How the Web Is Changing TV's Definition of a Hit

Lower production costs, wider sales, and online distribution mean an easing of the television economics

While revenue from time-shifted TV distribution can account for only part of a monetization strategy, the economics of television are changing for the cheaper. This was the message from a group of production executives at the Variety Entertainment & Technology Summit, which kicked off Monday.

"It used to be the hits would pay for the losers—now not so much," said Marc Graboff, chairman of NBC.

Instead, shows such as The Office, The Biggest Loser, Prison Break, and It's Always Sunny in Philadelphia are successful based on different factors: strong advertiser support, cheap production costs, online popularity, and international and DVD sales.

Of course, it's not only increased flexibility of consumption that is driving TV economics down; advertisers just aren't ponying up the way they used to. However, the TV executives on the panel said they were none too comfortable with the current state of digital and DVR distribution, especially since measurement techniques are lagging viewership.

Hulu's Challenging Model

"We have a corporate agenda with Hulu, which is to support it," said Dana Walden, chairman of Twentieth Century Fox Television. "It is personally challenging.…The idea that you can watch [TV] the very next day on Hulu is scary," but she'd prefer it to bootlegging.

Added Graboff: "We're glad we're equity owners of Hulu.…We're hopefully going to see some money that way. This was an anti-piracy move. We may have been a little too aggressive with giving it away for free."

But, he acknowledged, "at least Hulu has been created as a destination site. I think they'll eventually find a business model, hopefully sooner than later."

Perhaps the best example of a show that has dealt with the pros and cons of online distribution is It's Always Sunny in Philadelphia, which FX Networks President John Landgraf explained at length.

Sunny Outlook

Ratings are up 70% for Sunny in its fifth season, but until now the show was made so inexpensively that it could make money without being a hit, said Landgraf. "That's a fundamentally different economic structure," he pointed out.

Sunny got a big push from its popularity on Hulu, where it made all existing episodes available when the site launched. "It was the first time the show had ever been in the same field of view as Family Guy, and The Simpsons, and The Office, and Saturday Night Live," said Landgraf. "Hulu really benefited from Sunny."

But then FX had to consider the potential revenue from DVD sales and other venues for a popular show that had a good library of seasons under its belt.

"Since we own Sunny on behalf of the profit participants, we reluctantly took it down," said Landgraf. "If we left the episodes up forever on Hulu, we might be damaging value."

"Hulu cannot replace all the other parts of that ecosystem," Landgraf contended, speaking both of existing revenue streams and promotional tools. "Ultimately these linear channels have to actually create the hits." Although considering his and his co-panelists' other comments, it would seem that's no longer the rule.

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