(originally written for ALARM Magazine in November 2009)
Don’t get me wrong, I love talking about television. I like it so much that I went into it as a career. On many levels, I’m a viewer like everyone else – I have my favorite shows, some of which are guilty pleasures, and some of which I will proselytize from the rooftops. But, there is something odd about working in TV that makes nearly everyone you meet at a party believe they could run a network.
My first reaction is sometimes frustration. Are doctors, plumbers, and policemen constantly confronted in social settings with suggestions about the best way to remove an appendix, repair a sum pump, or pursue a criminal? I’m certainly no a nuclear physicist, but I do consider myself a professional who has devoted a good deal of study to a particular medium, and sometimes it irks me just a little that many people seem to think they could step in and do my job because they’ve seen every episode of Friends.
Then I think better of the situation and realize that I’m very lucky. The reason no one gives cocktail party advice to an insurance actuary is because they don’t know, and probably don’t care about what that person does everyday. Incidentally, I am fascinated by what insurance actuaries do, but that’s neither here nor there. The point is that I have a job because a lot of people watch television, and it’s a distinct privilege to work in a business that is so relatable and fun to talk about.
However, one thing I’ve noticed over several years of casual conversation about my profession is that there are a few key things most people don’t know about TV. Most of these involve how television functions as a business, and others are just the odd quirks of an industry that is at once as complicated as it is ubiquitous. So, without further ado, here are Five Things You Probably Don’t Know About TV:
1. What the heck are Nielsen ratings anyway?
Nielsen is the company that mediates the TV business. They are an independent company that monitors television viewing habits for both advertisers and networks, and then sells those results to both parties. Basically, advertisers want to buy air time, and networks want to sell it, but neither can agree on a price. Think about it: if you’re either of those parties, do you trust what the other is saying about how many people watch TV?
Enter Nielsen, who started in the 1930’s monitoring radio station usage, and then began paying attention to TV-watching habits in the 1950’s. They monitor the viewing patterns of a “statistically significant” portion of the American public, across all sorts of demographics. It ends up being basically between 20-25 thousand homes that they use to determine the television usage for the whole country. It doesn’t sound like a lot, but they use very complicated statistical models that I assure you produce more accurate results than you might think.
But the truth is that it doesn’t even matter if their results are accurate or not, because they are the industry standard and the only game in town. What Nielsen says about the TV-watching habits of the public are taken for granted as accurate. If you think they’re wrong, I fully invite you to start a competing company and honestly hope you succeed. But until then, what they say goes.
2. How are ads bought and sold?
This is without question the single most important thing most people don’t know about television. In most businesses you have a product, and then you sell that product to a person for a price that can be determined by some market average of its value. In television, we have a product that we give away, basically for free to anyone who will watch, and then we sell the attention of those people to advertisers, who then hope to sell products. This generates a complicated economic situation, for which the industry has an equally complicated solution.
Start with the idea that Nielsen ratings are the standard currency of the business. Then take how a network performed in those ratings last year, and try to use that to predict how they will perform this year. Then, set the price for an ad based on how well the network thinks it will perform. Essentially, TV networks don’t sell ads, but a predicted number of American eyeballs pointed at those ads, based on previous ratings.
What happens if the network performs worse than they predicted? Well, they have to run the same ads over and over again until they end up delivering the total number of eyeballs they promised. What happens if they perform better? Well, the advertiser gets more than they paid for.
This creates a weird situation for TV networks in that it’s bad to under-deliver on ratings, because then you have to air the same commercials over again, which takes time a network could have sold to someone else. But, it’s almost worse to over-deliver, because that means you could have made more money than you did (by either charging more or running more ads in that time). This makes the programmers look bad at their jobs in the eyes of the finance people, ad sales people look like suckers in the eyes of their clients, and the upper management just generally unhappy about what might have been.
So, when a show does unexpectedly well, it’s not actually all that great for the network, because expectations are almost as important as what really happens. It can be great for all sorts of other reasons – publicity, raising the financial expectations for that show in the future…etc. But, the best scenario for a TV programmer is when everything happens exactly as you thought it would several months ago. Surprises of any flavor are usually not great.
