Marc Andreessen has a thought provoking post about Hollywood's latest power struggle and the potentially drastic changes it could lead to. As you've probably heard by now, the writer's guild is on strike, bringing with it the scourge of re-runs and even more reality TV. Andreessen theorizes about the effects of a long strike: an Industry wide shake-up, where fed-up consumers are driven to other forms of entertainment. Made-for-YouTube webisodes like Chad Vader will increase in popularity, as will video games, and online forms of socializing. This shift in taste will kick-start an entrepreneurial push into independent comedy and drama for new media. The creators (artists, actors) will become the content owners for a change. In other words, they have more control and an equity stake. This is not unlike Silicon Valley, Andreessen argues, where programmers develop IP, take ownership, and reap the high rewards upon success.
Patrick Ftizgerald at the LA Times picks up on this theme and challenges the writers to become hyphenated writer-entrepreneurs. Private equity in Hollywood is not a new thing, however. Entrepreneurial filmmakers exist: Lucas; Peter Jackson; actors with stakes in their own production companies like George Clooney and Brad Pitt . Tony Gilroy wrote and directed Michael Clayton after being bankrolled by a real estate developer. But all these examples are movie based, where more freedom exists with respect to owning your own content. Television has a very different framework. It's monopolized by the big networks who act as gatekeepers of the airwaves. If you are a production house, you work on contract, taking orders for a sitcom or drama. You don't necessarily own the copyright of your production, they buy the rights. The royalty and residual system may pay the bills for some of the creatives, but in general, it's not lucrative. This, and the exclusiveness of the TV "biz", are barriers to entry for entrepreneurs. The internet, however, represents a more level playing ground.
The internet has its disadvantages. First and foremost, watching TV in your living room is a very different experience than watching YouTube clips. The living room experience is hi-def, hi-fidelity, easily enjoyed with friends and a cultural tradition. Web-TV, by contrast, is low-res and low-fi. It's usually enjoyed alone on small screens. Bridging that divide between the web and the living room experience is a big deal, and the race for a dominant solution is well under way. But as we've seen with AppleTV, nothing has really caught on yet. And while I think Andreessen is certainly right about entertainment-entrepreneurship, until the web-TV experience can equal that of our living room experience, old Hollywood models of production will hang around, for better or worse. It'll be interesting to see it play out.
So what are the economics of episodic TV? I was curious and did a little digging.
In an LA Times article on the economic impact of the strike, Richard Verrier and Andrea Chang give us some great insights into the cost side of the equation:
What about the revenue side? There's some great data from the folks over at AdvertisingAge [price per 30 second commercial]:
The ad rates vary depending on viewership and demographics. As you can see, a popular show like Grey's commands a premium. We don't see the most popular show on television up there, Fox's American Idol, which asks $719,000/30 second spot. Viewership for Grey's Anatomy is around 8 million/episode, where Idol attracts 25 million.
Going back to the revenue question, we should note that a half hour show has 8 minutes of commercials, and an hour show has 18. So a show like Grey's brings in 15 million dollars per episode, or $400 million a season (27 eps). That is pretty lucrative considering it only costs $3 million per episode to make.
We all know popularity can be fleeting in Hollywood. Shows rarely have dependable revenue for more than 5-6 seasons. And many shows with less popularity make up a networks broadcast lineup and are significantly less profitable. We also have to remember all the new shows and concepts that flop every year, each of which is a substantial loss. Thus, taken as a whole, a network's TV lineup has aggregate margins much closer to earth.
Now, what about Internet TV? For starters, we can look at the number one destination for Web Video: YouTube. Having just announced their "Partnership Program", users can now earn money off their uploads. I can't find any payment details online, but they claim "thousands per month" can be made for "millions of views". This isn't very attractive for big stick entrepreneurs, I suspect.
The first episode of Blame Society Productions' Chad Vader has 6 million views on YouTube (over an 18 month period). For one episode, that's very comparable to Hollywood type numbers. But I seriously doubt that Blame Society is raking in millions from YouTube. I'm not saying that the Chad Vader series couldn't pull in millions of dollars, because I think they can. If Blame Society were to overlay banner ads into the streaming video, or even splice in a 5 second "click-to-continue" ad for about 3 cents a view, they would top a million dollars after about 9 episodes. Would advertisers pay that much? They would be foolish not to. Unlike TV commercials which send viewers to the restroom, kitchen, or reaching for the remote to fast forward (TiVo!) or flip channels, in-stream ads are 100% captive. So the chance one's ad will actually be seen through streaming video is much higher. And considering advertisers are paying, in the case of Grey's Anatomy and assuming 100% viewership, a whopping 9 cents per viewer per ad, this would be a huge bargain.
The bottom line here is that Internet TV is still in it's early stages. Andreessen is right, however, to predict an entrepreneurial build up because the success of such a movement depends on shifting consumer tastes which is already afoot. The writer's strike could be a tremendous catalyst for this happening sooner than later.
Comments