On Making It Work, Or, An Open Letter To Network TV

After a decade-long slide into semi-irrelevance, it’s now being announced that the major television broadcast networks are considering leaving behind the “free TV/advertiser supported” business model in order to turn themselves into something more closely resembling a cable operation; the idea being that they could create a second revenue stream from the same “subscriber fees” that are paid by cable and satellite operators to all the other channels those operators carry.

This has become necessary, according to the networks, partly because the market has become so fragmented...which, naturally, is cable’s fault—and presumably the fault of the disloyal viewer, as well.

Another reason driving the change is related to the desire of the networks to have a source of revenue that’s more reliable in times of economic downturn, when advertisers often try to husband scarce resources by cutting back on all their expenses, particularly advertising dollars.

Will this new change in the business model reverse the fortunes of the networks?
Is it possible that the networks are simply poor business managers?

And what about...Krystal Carey?

Tune in for the rest of the story—and we’ll find out.

“Customer in a restaurant: How do you prepare your chickens?
Cook: Oh, nothing special really. We just tell them they’re gonna die.”

--From "Plato and a Platypus Walk Into A Bar, Thomas Cathcart and Daniel Klein

Dear ABC, NBC, CBS, and Fox,

We’ve come a long way together, and I know times have been tough lately—well, for a decade or so, anyway—what with the MTV and the Jon Stewart and the ESPN and all...but let me ask you a question:

Aren’t the majority of the problems your “mainline” networks face today actually problems of your own making?

Now before you get all defensive on me, let’s have a look at the record:

There was a time, not so very long ago, when NBC and Fox, particularly, were flying high in the ratings wars.

In the 1980s NBC had a great run of shows, from “Hill Street Blues” to “The Cosby Show” to a little thing called “Late Night With David Letterman”.

They also had “Taxi”, “The Golden Girls”, “Cheers”, “Miami Vice”, “Matlock”, “Family Ties”, “Alf”, and “The A-Team”.

And that was before “Friends”, “Seinfeld”, “ER” and “Mad About You” all became the 1990s version of “Must See TV”. (“LA Law” had a long enough run that it existed in both eras.)

In other words, a huge proportion of the shows that you see in syndication today were all part of the NBC family in roughly a 20-year period.

Over at CBS, the lineup during the same time period included “Cagney and Lacey”, “Dallas”, “Knots Landing”, “The Dukes of Hazzard”, “Magnum P.I.”, “Murphy Brown”, “Newhart”, “Walker, Texas Ranger”, and the last couple of years of “M*A*S*H*”...and, thanks to some trouble at NBC...”The Late Show With David Letterman”, which, along with “60 Minutes”, is still there to this day.

For NBC, the money was good: in 1985 the network’s profit doubled, and by 1997 it had doubled again to over $500 million.

CBS had hit shows that were popular among a less-desirable (read: older) demographic (but fewer of ‘em than NBC’s giant stable of hits), and as a result, despite the $6.8 billion in 1998 revenues it was another of a long series of “loss years”...but at least they could say the losses were decreasing, from over $130 million in ’97 to a mere $12 million in ’98.

For ABC, this was a period of downward spiral culminating in takeover. Among the shows that were filling space in between their few hits (most notably “The Love Boat” and “Home Improvement” and “Matlock”, which was snatched away from NBC for the last three years of its run) were such tragically bad classics as “Battle of the Network Stars”, “Doogie Howser, M.D.”, “Full House”, “Growing Pains”, and the singularly awful Cop Rock.

The resulting financial troubles led to ABC itself being snatched away from its former independence in a 1995 takeover by The Walt Disney Company.

And then there’s Fox. The same network that always seems to find the lowest common denominator (they once matched up Tonya Harding and Paula Jones in 2002’s Celebrity Boxing) also managed to bring to the air in its first 15 years “21 Jump Street”, “Party of Five”, “Melrose Place”, “Martin”, “Beverly Hills 90210”, “Ally McBeal”, “In Living Color” (yes, Virginia, the Wayans Brothers came from somewhere...), “Mad TV”, “Futurama”, “The Tracey Ullman Show” and its slightly more successful spin-off, “The Simpsons”—and the show that might sum up the entire enterprise, for good and for ill: Married...With Children.

By 1990, the then five-year-old network was on the air three nights a week—and they were booking $500 million in advertising revenue.

So, TV...do you see a pattern here? The networks with the best (or at least the most popular) shows were the ones making money—and CBS and ABC...not so much.

Of course, you can have very popular programming and still lose money doing it...which brings us to sports.