3. Wait, I’m still confused, how are ads bought and sold?
It is currently estimated that 25-30 percent of households have some sort of digital video recorder or DVR, and that number has been steadily climbing for the past several years. Previously, Nielsen TV ratings were based on “program live” ratings – the estimated number of people watching a show as it aired. However, as DVR technology spread, TV networks wanted ratings to also include people who recorded programs and watched them later. At the same time, advertisers didn’t want to pay for the attention of people who were fast-forwarding through commercials. In their minds, they already pay for enough people who flip channels, use the restroom, or make sandwiches during the breaks.
After lengthy negotiations, the industry settled on what are called C3 ratings. The “C” stands for “commercial” ratings, meaning that Nielsen measures the average number of viewers actually watching the ads instead of the entire show. The “3” means that, for the purposes of buying and selling advertising, the industry counts three days of DVR playback in their financial dealings. So, advertisers are not paying for viewers who either fast-forward through commercials, or watch a program more than three days after it initially airs.
4. Why is there so much reality TV?
Television shows are extremely expensive to produce, especially scripted series. A fairly modest rule of thumb is that an hour of reality television costs upwards of a million dollars per episode, and a half hour of scripted can cost even more. The costs obviously vary greatly based on the type of show, the number of sets, and the talent involved. But in general, production values for television series have increased dramatically over the past decade, especially with the advent of HDTV, and now it’s pretty much expected that TV shows have almost the same kind of production quality as feature films.
It is estimated that the 2-hour pilot for Lost cost as much as $15 million. Fox produces 24 episodes of 24 every season, which is pretty much like making 12 action movies in one shot. A three-camera sitcom like The Big Bang Theory is fairly inexpensive compared to a more cinematic show like House. But then again, Hugh Laurie makes half as much per episode to play the sardonic physician as Charlie Sheen receives for Two and a Half Men, so it’s all relative.
However, discounting some outliers (like Simon Cowell’s reported $45 million dollar take for making people feel bad about their singing abilities), one constant is that reality and talk are significantly less expensive to produce than scripted television. There are generally fewer sets, actors, writers, and crew to pay. Plus, the majority of the talent is cheap. Reality contestants are paid modestly, if at all; competition contestants are vying for a prize; talk show guests are usually there for free to promote their new movie, book, or yet another TV show.
From a business perspective, reality seems like the way to go. It’s cheaper, so not only do you make more if you get a hit, but you haven’t lost too much if the show flops. This is why NBC decided to replace its 10pm dramas with Jay Leno this year. Even though the ratings aren’t stellar and they’re charging less than half as much for advertising as CBS does for CSI: Miami in the same timeslot, they claim the savings on production costs alone will make them money in the long run. Plus, some reality programs, like Dancing With The Stars and The Biggest Loser, rank among the highest-rated and most profitable shows on television.
When looking at a smash like American Idol versus the dozens of expensive scripted duds produced each year, a network might be inclined to leave the storytelling to Hollywood and just stick with reality (which many nearly seemed to do a few years ago). But, like everything else, the reality genre has its downsides as well. First and foremost is immediacy – everyone wants to know who The Bachelor picks in the season finale, but once that’s over, it’s over. This means reality shows don’t repeat very well, they’re hard to sell in syndication, and near-impossible to sell on home video. You know who’s not buying the new season of America’s Next Top Model on DVD? The answer is: anyone who wasn’t on the new season of America’s Next Top Model.
Networks may also have concerns about their programming from local affiliates all over the country, some of whom have voiced displeasure about the new plan for Leno. While Jay’s cost/benefit analysis may look great on NBC’s revenue sheet, its lower ratings are the lead-in to local 11pm newscasts – the bread and butter of W-whatever in Anytown, USA.
Finally, viewers all over have voiced displeasure about the deluge of reality television in the last decade. Though it hasn’t stopped them from watching entirely, it has caused large swaths of the audience to flock to scripted hits. The fact that more and more of these shows are coming from cable is added incentive for networks to stay in the scripted game, no matter how tempting the alternative.
The bottom line is, while reality seems like the safer bet, networks have realized that they have to stay in the scripted game or they’ll lose big. After a few years where the airwaves seemed flooded with reality shows, the networks realized what they were missing from big scripted hits and scaled back. I believe they’ve started to reach a pretty good balance of both, but make no mistake, with so much upside on the financial end of things, reality television is here to stay.
