually, but hey, now we ALL get to see what producing is kind of like, and why insurance bond contractors exist.

GW said...

I feel the need to point out that competition isn't what makes filmmaking great. It might help the consumer with cut prices and better service but ultimately, from what I've been able to gather from looking at animation worldwide, it's not competition that improves the industry. It's creative cooperation, decent time schedules, assured pay allowing for creative experimentation(which you won't see much in capitalism), a balance between self improvement by hard work and pragmatism of choosing the best method.

On that last point, I'm specifically thinking of the tendency of the US animation industry as a whole to jump from one media to another before they've fully demonstrated the potential in the old one.

I don't know how shows will make enough money to remain at a good quality, but there's several possibilities. Pete Emslie could simply follow his own ideas to their logical conlusion: have another website like Kickstarter that does allow people to profit if a work becomes successful. It's my opinion that if you hadn't tried to win the argument, you would have noticed that, and you've demonstrated your self that competition isn't always a good thing.

I suspect that there's still hope. There's the possibility of taking advantage of game consoles with their large audiences to market your shows. XBox is heading in the direction of offering more media, but they need to loosen their grip and let others provide the content.

Martin Juneau said...

I have to agree with Pete too. I think the TV model was better when we having a handful of cables networks with the main networks along than got 100-200 networks who serves the same thing in every networks (No matter who own them.). The TV duegst shrunk, there's multiplications of channels who create and TV quality gets very low. For a while, only Prise 2 (A network themed of olders series here.) gets my interest currently.