The current scale of broadcast and cable networks is quite often underestimated by Internet pundits, while the scale of online viewing of television shows is often overestimated by those same pundits. Incorrect perceptions around the relative scale of things continues to lead to some wacky coverage when it comes to both television viewing and Internet viewing of TV shows.
Does being a hit on iTunes matter when it comes to how TV networks view the show’s performance? Someday, perhaps, but not right now. We’ve been running this web site for almost 18 months, and despite increases in downloading and watching TV on the Internet during that time, the needle of how much it matters to the television industry hasn’t really moved any in those 18 months. I doubt that it will move much in the next 18 months either.
I’m not a naysayer who doesn’t believe in the the Internet or new technology. I’m not down on bleeding edge, cutting edge or early adopter services. I watched five seasons of 24, three seasons of House, three seasons of LOST, four seasons of The Wire, two seasons of Supernatural, and 2.5 seasons of Eureka (and I could go on. and on, and on) on my iPhone. I’m a gadget loving geek who has been online for over 25 years now. I like technology just fine, and since the Internet is the only place our content can be read, you can figure we’re very pro-Internet! I love the Internet. But when it comes to watching TV shows on it, it’s nowhere near the scale of television yet.
It’s helpful to have a simple framework for thinking about it. Please don’t get hung up on the lack of precision with the numbers I’ll use here. I’m looking to keep things very simple. The numbers cited are not precise, or meant to be. It’s a 50,000 foot view of the world. While the numbers themselves might look quite a bit different at the 5 foot view, they don’t look so different as to alter the conclusions or the overall current landscape.
I estimate that it took somewhere around 25,000 downloads for Dollhouse to hit the number one spot on iTunes in just over two days time. There is a lot of data, particularly from NBC, but from other sources I’ve seen as well, to corroborate that estimate. It’s not precise, of course, but it’s not a wild assed guess either. It’s in the right zip code, and the right neighborhood, and if not on the right block, it isn’t far away.
Let’s say that a traditional TV broadcast network strives to have a $25 CPM for its commercial spots in prime time. In other words, it wants to sell its advertising at a rate of $25 per 1,000 people. Obviously scale matters, so in this 50,000 foot view example, if 10 million people watch a show, that means the network can sell each commercial spot for $250,000.
In a typical one hour show there are 16 minutes worth of commercials or 32 or so thirty second spots. By this simple 50,000 foot view, a show with 5 million viewers can sell each commercial for $125,000. Keep in mind, that with rare exception scripted shows with less than 5 million viewers on a broadcast network would get cancelled (though those same 5 million viewers on a cable network would make it a hit show!).
Because there is such a difference in scale, we can discount the price of commercial advertising down to even $100,000 per commercial for that show with 5 million viewers just to have a nice round number. With 32 commercial spots, it would generate around $3.2 million dollars in revenue.
If 25,000 downloaded a show from iTunes at $2.00 per download, that’s $50,000 in total revenue. Or one half of what the show would make for a single thirty second spot even at only 5 million viewers. And that assumes that all of the money goes back to the network, which of course isn’t the case — iTunes (Apple) gets a cut. Again, I’ve deliberately ignored many nuances and disclaimers here just for the purposes of keeping it simple. Adding all of that discussion and explanation back in just confuses things and doesn’t change the end result much. And the end result right now is simple. Watching television on television makes a lot more money — and I mean a lot more money — than Internet viewing of those same shows.
Many people will say, “C’mon, iTunes schmiTunes! WAY, WAY more people will watch it on Hulu because it is FREE!”
I completely agree. But even if 10x as many people watching, or say 250,000 people, it’s still not a big deal to the television networks, at least outside their PR departments. In fact, even if it’s a million people, it’s not that big of a deal. With a $25 CPM if one person were to watch ALL 32 commercial spots of a one hour show, that peson is worth about $.80 total to the network ($25×32/1000=value of 1 viewer)
But Hulu only has about four spots, or about 1/8th the number of television spots. Even if you doubled the fees of those ads on Hulu compared to TV, that would represent about $.20 per user. So 250,000 viewers on Hulu would generate about $50,000 in revenue in that example. Nothing to get very excited about yet for the networks. Both iTunes and Hulu could increase by TEN times and while it would then be something that was definitely very interesting to the networks, it still wouldn’t yet be a huge deal.
There is still a long way to go for the online viewing venues. The scale of television when it comes to show viewership is so much bigger than online. Sure, on a show by show basis, that scale generally will continue to erode, but even so, online alternative means are still dwarfed by television both in terms of scale, and revenue potential.
Live viewing is still the single biggest factor, both in terms of original airings and syndication potential. DVD revenues comes next, and then very far in the distance is online viewing. In two years things will likely be different, but perhaps not very much different. Until I see a more dramatic shift in things, I’m thinking it will be at least 5-10 years before the landscape looks very different when it comes to scripted television content.