5. I don’t really watch TV… except all the time on the Internet, does that count?
The Internet is both the most exciting and frightening part of working in the television industry right now. It’s an incredible promotional tool to get people excited about a series, but it’s also a way for people to see their favorite shows for free, and without watching many commercials. While the industry continues to grapple with new ways to deal with this, it remains obvious that without advertising, we cannot continue to enjoy the volume and quality of television programming to which we’ve become accustomed.
One thing that will hopefully improve is the ratings system for online TV. Currently, the advertising industry relies on a company called ComScore, which uses a sampling process similar to what Nielsen uses for TV to project the number of visits, page views and video streams for websites. However, this system has proved woefully inaccurate, and they’ve begun experimenting with a tagging system that will allow them to measure the actual numbers of Internet users, rather than predicting from a sample. While this news is hopeful, Nielsen is also out there with its own system to monitor Internet use, so the struggle to find an industry standard to mediate advertisers and online sales departments is far from over.
What’s more complicated for TV networks is that, on the Internet, they are pretty big fish in a ridiculously-freaking-enormous ocean filled with billions of smaller fish, a couple thousand fish as big as them, and a few prehistoric monster fish that absolutely dwarf them in size (Google, Apple..etc). TV networks get to divide television viewers amongst themselves and sell the results to advertisers. By stepping into the ocean of (my increasingly belabored metaphor for) the Internet, they are suddenly competing with many more options for users attention.
The same way that cable fragmented network audiences in the 80’s, the Internet has fragmented television audiences to pieces online. So, even though Hulu gets a substantial number of viewers and gets great rates from advertisers, it brings in only a fraction of the revenue that networks see from TV ad sales, and certainly not enough to support the production of very expensive TV shows.
If you’ve got the answer for how to fix this, then you should probably call GE and apply for a job running NBC Universal. However, one thing we can say for now is that if there’s a TV show you really like and you want to support it, you can vote with your eyeballs or your wallet. Cough up the $1.99 for iTunes, or watch it somewhere online and sit through the commercials.
Don’t get me wrong, I love talking about television. I like it so much that I went into it as a career. On many levels, I’m a viewer like everyone else – I have my favorite shows, some of which are guilty pleasures, and some of which I will proselytize from the rooftops. But, there is something odd about working in TV that makes nearly everyone you meet at a party believe they could run a network.
My first reaction is sometimes frustration. Are doctors, plumbers, and policemen constantly confronted in social settings with suggestions about the best way to remove an appendix, repair a sum pump, or pursue a criminal? I’m certainly no a nuclear physicist, but I do consider myself a professional who has devoted a good deal of study to a particular medium, and sometimes it irks me just a little that many people seem to think they could step in and do my job because they’ve seen every episode of Friends.
Then I think better of the situation and realize that I’m very lucky. The reason no one gives cocktail party advice to an insurance actuary is because they don’t know, and probably don’t care about what that person does everyday. Incidentally, I am fascinated by what insurance actuaries do, but that’s neither here nor there. The point is that I have a job because a lot of people watch television, and it’s a distinct privilege to work in a business that is so relatable and fun to talk about.
However, one thing I’ve noticed over several years of casual conversation about my profession is that there are a few key things most people don’t know about TV. Most of these involve how television functions as a business, and others are just the odd quirks of an industry that is at once as complicated as it is ubiquitous. So, without further ado, here are Five Things You Probably Don’t Know About TV:
1. What the heck are Nielsen ratings anyway?
Nielsen is the company that mediates the TV business. They are an independent company that monitors television viewing habits for both advertisers and networks, and then sells those results to both parties. Basically, advertisers want to buy air time, and networks want to sell it, but neither can agree on a price. Think about it: if you’re either of those parties, do you trust what the other is saying about how many people watch TV?
Enter Nielsen, who started in the 1930’s monitoring radio station usage, and then began paying attention to TV-watching habits in the 1950’s. They monitor the viewing patterns of a “statistically significant” portion of the American public, across all sorts of demographics. It ends up being basically between 20-25 thousand homes that they use to determine the television usage for the whole country. It doesn’t sound like a lot, but they use very complicated statistical models that I assure you produce more accurate results than you might think.
