The Average Cost of a Television Show

It’s exceedingly difficult to pin down numbers for a television show’s cost.  In a previous post I put up $20 mill a show, which was based on sloppy reporting.

It was in the comments section of an LA Times blog.  I never claimed it to be exactly representative.  And I still stand by that number for its use–rough estimations.

I’ve found a slightly more reputable source for the average cost of a show–The New York Times.

Their unsourced estimates:

…a typical cost of about $3 million for an hour long scripted network series. Conventional network reality shows are also much more expensive at $1.5 million to $2 million an hour.

This is from an article on NBC paying $500,000 for “cheap” programming to fill the writers void.

Striking Writers Mixed Message

Wired has a story about the striking writers ability to engender sympathy from proletariat through a series of clever YouTube posts.

The videos are undeniably entertaining, but I’m not sure how effective they are at getting the writer’s message across. If their message is, “A world without words would be terrible,” then Kudos, I agree. If the message is, “Rich greedy studios are a bummer,” again, I agree. (Though, having rich directors and rich actors starring in these things seems to send a mixed message.)

On Saturday I was talking to some people about this subject. As I’ve been all over the web video economics scene lately, I felt knowledgeable about the subject. I spoke with conviction, “There is no money in it. These writers are idiots. They need to sign a 2-3 year deal taking whatever they can get right now, when the dust settles on the web video sign a new deal.”

I was missing the simple point, even though I’ve been regularly watching their videos.

Techcrunch reported this a month ago: They just want 2.5% of gross revenues.

I say give it to them. 2.5% of nothing is nothing. And when the revolution fully comes around, the writers will have the money and talent to make series on the web with ease.

Wired alludes to this in their piece, but watching these shorts makes you realize how important the writing for comedy is.  The actors are expendable, soon the studios and networks will also be immaterial.

These are the important points and I’m not sure the videos are conveying them.

Feeble Attempt to Breakdown Revenue and Some Conclusions

Two weeks ago The Interactive Advertising Bureau and PricewaterhouseCoopers reported that U.S. web ad revenue hit $5.2 billion for the third quarter of 2007. They anticipate revenue exceeding $20 billion for 2007.

eMarketer predicts that Google, Yahoo, AOL and MSN will earn $12.272 billion dollars in revenue from U.S. advertising for 2007.

In case you can’t do math, that means that there is less than $8 billion to be disbursed throughout the rest of the web. That measly figure will not be enough to support all the businesses on the web that assume they’ll be profitable simply through advertising support. At least, not as these companies are presently constructed.

The easiest to analyze are newspapers. Newspapers are the most web vulnerable of all media properties.

Like most stories involving print newspapers, Paid Content’s report on The Washington Post Company’s earnings is grim:

The newspaper publishing division suffered from the same problems as the rest of the industry, with revenue declining 7 percent to $210.2 million. Print advertising revenue at The Post fell 13 percent to $113.1 million. Real estate, classifieds and retail were particularly weak…Online revenues in the newspaper segment, mostly from washingtonpost.com, increased 11 percent to $27.2 million. Display revenue grew 15 percent, while online classifieds increased 12 percent.

That means, as presently construed, the Post’s ad revenue is around $350 million for the year. I don’t believe this number is representative of every paper in the country. However, I will use it as a mean for the top ten papers in the country. If they go ad supported, as they all seem to say they will, thats $3.5 billion for newspapers.

Now there is less than $5 billion available for everyone else.

At the LA Times blog about striking writers, an anonymous contributer estimates that NBC earns about $100 million in revenue from a 4-5 season run of a television show. An old NY Times article states that Seinfeld at its peak made, “$500,000 for each 30-second commercial,” earning, “in the range of $6 million an episode. With repeats, NBC plays about 48 ”Seinfeld” shows a season, for a total revenue (before commissions to advertising agencies) of over $250 million.”

So a successful t.v. show earns betwee let’s guess $70 million and $250 million for NBC from advertising. How many shows does NBC air each week? About 20-25 in primetime, capable of earning that kind of money? Then my low estimate for their ad revenue is $2.2 billion. Now multiply that by four to represent FOX, CBS, and ABC, in addition to NBC. $8.8 billion.

Television doesn’t yet transfer as easily to the web as newspapers. In five years though, analysts and media execs anticipate 40% of viewers to be watching television on the web. That would mean, the big broadcasters could earn $3.52 billion in ads from the web.

So that leaves less than a billion to finance everything else on the web.

But, you say, ad revenues will grow on the web. Yes, but if you go by eMarketer’s projections, it won’t grow by much. By 2011 they see total U.S. online ad revenues hitting $42 billion. Ad spending growth will be at 12% compared to 36% for 2006.

Those are their guesses.

Many people feel more optimistic about online ad space. The conventional thinking is that advertisers will grow to love the web because of its precise metrics. It has unparalleled ability to track consumers, but the information that comes back is disturbing. People only want to watch 3 minutes of video, they only spend a few minutes on websites, they don’t click on ads. As more precise measurements become available, will they hurt the advertising industry or help it? As the cliche goes, the more you know, the more you don’t know. As a result advertisers are largely clinging to older, traditional outlets for their message.

While advertisers drag their feet to adapt, I think companies like NBC have rather wise Internet strategies. Get your shows on the web, in places you can control them, for cheap. Then when advertisers are ready, you’ll be in place.

Henry Blodget does a masterful job of breaking down the economics of web video at Silicon Alley Insider.

His conclusion is that established content creators are in the best position to capitalize on web capabilities. Though that doesn’t mean that these companies can continue in their current capacities.

However shoddy my estimates and math are, I think it’s safe to say, that there isn’t going to be enough money available in the world wide web to support everyone that wants to be supported by advertising.

So what needs to happen?

Costs for production need to drop. Aside from actors salaries, this should be easy.

New hardware, an ipod like device, needs to come along to make watching t.v. shows through the web more user friendly and adaptable to average consumers. People didn’t pay $6,000 for their 42″ high def flat screen a few years ago to watch pixelated versions of their favorite programs on their 20″ Dell monitor.

And most importantly, advertisers have to start spending more on the web. If all goes according to plan, they ought to, there might not be as many alternatives available in the near future.