The biggest threat to scripted content hasn’t been and still isn’t the Internet. The biggest threat to scripted content continues to be the much more inexpensive unscripted programming. Think American Idol, Dancing with the Stars and Survivor, but also Deal or No Deal, Supernanny and Wifes Swap.
Similarly, the Internet currently isn’t the biggest threat to broadcast television (ABC, CBS, FOX, and NBC primarily) viewing. The biggest threat to the broadcast networks, and the number one cause of decreases in broadcast viewing isn’t the Internet. It’s competition from cable networks (this also includes viewers who have satellite rather than cable).
I know some are bound to chime in with the massive amount of Bit Torrent downloading that occurs. But as there is currently no way to monetize those downloads for the TV industry, they don’t really factor in to renew or cancel decisions. And while some, certainly the content producers, would argue it represents lost revenue, I’ve never really bought that argument reagrdless of where I hear it. It always seems to turn out that most of the time, most of the people who are downloading it for free weren’t going to pay for it anyway even if they couldn’t download it for free.
Update: Since separately I’ve just posted a link to a story on Hulu and its competitors it seemed important to point this out: I know the above waves a somewhat dismissive hand at the current revenue potential of viewing of TV shows via the Internet, but that was at the level of individual show episodes, which usually doesn’t scale well. But if you look at iTunes, Hulu, etc. as large networks for distributing a multitude of content, in the aggregate there is already quite a bit of scale, and potential for much more.
Thanks for that, Robert! I enjoyed reading it.
Very thoughtful.
When will last weeks top 20 broadcast shows be up?
John/Randy, thanks. Randy, things were delayed by a day due to Monday’s President’s Day holiday. Top 20 lists should hopefully be up by tomorrow (Wednesday) afternoon pacific time.
very insightful, good to get a general sense of how unprofitable the Internet currently is for broadcast TV (although I personally get a lot of my broadcast content viewing done online)
the only asset that internet viewing has for advertisers over television is the fact you can’t skip internet ads to continue watching the episode while on tv you can channel surf for about 2 and a half minutes while they are running commercials.
Two key suppositions are wrong.
A typical hour of network primetime contains about 22 30-second national commercials. The rest of the non-program time is filled mostly with promos and local time.
The $25.00 CPM is way too high. That would be a ballpark Household cpm these days. A persons 2+ CPM would be in the area of $12-15. That’s just for primetime, other dayparts are generally much lower.
Additionally, unit prices and CPMs quoted by the industry for network television are “gross” numbers. Ad agencies take commision on these gross dollars, meaning the networks’ actual take is actually about 15% lower.
Your thesis that itunes viewing doesn’t amount to a hill of beans still holds, however.
As I said, I was deliberately not being precise. Although I should probably have been more precise with the allocation of national commercial spots in an hour show.
I know that for most networks and most shows $25 CPM is fantasy. For me, the better number is the average cost of a 30 seconds spot across the entire lineup (and I’d guess FOX is doing at least $250,000 right now) but getting into that explanation wasn’t something I wanted to do. Even this limited usage of numbers probably made more reader’s heads pop off than I was aiming for
Very interesting, I liked it
Interesting article. About internet advertising: you’re numbers are correct and the broadcasters need to be proactive to change things a little IMHO.
The advertisements on the internet are different and have much more potential. Web is a two way street. Viewers can submit feedback, network, etc. And some networks try to take advantage of it, make their viewing platforms more youtube-like. What’s amazing to me is that they neglect all of this when it comes to advertising.
I’m a 26 year old guy. By the industry standards, I’m one of the people hardest to reach by ads, and it’s true. I’ve spent 2 days configuring my self-made media center to automatically skip all ads. I’ve watched a total of maybe 120 seconds of advertising since the Superbowl. I just looked up that the system is set to record about 50 TV shows (out of which around 30 are primetime broadcast shows). I’m addicted to TV, and I watch almost no ads. I may not make much (yet), but I have no serious expenses either. No house, no wife, no children. The above description doesn’t make me unique in any way, for a person of my age. There are advertisers out there who should want to reach me and, more importantly, by whom I ACTUALLY WANT TO BE reached. But I’m not willing to suffer through hours of irrelevant commercials to see the ones that I’d actually like to see.
There’s so much potential in interactivity in advertising that’s just not used that I cannot understand. Couple of ideas, in case I’m not being clear here:
(the following are written as if I was addressing, e.g. ABC, which I’m obviously not, but you get the point)
- Let us tell you who we are (if we want to): where do we live?, what do we drive?, do we have dogs?, what kind of movies do we enjoy?, what kind of music?, are we single, married, divorced? age, gender? [Result: Ad showing new CD of your favorite artist. Trailer for a romantic comedy (which you love)]
- I will see 8 ads, but if I let you look at past 50 of my google searches in an anonymous manner, you’ll show me only 4? Wow, OK. [Result: A link to an ebay auction selling an aquarium stand? Great! (and % of the sale goes to the network)]
- I’m online. Let me use that fact. I just saw a trailer for a movie I want to see. I want a link to a page with local showtimes. I want a link to get a ticket. [% of that sale goes to the network] On the same note: ads for music must have links to amazon and itunes. [Again % of sales goes to the network] For crying out loud, if I can spend the 30 sec I have to watch the ad in a productive manner (like, say, spending money you’ll get part of, make it easy for me)
- Let me rate ads. There are some I like. There are genres of ads; add “show me more ads like that” button. Let me share the ads I like with friends, while I discuss the show. Heard of virus advertising? If I really hate the ad, let me get rid off it forever.
