In his Web Watch column in today’s edition of the Washington Post, Frank Ahrens discusses how executives at television studios and networks are attempting to deal with the Internet’s major disruptions to their supply and value chains.
Ahrens suggests that the denizens and power brokers of the television industry aren’t in denial about the threat posed by the Internet, but he also says they’re a long way from figuring out how best to respond.
In the article, Ahrens explains how deficit financing is used to create prime-time television shows. The way it works, a studio bankrolls the production of a show with its own money, and then sells the show to a network, which then airs it in prime time. On that transaction alone, however, the studio does not recoup its investment.
To get its money back and make a profit on the project, the studio must hope the show is sufficiently popular to run for several years in prime time and then go into syndication, where additional money can be made from repeat broadcasts.
That model, of course, is being severely disrupted by the Internet, but it already was being fractured by sales of television-program DVDs. Now, as YouTube and other Internet information and entertainment compete with television programming for the precious time of consumers, the television industry has no choice but to make its content available online.
In doing so, though, it further undercuts the traditional business model and value chain constructed to support and disseminate television-studio content.
What’s the role, for example, of television-station chains such as Tribune and Sinclair in a world where present and past shows are available at iTunes ,or at whatever becomes of MSN, for $1.99 and 99 cents, respectively? If you as a consumer already own the shows digitally, and you’ve seen them repeatedly before and can play them again at any time, why would you watch a local television station that has devoted itself to the broadcast of syndicated content?
Similarly, what happens to box-set DVD sales of an entire season of television-program episodes? In an era when shows can be bought and downloaded immediately, how will the season-encompassing DVDs, released annual, retain commercial appeal? Is exclusive content, including interviews with the actors and previously unseen footage and out takes, a means by which DVDs can remain relevant and economically viable as a distribution channel?
If the commercial value of syndicated programming is obliterated, as seems likely, and DVD sales suffer as a result of the rise of the Internet as an instant-gratification distribution channel, can the revenue from the new channel compensate for the lost revenue from the traditional channels? Perhaps it can, if the programming carries advertising as well as relatively inexpensive price tags. Then again, how much advertising will paying customers be willing to tolerate?
What happens if the lost revenue can’t be regained elsewhere? It is unlikely that television studios could continue to finance big-budget talent surrounded by extensive crews, extravagant sets, and top-of-the-line production values. Does that portend a further rise in so-called reality-based programming, which comes cheaper than star-laden entertainment concocted by blue-chip creative talent?
There are many questions, yet few answers. You can be sure that everybody in Hollywood, up and own the value chain, is trying to figure out how and where he or she fits in an industrial landscape being reconfigured by the Internet.