But the truth is that it doesn’t even matter if their results are accurate or not, because they are the industry standard and the only game in town. What Nielsen says about the TV-watching habits of the public are taken for granted as accurate. If you think they’re wrong, I fully invite you to start a competing company and honestly hope you succeed. But until then, what they say goes.
2. How are ads bought and sold?
This is without question the single most important thing most people don’t know about television. In most businesses you have a product, and then you sell that product to a person for a price that can be determined by some market average of its value. In television, we have a product that we give away, basically for free to anyone who will watch, and then we sell the attention of those people to advertisers, who then hope to sell products. This generates a complicated economic situation, for which the industry has an equally complicated solution.
Start with the idea that Nielsen ratings are the standard currency of the business. Then take how a network performed in those ratings last year, and try to use that to predict how they will perform this year. Then, set the price for an ad based on how well the network thinks it will perform. Essentially, TV networks don’t sell ads, but a predicted number of American eyeballs pointed at those ads, based on previous ratings.
What happens if the network performs worse than they predicted? Well, they have to run the same ads over and over again until they end up delivering the total number of eyeballs they promised. What happens if they perform better? Well, the advertiser gets more than they paid for.
This creates a weird situation for TV networks in that it’s bad to under-deliver on ratings, because then you have to air the same commercials over again, which takes time a network could have sold to someone else. But, it’s almost worse to over-deliver, because that means you could have made more money than you did (by either charging more or running more ads in that time). This makes the programmers look bad at their jobs in the eyes of the finance people, ad sales people look like suckers in the eyes of their clients, and the upper management just generally unhappy about what might have been.
So, when a show does unexpectedly well, it’s not actually all that great for the network, because expectations are almost as important as what really happens. It can be great for all sorts of other reasons – publicity, raising the financial expectations for that show in the future…etc. But, the best scenario for a TV programmer is when everything happens exactly as you thought it would several months ago. Surprises of any flavor are usually not great.
3. Wait, I’m still confused, how are ads bought and sold?
It is currently estimated that 25-30 percent of households have some sort of digital video recorder or DVR, and that number has been steadily climbing for the past several years. Previously, Nielsen TV ratings were based on “program live” ratings – the estimated number of people watching a show as it aired. However, as DVR technology spread, TV networks wanted ratings to also include people who recorded programs and watched them later. At the same time, advertisers didn’t want to pay for the attention of people who were fast-forwarding through commercials. In their minds, they already pay for enough people who flip channels, use the restroom, or make sandwiches during the breaks.
After lengthy negotiations, the industry settled on what are called C3 ratings. The “C” stands for “commercial” ratings, meaning that Nielsen measures the average number of viewers actually watching the ads instead of the entire show. The “3” means that, for the purposes of buying and selling advertising, the industry counts three days of DVR playback in their financial dealings. So, advertisers are not paying for viewers who either fast-forward through commercials, or watch a program more than three days after it initially airs.
4. Why is there so much reality TV?
Television shows are extremely expensive to produce, especially scripted series. A fairly modest rule of thumb is that an hour of reality television costs upwards of a million dollars per episode, and a half hour of scripted can cost even more. The costs obviously vary greatly based on the type of show, the number of sets, and the talent involved. But in general, production values for television series have increased dramatically over the past decade, especially with the advent of HDTV, and now it’s pretty much expected that TV shows have almost the same kind of production quality as feature films.
It is estimated that the 2-hour pilot for Lost cost as much as $15 million. Fox produces 24 episodes of 24 every season, which is pretty much like making 12 action movies in one shot. A three-camera sitcom like The Big Bang Theory is fairly inexpensive compared to a more cinematic show like House. But then again, Hugh Laurie makes half as much per episode to play the sardonic physician as Charlie Sheen receives for Two and a Half Men, so it’s all relative.
However, discounting some outliers (like Simon Cowell’s reported $45 million dollar take for making people feel bad about their singing abilities), one constant is that reality and talk are significantly less expensive to produce than scripted television. There are generally fewer sets, actors, writers, and crew to pay. Plus, the majority of the talent is cheap. Reality contestants are paid modestly, if at all; competition contestants are vying for a prize; talk show guests are usually there for free to promote their new movie, book, or yet another TV show.
