This is a guest post by TV industry thought leader Erik Schwartz:
“Television is dead.”
“It’s the golden age of television.”
Here at the NATPE conference in Miami Beach this week, I’m hearing both of these arguments being argued repeatedly. I think there’s truth in both positions.
This is the golden age of television. Programs like Mad Men, Breaking Bad, HOC, Hannibal, Fargo, The Americans, are as good or better than anything that has ever been produced. The current MVPD model is optimized around every network having a blockbuster show that makes that network a “must carry” for cable and satellite providers, and then filling up the rest of its schedule as cheaply as possible. As the number of networks has grown, the number of these tent-pole programs has swelled.
Television is dead. Fewer consumers are watching this programming in a linear fashion, as the network airs it. It is DVR’ed, viewed on demand through TV Everywhere or Hulu, or purchased from iTunes or Amazon. It’s a generational shift. This is making it more difficult to monetize via traditional TV advertising channels. (My kids barely know what commercials are.) If this trend continues, will networks continue to invest in the funding of premium programming?
Will the SVODs like Netflix pick up the slack by funding even more new programming? To a certain extent, yes. But SVOD growth was fueled by buying archives of existing high-quality content, for much less than it would cost to produce new quality programming. This content is cheaper because it is already monetized. It is found money for the rights holder. At market saturation (and Netflix is almost there in the US), if the SVODs have enough programming (original and archive) to prevent subscriber churn, is there incremental ROI in making more premium shows? Their profit is maximized by offering just enough content to keep a viewer subscribed — everything over that threshold eats into profit margins. A viewer consuming more SVOD is an incremental expense that does not increase revenue.
Yes, it is the golden age of programming. But the existing models for monetization are flawed given today’s consumer’s preferred consumption channels. Flat-rate SVOD incentivizes “just enough” great programming. For decades, advertising made revenue directly proportional to consumption. That changed when retransmission fees started accounting for more network revenue, and then it changed more with SVOD. For this golden age to continue, we need a new model in which revenue for all stakeholders is correlated with audience size.