From the mid-80’s until not very long ago, the television networks were more than happy to pony up pretty much any amount of money for sports programming—to the point that buying your kid one of Glambo’s “My Little Pony” Edition M4A1 carbines for her 8th birthday (the same weapon used by our troops today, and a bargain at only $1147.95...) seems to be downright logical by comparison.

Who follows “March Madness”? CBS has been following it, avidly, as one of the broadcasters of the tournament. In 1985 CBS paid $20 million for the TV broadcast rights, and by 2005 that number had grown to $420 million.

But here’s the thing: the ratings CBS achieved in the 1985 broadcast were roughly 90% of the highest ratings the NCAA Tournament ever achieved, and despite the fact that CBS valued the Tournament enough to pay 20 times as much for the rights in 2005, the actual 2005 audience was only 2/3 of the 1985 audience.

Football has been a black hole for broadcasters as well—for decades.

ABC, NBC, and CBS admitted in 1992 that they had lost $200 million, collectively, in the first two years of their 1990 agreement, with CBS being hit particularly hard (baseball and football, together, knocked $320 million off of the CBS bottom line that year).

Fox, seeking to create a “buzz” for their new network, paid more than $1.5 billion in 1993 for a four-year deal to broadcast NFL games (ending the League’s 38-year relationship with CBS in the process)—and the value of the current round of contracts between the NFL and four networks (NBC, CBS, Fox, and ESPN) has, in the intervening years, ballooned to over $20 billion.

Remember that comment about losing money even with popular programming? The Super Bowl fills 37 slots in the list of the top 100 highest rated shows of all time...but that said, NBC apparently had problems selling all its available ad space for the broadcast of the XLIIIrd iteration of the event...which appears to be a problem for the upcoming XLIVth game as well...and if you follow the numbers, the ratings have not gone up in a way that could be seen as commensurate to the cost of the broadcast rights.

(With the exception of the 2000 contest, no Super Bowl in the 21st Century has cracked the Top 40 highest rated shows of all time. 17 games from the prior Century are in that Top 40. If you don’t consider the year 2000 to be part of this Century, lower that number by one.)

The Olympics? At this point, the rights fees paid by NBC represent 40% of the total budget of the International Olympic Committee, including $600 million for the 2006 Games alone and $2.2 billion for the 2010 and 2012 Winter and Summer Games—and before the first event is even broadcast, GE CEO Jeff Immelt (GE is NBC’s current owner) has already reported that he expects the network to lose $200 million on the 2010 Vancouver broadcast.

(How many times has an Olympics broadcast cracked the Top 100? Twice—and both of those broadcasts were in 1994.)

Let’s sum up where we are so far: for roughly 20 years, the “big” networks have been either losing money with bad programming or losing money by spending too much money on big events...or to keep a popular show just one more year, as happened with ER and almost happened with Seinfeld.

How much would a network spend for that final year? The cost of producing a single episode of “ER” rose from $2 million an episode to $13 million from 1997 to 1998.

To make up for wasting so much money on those big events, the networks have been cutting back as much as possible—which is why we now see lots of “reality TV” and “talent shows” à la “American Idol”, which can cost less than $500,000 an hour to produce.

The theory is that the “big” productions will drive the viewer to the “smaller” shows—which presumably means that the calculus around CBS is that the glorious television spectacle that is the “New Adventures of Old Christine” is keeping viewers tuned in for “Gary Unmarried”—and if not, maybe the spectacle that is “Two and a Half Men” will.

The funny thing is, TV, that you actually have an incentive to invest in better shows: the revocation of the Fin-Syn Rules. In the early 1990s TV networks were, for the first time, permitted to have a financial interest in the shows they run on their networks (the “Fin” part of Fin-Syn) and the restrictions on networks syndicating shows were removed (which, obviously, was the “Syn” part).

This means if networks create shows that can be resold over the years the networks get to have an equity interest in the money that’s generated. One source of future income: selling a show like “The Bernie Mac Show” or “Who Wants To Be A Millionaire” or a “CSI” derivative to a cable network or a local TV station...another, “direct distribution to consumer” technologies like DVD or implanted neural TV memory chips or home holodecks.

Fun Fact: Desi Arnaz and Lucille Ball are credited with creating the syndicated television industry; this based on the decision, radical for the time, to record episodes of “I Love Lucy” on film, and the even more inspired decision to take a $1000 a week pay cut in return for ownership of those syndication rights...or to put it another way: TV, you often suck at recognizing innovation when you see it.

The problem: if your library is full of “Hee Haw Honeys”, “The Simple Life” or The Jay Leno Show...well, those are the kind of shows that end up in the $5 DVD bin, not as $ 120 box sets shaped like robot heads...and that’s the direction that networks are taking far too often.

