The New Economics of Quality Television

The scheme worked. And it’s about to work again, this time in a way that nobody anticipated.

First time out, it was the early 1980s, and the new cable industry was winning a lot of franchises from municipal governments, and making a lot of promises. Among them: all sorts of new television channels. The scheme: customers pay a few dollars each month, and if enough households subscribe, there will be enough money for lots of new television programs. These days, over 100 million subscribers pay over $150 per month—that’s $150,000,000 x 12 months each year, enough money for Comcast to buy NBC and Universal Pictures.

Alpha House

Here comes the next scheme, the next game changer. You’ve probably heard about Amazon Prime’s entry into the television programming space. According to the NY Times, here’s how the process worked:

After an invitation by the company, some 5,000 scripts were submitted last year, and in the spring, 14 pilots were commissioned. Amazon then stood back and watched what 215 million active customers clicked on.

There are no commercials. There is a kind-of, sort-of subscription fee. Amazon is a company that sells a lot of products by mail. They compete with other companies that sell a lot of products by mail. One way to encourage Amazon customer loyalty is with a loyalty program that involves discounts. Amazon’s discount program is called Amazon Prime. You pay $79 per year, and you don’t have to pay for shopping. As an incentive, you can watch a growing number of television shows and movies. Some are free. Most are available pay-per-view for a few dollars.

In days past, television programs were produced to “sell soap.” The commercials paid the cost of operating the network and the cost of producing the program.

Now, television programs are being produced to “pay the shipping cost of the soap.” Somehow, this seems lower on the food chain. Will it work?

Amazon Prime offerYup. Why? Because Amazon, and Netflix, and to some extent Hulu, are not carrying 20th century baggage. They operate by analyze the actual viewing habits of real customers. It’s a good model and a not-so-good model. The good: their judgments will be right much more often than they are wrong. And that provides a solid foundation for a business. The not-so-good: gut instinct, loyalty, and softer judgments will ride a rougher road. In an extreme situation, where machines make all of the decisions, there would be no Seinfeld, no situation where an eager program convinced other executives to stick with a show despite its crumby ratings. In real world, that programmer’s ability to persuade will be blunted, not all of the time, but often, because the “data doesn’t lie.”

Of course, the arguments crumble when the actual process of making television programs enters the argument. Writers don’t much care about data, they care about story. As long as the distribution is reaching a large audience with sufficient promotion, and as long as they are paid a good fee, actors and directors don’t much care about the intricacies of new media distribution. Or do they? That’s the part where the game could change. The economics of Amazon and other data-based program services are vastly different from advertising and subscription models.

Why? Because data-based services do not solely rely upon the old-school revenue streams. Amazon’s game is global branding to drive mail order purchases for every available product in the world to every country in the world. If they need to pay John Goodman a dozen times what NBC would consider reasonable, that’s fine with Amazon. Their purpose changes the economics of the game. And because Amazon and its kin are working with data and  operating without the need to fill a 24/7 schedule, they can focus their resources on actual viewing habits, actual consumption patterns, and they can provide producers and writers and directors with moment-by-moment viewer data (when the viewer paused, when the viewer dumped out, how often the viewer re-watched the episode). When creative people learn to use this information in a productive way (imagine the creative battles before all of this settles down), the paradigm will shift, and no film student will graduate without a thorough understanding of data analysis in the creative process.

Armed with endless data, a global marketplace, (effectively) endless cash, and the ability to engage the biggest stars for whatever purpose Amazon deems necessary, the game change is about to begin.

BTW: I thought the Alpha House pilot was very good, entertaining, unpretentious, avoiding the nasty tedium that ultimately limited my fascination with House of Cards. Whether a computer made the judgement, or some clever program executives made it happen, I’ve gotta say “good job.” I look forward to watching the episodes in series, and discovering what else Amazon is unleashing.

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Changed Channels: 2011 to 2013

All My ChildrenOn January 5, 1070, the ABC Television Network debuted a new half-hour soap opera series called All My Children. After seven years, the series was sufficiently popular to win an hour-long time slot. It remained on the air until September 23, 2011, cancelled due to changing audience and lifestyle behaviors.

On April 29, 2013, All My Children returns, with stories and many original cast members intact, five days a week, in its original half-hour form, but the series will not be seen on broadcast television. Instead, the series will be shown on Hulu’s website and on iTunes (if you want to watch on a tablet or phone, you must subscribe to Hulu Plus). One further inducement: in addition to All My Children, another long-time ABC daytime staple, One Life to Live, is also returning.

