The broadcast networks are devoting a lot of energy toward encouraging live viewing. They’re pursuing the wrong goal.
Traditionally, live viewing was the cornerstone of the network television business model. The majority of network revenues derived from advertising during broadcasts. Shows with higher ratings, especially among preferred demographic groups, reaped higher ad dollars.
But that’s a model based in concepts that go back to the 1940s. In 2016, live viewing is only one of several ways that fans watch TV. More pointedly, it’s becoming less and less important every year. While networks have made some moves into the new age, they haven’t figured out the revenue model for the new age of television.
Instead, TV networks (especially broadcast networks) fight a battle of diminishing returns to capture live viewing and the ad dollars tied to it. Strategies include splitting up seasons in order to have promotable “winter finales” and “mid-season premieres” or hoping to find that rare program like Empire or The Big Bang Theory that defies trends and attracts extensive live viewing. Networks are turning more and more to event programming, like high profile sports franchises, award shows and live theatrical/musical productions that tend to encourage live viewing. Or trying to use social media to engage fans by making stars and behind-the-scenes folks available to interact during broadcasts. And yet live viewing numbers continue to dwindle.
People are watching TV in different ways. Networks have figured out how to make money on some of those methods, though still less than the ad dollars they’ve relied on for so long. Networks reap the benefit of in-season OnDemand and network web site viewings. Next day streaming on Hulu and paid downloads tend to involve a revenue split between the network and production company. Long-term syndication and streaming accrues to the benefit of the production company.
DVR viewing offers the biggest challenge. DVR playback is a huge source of eyeballs but is hard to monetize. Live viewing numbers are at historic lows. Most shows add significantly to their total viewership and demographic numbers with just three days of DVR playback. At a full seven days, many shows come close to doubling their audiences.
DVR playback is prevalent, but networks struggle to profit from it. Advertisers will pay for viewings where networks can demonstrate effective exposure to ads. That’s easy for OnDemand viewing, where full ads are run intact for a week and fast-forwarding is disabled. But the data of which DVR viewers choose to let the ads run during playback instead of zipping past them is difficult to collect, leaving networks little or no data to provide advertisers.
The broadcast networks have scattershot strategies of how to deal with the new viewership models. FOX and The CW have been vocal in insisting that they look at a variety of factors across viewing platforms in making their decisions. To some extent, that seems accurate, as each network has renewed shows with live viewing levels that would’ve meant immediate cancellation only a few years ago.
Shows with tighter budgets, such as those on The CW and many cable channels, tend to have an easier time turning a profit under the current hodgepodge. Platform viewing revenues haven’t matched those traditionally generated by live viewing, but with lower costs, shows can cross the profitability line a lot more easily.
Networks are throwing a lot of stuff at the wall to see what will stick. Streaming service Hulu is a joint venture of FOX, NBC and ABC, and has been doing well, especially with “next day” streaming of network shows. The broadcast networks are all trying to imitate the success that premium cable channel HBO has had with its subscription-based app. Except many viewers aren’t enthused about paying for an app that runs programs they can watch over the air for free. So far, networks’ back catalogues haven’t been a huge draw. The real test is forthcoming. CBS is preparing a new Star Trek series that will be digital only (or more likely, digital first, with a broadcast run almost inevitable at some point down the road). CBS is gambling that the franchise’s diehard fans will pony up for immediate access to the new series.
That’s a step in the right direction. But the networks need more creative thinking about how they release and make money from series. The future will likely mean higher integration between networks and their production siblings. For each broadcast network, most of its programs are produced by an affiliated studio. But they also air shows produced by their rivals. For example, series based on the popular DC Comics characters controlled by Warner Bros. have been a hot commodity. And CBS has relied heavily on comedies from uber-producer Chuck Lorre, who is set up at Warner Bros.
Broadcast networks have already been seen to give preferential treatment to series produced “in house.” Shows with lower live viewing levels that make less money for the network side are kept around to reach syndication levels that benefit the production side. With viewing patterns changing, it’s inevitable that the large media companies involved with insist on greater integration between production and distribution. At some point, networks might exist only as distribution outlets for their studio siblings.
The immediate issue for networks is to figure out how to make money from DVR viewing. Already networks are finding revenue sources that don’t rely on when a show is viewed. Paid product integrations, for example, are becoming pervasive. Most series find elegant ways to show off a product, or at least just allow the camera to linger on a logo for a moment or two. A couple shows have found creative ways to integrate products into episodes in organic and entertaining ways. But some integrations have been clunkers. Fans still cringe at the Hawaii Five-O episode that halted the action so that a trio of actors could essentially conduct an in-episode ad for Subway.
Networks might recruit single sponsors for episodes. That could mean some kind of onscreen “bug” in the corner, announcing “This program brought to you by…” Or they might also invest in studying the impact of ads viewed in fast-forward. While the audio part of ads is lost, viewers still see the visual component. It’s not as effective as experiencing the ad in whole, but it’s not worthless.
The television landscape has changed significantly already and will continue to morph. Networks are at a crucial crossroads. They need to figure out the new model of what it means to be a television provider in the world of modern media.
If networks continue chasing the fallacy of live viewing as their primary goal, they’ll go extinct.
Originally published at thunderalleybcpcom.ipage.com on March 22, 2016.