Why You Can’t Watch What You Want When You Want

How Television’s Funding Model Traps It In the Past

Amanda D. Lotz
Apr 30, 2015 · 5 min read

Despite the constant flurry of news about “skinny” bundles and “over-the-top” (OTT) viewing, there is one very big reason to expect that the arrival of the “future of television” remains years off.

What we might describe as the persistence of “network era” television results from a peculiar separation of duties that exists in the making of television. Where film studios make and release films and record labels produce and release albums, in television, studios make shows, but networks and channels schedule and air them (hereafter, channels implies both channels and networks).

Channels exist as middlemen and this structure sets television apart from other media industries. But the technologies and ways of distributing television have placed the interests of channels and studios increasingly in conflict. So far the middlemen have succeeded in the fight to maintain their relevance, but their hold on the television experience is eroding.

This separation of duties between studios and channels developed because of the limits of the analog era television schedule. Distributing television was technologically limited at the medium’s launch — only one program could be transmitted at a time. Channels were needed as curators to schedule and select programs because of the constrained capacity of the linear schedule. A business model based on channels offering a live program schedule developed because of the technology available.

Linear television allows each channel to only show one program at a time

Risk management is also an important part of the studio/channel relationship. Channels only pay about 60–70 percent of the cost of creating the original programs they air. As a result, they don’t own the programs. They simply buy the right to borrow them from the studios for an initial period of exclusivity.

The studio funds the other 30–40 percent and maintains ownership of the show. After the period of exclusivity — historically, about four years — the studio tries to sell the show to other US outlets. (International sales can begin immediately). These later sales are where the large sums of money are made in television, but few shows make it to this point. Channels cancel most shows before they make enough episodes to sell in other markets, in which case the studio takes a loss.

How Digital Distribution Challenges the Model
The convenient and capacious platforms for digital distribution that have emerged have placed the interests of the studios and channels in conflict. Many of the audience members advertisers most desire don’t want to watch in a way that supports the old business model of watching shows and their ads at a time appointed by the channel. A world of devices that enables us to watch what we want — when and where we want — is not compatible with this traditional financing model that splits the risk between studios and channels.

The conflict looks like this. Channel A has hit gold with this year’s Show That Everyone is Talking About. The channel wants everyone to watch it live — after all, it developed the show with the studio and paid for 65 percent of it. The channel profits from the Show That Everyone is Talking About by selling those viewers to advertisers.

But not everyone heard about the Show That Everyone is Talking About when it premiered, and those viewers want to watch it from the beginning. Cable service providers like Comcast want to help people watch the show by making previous episodes available on its on demand platform. Comcast’s relationship is with channel A though, not the studio, and it can only make available what is allowed to channel A based on channel A’s agreement with the studio.

The studio earns no additional money when episodes for the current season are made available through cable service on demand platforms. The channel earns no money from advertisers unless that episode carries the same ads as when it aired live and it is viewed within three, maybe seven, days.

In fact, on demand threatens the amount of money the studios can make selling to other distributors. A company like Netflix wants to buy the rights to all the episodes of the Show That Everyone is Talking About as soon as the channel’s term of exclusivity is complete. Being the location for viewers to watch the series from the beginning may bring new subscribers to Netflix and help sustain existing subscribers. Netflix will pay the studio more money per episode if it can release all of season one when the second season debuts, but herein lies the problem.

Channel A doesn’t want the show on Netflix. It wants to keep the show exclusively associated with it as long as possible. The channel has learned that making the current season available on demand is a good strategy to bring viewers to the weekly audience, but the studio — which owns the show — feels differently.

The studio wants to repay itself the 35 percent of production costs it is shouldering as soon as possible, and the exclusive Netflix deal is the best strategy. Paying a lot for the show is only a good strategy for Netflix if there is still a big audience who hasn’t seen the show and might subscribe to do so. Netflix isn’t going to pay as much for a show that has had a full season of episodes stacked on Comcast’s on demand platform for the last 10 months.

Sharing the production costs of shows between channels and studios was an effective business practice in an era when limited distribution technologies required a channel’s curation. Twenty-first century distribution technologies eliminate this requirement. Maintaining this legacy financing practice prevents the television industry from fully entering the digital age and is a key obstacle for the any show, anytime model many consumers desire. Twenty-first century distribution technologies require twenty-first century business models.

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