Ironically, a lot of the most innovative TV out there is not coming from the networks at all, but instead from their “insurrectionist” cable competition: shows like “Curb Your Enthusiasm” and “It’s Always Sunny In Philadelphia” and the mighty SpongeBob Squarepants (which, last week, had more viewers at 11:30 on a Thursday morning than every broadcast television show for that entire week, with three exceptions—and all three of those were football games).

Lucky for the networks, they own a lot of those cable properties—or, in the case of ABC, their parent owns lots of ‘em, including the aforementioned ESPN, The Disney Channel and the ABC Family Network. (In the case of Disney, cable operations in 2009 provided twice the revenue and eight times the income of the broadcast operations.)

Oddly enough, the formerly united Viacom and CBS are now separate companies with the same CEO, Sumner Redstone. Among the Viacom properties: MTV Networks, the home of both the mighty sponge and the Colbert Nation, Logo (home of “RuPauls’ Drag Race” and the now extra-controversial “Sordid Lives”), and soon, the DreamWorks production operations.

Sometimes it works in reverse: the cable operator Comcast is buying 51% of NBC in their own effort to vertically integrate; combining production and distribution opportunities under one corporate roof.

And all of that is a long way to go to get to finally answering the questions at the “top of today’s show”, but here we are:

TV, I hate to be mean about it, but you have demonstrated over and over again that you are not so great at making smart business decisions—especially when it comes to managing your cost structure in a thoughtful way—which makes me think that if you change the business model, you’ll find a way to screw it up...and you’ll probably do it by giving too much money to the last season of shows like “CSI: Jablib, Wisconsin” and baseball and football and the Olympics while at the same time prematurely cancelling the next “Arrested Development” that comes along.

And since you seem to be bad at delivering shows, the odds are that over time advertising income will be hard to keep on an upward path...but of course, you could fix that problem—theoretically—and being less dependent on “Survivor” might be one way to start.

And what about Krystal Carey?

Well, the soap business sucks, too—after all, it’s expensive to make soaps, and there’s little chance of selling them as DVD sets—and that’s why everybody on “All My Children” recently got substantial pay cuts, and why “Days of Our Lives” may not survive past 2011.

So there you go, TV: you can continue to play the “today’s results are the only thing that matters” game, or you can scale back all the money associated with the network TV process to make it more economically viable...and if Leno won’t take $2 million a year, I’m pretty sure my friend Cliff Barnes would, and he’s even funnier (“I’m so short, I have to go up on girls...”), or you could just abandon broadcast TV entirely—which, of course, should mean that you’ll be giving back that valuable radio spectrum you’re borrowing from us at the moment so that we can auction it off to someone who wants to give it a good home.

Anyway, TV, this has been a long letter, and it’s time to go, so you think about all this, and we’ll talk again soon,

Your friend,

fake

Comments

The Girlfriend and I were talking...

...and it occurred to us that neither one of us almost never actually watches anything on "regular" tv any more.

"...i feel that if a person can't communicate, the very least he can do is to shut up." --tom lehrer, january 1965

Great commentary, Fake

American television networks look a lot like American automobile manufacturers these days: big, dumb and short-sighted. You've done a good job laying out the details.

One underlying causal factor may be testosterone poisoning. It's hard to imagine any other plausible explanation for those wildly excessive payments for big event sports extravaganzas. Boys will be boys.

i could not agree more...

...with the analogy to auto manufacturers--and in both cases, there seem to be trouble with adapting to the new competition.

ted turner was accused of overpaying for the mgm film library, way back in the day, but he was smart enough to realize the value of content, especially the "timeless" material, and its portability from one type of media to another.

by that measurement nbc might be the most disadvantaged network: abc has disney, cbs has viacom, and fox...has fox.

ge does not bring movie product to the table, but does operate a lot of cable channels, including usa (which does produce a lot of "b-movies"...). comcast, which operates some cable channels (g4, e!, and the golf channel, among others), also doesn't seem to be making "timeless" material.

in fairness, however, nbc brings a lot of tv series material that is long-term portable.

as has been the case for decades, it's the "movie industry" that is making the most valuable product, and a lot of that might be based on the financial risk structure and the way movie distribution is done. i don't think you could convince a network to commit $100 million or more to a single program unless they could exhibit in theaters--but how do you do that when you're competing with yourself by going the exhibition route?

of course, you can get networks to pay billions for sports, and i do think there's a testosterone issue at play there...and maybe two: the one, the audience's testosterone is at play, which drives the programming choice, and the other, the "my network spent more than yours" syndrome (see: brandon tartikoff, robert iger, barry diller, les moonves).

"...i feel that if a person can't communicate, the very least he can do is to shut up." --tom lehrer, january 1965