Money and Media
Question 1: (4 pts) In the lecture on Television Programming, the development process is discussed. In the television network model:
- What costs does the studio pay?
The studio pays for and manages production costs for television shows. In the business of television several processes have to be undergone before a show gets aired on prime time or even as a normal show on TV. As such, studios have to undergo quite a rigorous process of filtering out the hundreds of available shows or show ideas that are pitched to them very often. With this in mind, these processes that the studios undertake to eventually pick a few shows from the myriads available is consistent of the following activities: the pitch, the pilot, the pickup and finally, upfront week. These processes enable studios to manage and produce potentially profitable shows by haemorrhaging money that they eventually hope to recover.
When writers or producers have a show idea, they present it as a pitch to broadcasting networks. The networks assess the viability of these pitches to create a show that will garner a large viewership and realize increased profit margins. Once a pitch is liked, the writers are asked to write a script and after thorough assessment, studios are asked to produce a pilot. Pilots can be defined as the shows that are produced for analysis before the actual show is officially produced. If the networks like the pilot, then production may go on to become actual shows but most pilots never actually end up to become shows.
The pickup occurs when networks like the show and ask the studios to produce a number of episodes for them. Such action is taken for them to test whether their viewers will like the show and ask for further production of the show and this may end up becoming a production of several seasons or sometimes just a one-time-hit. Upfront week is a period after production where companies and network either wait for the prices of the show to either hike or go low in order to purchase them. Advertisers buy when the prices are down while networks hold off some of their inventory to buy when prices go up and the show is deemed to be a success.
To culminate all these processes, the studios take up more risk in production and hope to make up for it in: deficit syndication, digital sales and foreign distribution. The common term used for such strategy is deficit financing.
- What fee does the network pay? and to whom?
Networks pay studios for license rights to air first-run programs and re-runs as well as streaming services for those shows. During the upfront week, networks assess how successful a show has been for its pilot and purchase these rights so that they could exclusively benefit from airing such programs on their network. The license fee paid is way less than the overall cost to produce by the studios. Networks make money from the advertisements of the shows produced and the airing time for their audiences. Licensing is normally conducted after agreement for the amount accrued to air a show.
- What is the term used for the transaction between the studio and the television network?
The common term used for the strategy by studios to sell their licenses at a lower cost than their costs of production is known as, deficit financing. Theis strategy is normally preferred by studios as a testing process for assessment of the success of a show. Once the show is successful, they are able to make up for the accrued deficit through syndication, foreign distribution and digital sales. Essentially, studios operate on a risk/reward basis.
- How is the model described in a) b) and c) above different for SVOD’s like Netflix?
The model used by contemporary networks and studios greatly varies from SVOD’s like Netflix since, SVOD’s take up more risk for more rights. Such right may include, foreign distribution and exclusivity among others. In the model of SVOD’s, studios manage production costs. SVOD’s pay a ‘cost-plus’ license fee for the rights to air the first-run program. In this case however, the license fee paid is more than the production cost – approximately 125%. The model however, fits more into SVOD’s like Netflix which harbour the great desire for exclusive content. Such content may sequentially lead up to increased streaming, subscriptions to their service and therefore increased revenue from their business undertakings.
The concept of media, involves several broadcasting stations and streaming services airing initially mainstream shows on their networks well after the shows have been concluded on the networks that purchased licenses for them. Such methods of realizing greater returns – deficit financing – after making losses in their initial sales and production is prevalent in foreign markets where these shows have not reached the market. The shows’ licenses could be sold to cable networks or numerous cable networks and could be aired once a week or severally in a week.
The most prevalent method of airing such shows is using half-hour episodes which are essentially easier to watch and navigate around, given the robust number of programs that cable networks have in a day. The most successful of such shows by studios are mostly those that have at least one hundred shows. These have the viability to be aired five times a week and essentially garner major profits for both the studios and broadcasting stations. Such comedy shows include: Big Bang Theory, Friends and Seinfeld while procedural drama series like CBS and CSI have thrived due to such arrangements.
Naturally, most US-based productions have markets internationally over both English-speaking and non-English speaking countries. The continuous license resale to different countries over a show’s run, will result in increased returns to the production studio. International markets are essentially the best markets for 1-hour action-comedy productions which have been realized to be acceptable over different cultural domains. The continuous resale in different territorial domains helps mitigate the problem of deficit financing and can be attributed to be one of the reasons why studios produce pilots that will probably never get aired on mainstream media. By making licensing measures territorial in nature, studios are able to capitalize on maximum profits when offering licensing for most requested shows to international markets. Through such measures, studios maximise on the returns from production and sell these licenses to numerous countries to realize sales that surpass their accrued losses for dead pilots.
In certain territorial set-ups, some shows may end up be licensed over and over again across various periods of time due to their likeability by the audiences. As such, the same license for a single production could be purchased over and over again by a broadcasting station for airing to their audience who have requested the program. The system of continuous licensing results in increased profitability per show. Through such strategies, studios consider produced shows to be akin to government bonds that are yet to mature. At the time of maturity however, in essence, once the initial purchasing network’s licensing period is depleted, they are able to tap into other international markets that appreciate and end up acquiring licenses for these shows for a specified period of time. While some countries’ audiences may constantly request specific episodes of the said shows, the broadcasting networks are inclined to keep purchasing the licenses for those episodes due to the numerous requests. As such, the time period for licensing is increased and thereby making studios cater for deficit financing.
In the production and licensing process studios negotiate deals that enable them to “keep the lights on”. Essentially, this implies that they maintain a reasonable overhead allocation while undertaking production. These production deals allow for the studios to maintain their day-to-day activities aside from production. These overhead allocations provide for the servicing of these costs as well as a small profitability portion which enables them to maintain production and operation. While mitigating the losses of dead pilots, the studios hold huge portfolios in terms of successful shows whose licenses could be sold for large amounts to maintain their operation. These show licenses act as huge bonds that the studios maintain to keep being profitable. In light of such undertakings, the studios can afford to produce pilots which have no viability to ever become successful shows and thereby rake in humongous loss margins as illustrated in the illustrated (P&L) profit and loss schedule for a single show in the reading material provided. The structure of the studios’ show production process is also an enabling factor for their capacity to take up loss. Show production occurs at certain times of the year with uptake of the same shows occurring within the same time period. As such, studios are able to predict their profitability margins in the event that the shows either become profitable and get aired on mainstream media or become dead portfolio which accrues losses to their operations. Through such appropriations of – risk/reward – profitability and loss index, studios are able to take measures aimed at mitigating the adverse effects of such undertakings and plan ahead through monetary injection to the business or increased licensing measure to international markets.