Taken as an isolated incident, the return of soap operas (or, politely, daytime dramas) is interesting news for the advertising and television industries. It’s not an isolated incident. Somehow, sometime between 2011 and 2013, something happened.

In my house, we occasionally watch a network television series at the time that it is being broadcast, but this is no longer routine behavior. Instead, we DVR anything we want to watch. The ease of simply pressing a button to record a program–a button that may be remotely operated by smartphone or tablet–turns out to be a radically new idea, different in both utility and convenience when compared with, say, VHS tapes. Alone, this convenience did not shift our behavior. Video-on-demand is also an interesting idea, but we have not used it as often as we thought we would. So that’s not the big shift.

Mel Brooks, Carl Reiner and Jerry Seinfeld eating corned beef sandwiches at Carl's place.

Mel Brooks, Carl Reiner and Jerry Seinfeld eating corned beef sandwiches in Carl’s living room.

Turns out, the big shift is the apps that are now on my TV, computer, iPad and iPhone. At first, I didn’t really understand the importance of the software. For me, HBO GO was the tipping point. The network offered not only current programs, but complete collections of all of their popular series, essentially for free to anyone subscribing to their cable service. Showtime has done the same with its Showtime Anytime app. Between HBO and Showtime, I have access to enough original programming to keep me busy for a decade. Still, the overall composition of our family’s media diet didn’t change as much as I thought it would. Then again, that was only 2012. By 2013, the shift occurred. The tipping point was a new TV set and one app in particular: Amazon Prime. Why this one? Well, it was kinda-sorta free: we buy enough books to justify the $75 annual “free shipping” charge; with this package, Amazon Prime comes as a bonus. We started by catching up on a whole lotta Twilight Zone episodes, then switched to Arrested Development. When we feel like “just watching TV,” we watch three or four Arrested Development episodes. And if we’re more ambitious, we choose a movie. Or, we fill-in with Jerry Seinfeld’s Comedians in Cars Getting Coffee via the Crackle app (two of the best episodes: the one with Carl Reiner and Mel Brooks, and the one with Ricky Gervais). I haven’t yet seen Crackle’s popular thriller series, Chosen starring Milo (Heroes) Ventimiglia. We haven’t yet bothered with Hulu and we’ve just signed on to Netflix, whose selection of online movies is  embarrassing and not worth the money.

House of CardsWe are not, however, subscribing to Netflix for the movies. Instead, we’re watching its well-publicized entry into the world of high-end television drama: House of Cards with Kevin Spacey. We don’t have much interest in Netflix’s next series, Hemlock Grove, which begins on April 19, because we’re too busy watching West Wing reruns to bother with a werewolf thriller. Netflix has announced a pilot with WGBH for a new children’s series, and will launch its first animated children’s series, made by Dreamworks, based upon its motion picture, Turbo: F.A.S.T. Also from Netflix: a new Ricky Gervais comedy series called Derek seen on TV in the UK on their Channel 4, but here in the U.S., it’s not on TV, it’s on Netflix.

We may, however, sign up for Hulu+, in part because (guilty pleasure) I used to watch All My Children, but mostly because the app/channel (not sure what we’re supposed to call these “not-quite-networks”) is launching four new series, including a promising comedy spoof from the funny Seth (SNL) Meyers, The Awesomes.

On YouTube, you can watch more than forty original episodes of H+ The Digital SeriesThe first episodes ran in August. It’s a sci-fi thriller. Battlestar Gallactica: Blood & Chrome is the prequel to the cult-fave TV series seen on both YouTube and SyFy.

A scene from Tom Hanks' elaborate new Yahoo! Screen animated post-apocalyptic series, Electric City.

A scene from Tom Hanks’ elaborate new Yahoo! Screen animated post-apocalyptic series, Electric City.

On AOL On, On Yahoo! Screen, there’s a spoof of dating reality shows called Burning Lovebut the big news from this online channel is a new Tom Hanks project called Electric City. I’ve been having fun watching Video Game High School, which crosses reality and the cyber world.

Traditional television networks are trying their hand, too. FOX is debuting Short-Com Comedy Hour this summer.

More is on the way. And, I suspect, much of it will be better than average network fare for two reasons. First, creative decisions are being controlled by a smaller executive committee, and producers are being allowed more freedom (that will change, but for now, it’s worth savoring). Second, there’s a lot of talk about “the HBO Model” which assigns greater value to the quality of the property than to a third party relationship (in a typical network’s situation, every decision is affected by the opinion of the sponsor, and again, for this brief shining moment, the focus is on the creative work and not on the needs of the sponsors).

2013. The year that everything changed.

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