- That’s a nice car. Cool, there’s a link to a 3d interactive tour inside it. And you can do a test-drive online. Awesome. Plus there’s link to schedule a ride in the real life, local dealers? Nice. Oh, and btw, let me use the feedback feature: next time show me more fuel-efficient cars made by American producers, in this price range. Used cars are fine, sure.
I think it’s pretty clear where I’m going with this. I like TV and I have nothing against reasonable advertising. There are a few ads out there I like. I look at the sponsored links in google. What I don’t like is the ‘throw mud at them and see what sticks’ method of advertising which seems to be prevalent. The new generation, the one that grows up on internet, the Web 2.0 generation, won’t stand for it. We want choice and we want it now. And if we have it, we can take an awesome product made by little company to new heights, with TV networks sharing (possible big part of) the profits. And we won’t mind that either, since they’re making this awesome show.
What’s the point of researching “who watches show X?” if (some) viewers are willing to tell you what they want to be told about in terms of advertising?
This post got way out of hand, sorry about that. Hopefully it was somewhat of an interesting read. Hope it doesn’t seem like a rant. It certainly seems a quite off topic, sorry about that too.
–Simon
I do agree but didn’t last season the CW use itunes as an excuse to push Gossip Girl into a second season? Although it did score a 1.05 on the index: i’m guessing it didn’t make much money.
Not sure Dollhouse with one episode under it’s belt it the best test case for this theory. The vast majority of views don’t even know about, even on the Internet where Whedon and Dusku’s fans primarily live. Run the numbers on a more established show like “The Office” and you’ll see a much more viable business. Certainly not ready to give the b’cast networks a run for their money, but then again *that* business model is fairly broken itself.
Cosimoto, because NBC provides such a rich amount of data, we can. And it still doesn’t matter yet. Not for Heroes (NBC’s #1 downloaded show) and not for The Office. But those shows definitely do get more downloads than 25,000, but typically, after a week, Heroes has less than 50,000 downloads (but people keep downloading them for weeks). The Dollhouse example was 25,000 but that was after less than 3 days.
Sorry for my english but maybe, in the future, it wont matter because of the commercial “inside” the tv show like90210 with sidekick mobile ou Dr Pepper…
good stuff. I posted on the other article that I thought online popularity(and of course the expected DVD popularity) could help Dollhouse. It may be insignificant in terms of Revenue, but for a show on the bubble anything could help.
One thing CBS said pretty outright in the midst of the Jericho renewal was ‘okay, we accept the premise that there is some significant yet untapped audience for Jericho as shown by internet popularity etc, but you absolutely have to get them watching the live broadcast or we really don’t give a shit about them.’
Robert – Thanks for this piece. It’s well done. As for Hulu, I posted a detailed breakdown of how the revenue from Hulu flows back to filmmakers for features in an article this summer on the Filmmaker Magazine blog (http://www.filmmakermagazine.com/blog/2008/08/pennies-and-eyeballs.php). A 90-minute feature film on Hulu, watched in its entirety by 100,000 users could yield the content provider as little as $8,000 or $.08/viewer.
Noah, that might be but Hulu has some TV shows that get watched fully by more than 1M viewers. Those TV shows are getting the full $60 CPM. So a show like HEROES is making an extra $180,000 per episode just from Hulu. While that isn’t “great,” money it’s not bad money either.
It’s definitely not an outlet yet for Indies, but it can make a reasonable extra amount for the Networks. You’re talking about an extra $4M for a season of HEROES for example. While no where near great, it’s a start.
I agree Nick – but when you think that that extra million viewers, for an entire season, doesn’t cover the cost of a single episode you have to say that the medium is not ripe yet. Sure the money is appreciated but the industry is having real challenges when it comes to monetizing online viewership. Let’s take the numbers from above and combine it with yours, so with 10 million viewers they still can’t cover their negative costs for the season.
This is a very interesting article, yet you assume that the advertising format of tv will remain the same. Doesn’t this 32 commercials per hour of content have to change, especially as more and more people aren’t watching commercials and speed right through them? God forbid there are more overlay ads during the program, but aren’t more advertisers going to be more demanding of networks? Or is the sheer scale of reach still that much higher, and when paired with the fact that every household in the country has a tv set, that tv is still the preferred way of advertising?