From a business perspective, reality seems like the way to go. It’s cheaper, so not only do you make more if you get a hit, but you haven’t lost too much if the show flops. This is why NBC decided to replace its 10pm dramas with Jay Leno this year. Even though the ratings aren’t stellar and they’re charging less than half as much for advertising as CBS does for CSI: Miami in the same timeslot, they claim the savings on production costs alone will make them money in the long run. Plus, some reality programs, like Dancing With The Stars and The Biggest Loser, rank among the highest-rated and most profitable shows on television.
When looking at a smash like American Idol versus the dozens of expensive scripted duds produced each year, a network might be inclined to leave the storytelling to Hollywood and just stick with reality (which many nearly seemed to do a few years ago). But, like everything else, the reality genre has its downsides as well. First and foremost is immediacy – everyone wants to know who The Bachelor picks in the season finale, but once that’s over, it’s over. This means reality shows don’t repeat very well, they’re hard to sell in syndication, and near-impossible to sell on home video. You know who’s not buying the new season of America’s Next Top Model on DVD? The answer is: anyone who wasn’t on the new season of America’s Next Top Model.
Networks may also have concerns about their programming from local affiliates all over the country, some of whom have voiced displeasure about the new plan for Leno. While Jay’s cost/benefit analysis may look great on NBC’s revenue sheet, its lower ratings are the lead-in to local 11pm newscasts – the bread and butter of W-whatever in Anytown, USA.
Finally, viewers all over have voiced displeasure about the deluge of reality television in the last decade. Though it hasn’t stopped them from watching entirely, it has caused large swaths of the audience to flock to scripted hits. The fact that more and more of these shows are coming from cable is added incentive for networks to stay in the scripted game, no matter how tempting the alternative.
The bottom line is, while reality seems like the safer bet, networks have realized that they have to stay in the scripted game or they’ll lose big. After a few years where the airwaves seemed flooded with reality shows, the networks realized what they were missing from big scripted hits and scaled back. I believe they’ve started to reach a pretty good balance of both, but make no mistake, with so much upside on the financial end of things, reality television is here to stay.
5. I don’t really watch TV… except all the time on the Internet, does that count?
The Internet is both the most exciting and frightening part of working in the television industry right now. It’s an incredible promotional tool to get people excited about a series, but it’s also a way for people to see their favorite shows for free, and without watching many commercials. While the industry continues to grapple with new ways to deal with this, it remains obvious that without advertising, we cannot continue to enjoy the volume and quality of television programming to which we’ve become accustomed.
One thing that will hopefully improve is the ratings system for online TV. Currently, the advertising industry relies on a company called ComScore, which uses a sampling process similar to what Nielsen uses for TV to project the number of visits, page views and video streams for websites. However, this system has proved woefully inaccurate, and they’ve begun experimenting with a tagging system that will allow them to measure the actual numbers of Internet users, rather than predicting from a sample. While this news is hopeful, Nielsen is also out there with its own system to monitor Internet use, so the struggle to find an industry standard to mediate advertisers and online sales departments is far from over.
What’s more complicated for TV networks is that, on the Internet, they are pretty big fish in a ridiculously-freaking-enormous ocean filled with billions of smaller fish, a couple thousand fish as big as them, and a few prehistoric monster fish that absolutely dwarf them in size (Google, Apple..etc). TV networks get to divide television viewers amongst themselves and sell the results to advertisers. By stepping into the ocean of (my increasingly belabored metaphor for) the Internet, they are suddenly competing with many more options for users attention.
The same way that cable fragmented network audiences in the 80’s, the Internet has fragmented television audiences to pieces online. So, even though Hulu gets a substantial number of viewers and gets great rates from advertisers, it brings in only a fraction of the revenue that networks see from TV ad sales, and certainly not enough to support the production of very expensive TV shows.
If you’ve got the answer for how to fix this, then you should probably call GE and apply for a job running NBC Universal. However, one thing we can say for now is that if there’s a TV show you really like and you want to support it, you can vote with your eyeballs or your wallet. Cough up the $1.99 for iTunes, or watch it somewhere online and sit through the commercials.
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