Post by George WK Newman on Mar 25, 2010 8:12:17 GMT -5
www.hollywoodreporter.com/hr/content_display/television/news/e3i9622dc15ab8161178e353cf46fd7d6a4?
Hour dramas face risky economics
Commentary: 'Leno' failure puts spotlight on costs
By Larry Gerbrandt
March 19, 2010, 12:00 PM ET
NBC's scramble to fill the gaping Monday-to-Friday hole in its schedule left by the failed Jay Leno talk show is putting new focus on the economics of hour dramas, the traditional fare of the 10 p.m. time period.
On a spreadsheet, the math on "The Jay Leno Show" undoubtedly looked compelling to NBC Universal executives. Primetime dramas generate an average of $2.5 million-$3 million in advertising revenue (the range is $1.5 million-$6 million for a hit like Fox's "24") against license fees of $1.5 million-$2 million an episode. Figure that a repeat airing might do one-third of the ad billings of the premiere, subtract 15% ad-agency commission, and the average drama might net one of the Big Four networks $1.3 million-$1.4 million in gross profit an episode -- as long as they don't have to cover the deficit.
"Leno" cost an estimated $400,000 an hour to produce, so even if it brought in only two-thirds the revenue of a drama, NBC would be ahead even before adding in savings from not having to develop replacement shows for failed hours in future seasons.
From a series producer's perspective, the economics of primetime dramas are about not losing too much money per episode and keeping the series on the air long enough (usually four seasons, or 88 episodes) so it can go into strip syndication. Production costs for Big Four scripted dramas are $2.5 million-$4 million, which means they carry deficits of $1 million-$2 million an episode. The good news is that, of late, the international market has been robust enough to cover most of the deficit and even put some shows into the black, with top hits raking in as much as $2.2 million an episode from all foreign territories combined.
Basic cable networks have become the primary domestic-syndication market for reruns of primetime dramas. Procedural dramas, in particular, hold up well in their cable windows, where many deals include rights for 30-60 airings, not including the occasional 24-hour repeat marathons. Recent license-fee deals have ranged from $1.2 million-$2.3 million, including repurposing rights shortly after broadcast network premieres.
Chuck Larsen, a producers rep on several top series, says competition for "A-level" shows is high, and the basic cable revenue stream is projected to increase during the next few years.
Although the days of local stations paying license fees for syndie rights to dramas are long gone, the right hour show can pull in $1.2 million-$1.9 million in a weekend barter run, bringing the total take to $2.4 million-$4.4 million an episode. Even after deficit recoupment, residuals and distribution fees, a hit show can net in excess of $2.5 million an episode, and profit participants in a show lasting five seasons can argue over how to split more than a quarter-billion dollars. For long-running franchises with multiple spinoffs, the figures quickly become billions.
So why aren't the networks filling their schedules exclusively with dramas and sitcoms from their own sibling studio facilities so they can reap the backend rewards?
Several reasons come to mind. I once heard media mogul Barry Diller comment that "most television fails most of the time." Failure is expensive in primetime, and history shows that internally generated shows fail more often than those developed by independent producers.
Another explanation is that networks these days are expected to show a profit, and programming is usually produced by sister studio divisions, which have separate income statements and profit targets to hit and keep the syndication revenue from the shows they produce.
For networks, game and reality shows generate immediate profits -- Kantar Media estimates that Fox's "American Idol" generates $32.4 million in ad billings for a two-hour episode -- without waiting for the backend to kick in.
It was this focus on generating predictable profits during the current fiscal quarter that likely played a major factor in NBC's original decision to strip "Leno" at 10 p.m. The bet was that by dropping the cost of an hour from $1.5 million-$2 million -- the normal license fee for a drama -- to $400,000, they not only had a shot at significantly higher short-term profit but also had a safety margin even if ratings were a lot lower.
What the spreadsheet and the endless huddles of the head honchos didn't predict was what would happen if "Leno" and "The Tonight Show With Conan O'Brien" both stumbled badly, and the NBC affiliates -- which only have a handful of primetime ad avails to sell but depend on strong lead-in and lead-outs for their local news, where they sell those avails -- threatened to defect.
Hour dramas face risky economics
Commentary: 'Leno' failure puts spotlight on costs
By Larry Gerbrandt
March 19, 2010, 12:00 PM ET
NBC's scramble to fill the gaping Monday-to-Friday hole in its schedule left by the failed Jay Leno talk show is putting new focus on the economics of hour dramas, the traditional fare of the 10 p.m. time period.
On a spreadsheet, the math on "The Jay Leno Show" undoubtedly looked compelling to NBC Universal executives. Primetime dramas generate an average of $2.5 million-$3 million in advertising revenue (the range is $1.5 million-$6 million for a hit like Fox's "24") against license fees of $1.5 million-$2 million an episode. Figure that a repeat airing might do one-third of the ad billings of the premiere, subtract 15% ad-agency commission, and the average drama might net one of the Big Four networks $1.3 million-$1.4 million in gross profit an episode -- as long as they don't have to cover the deficit.
"Leno" cost an estimated $400,000 an hour to produce, so even if it brought in only two-thirds the revenue of a drama, NBC would be ahead even before adding in savings from not having to develop replacement shows for failed hours in future seasons.
From a series producer's perspective, the economics of primetime dramas are about not losing too much money per episode and keeping the series on the air long enough (usually four seasons, or 88 episodes) so it can go into strip syndication. Production costs for Big Four scripted dramas are $2.5 million-$4 million, which means they carry deficits of $1 million-$2 million an episode. The good news is that, of late, the international market has been robust enough to cover most of the deficit and even put some shows into the black, with top hits raking in as much as $2.2 million an episode from all foreign territories combined.
Basic cable networks have become the primary domestic-syndication market for reruns of primetime dramas. Procedural dramas, in particular, hold up well in their cable windows, where many deals include rights for 30-60 airings, not including the occasional 24-hour repeat marathons. Recent license-fee deals have ranged from $1.2 million-$2.3 million, including repurposing rights shortly after broadcast network premieres.
Chuck Larsen, a producers rep on several top series, says competition for "A-level" shows is high, and the basic cable revenue stream is projected to increase during the next few years.
Although the days of local stations paying license fees for syndie rights to dramas are long gone, the right hour show can pull in $1.2 million-$1.9 million in a weekend barter run, bringing the total take to $2.4 million-$4.4 million an episode. Even after deficit recoupment, residuals and distribution fees, a hit show can net in excess of $2.5 million an episode, and profit participants in a show lasting five seasons can argue over how to split more than a quarter-billion dollars. For long-running franchises with multiple spinoffs, the figures quickly become billions.
So why aren't the networks filling their schedules exclusively with dramas and sitcoms from their own sibling studio facilities so they can reap the backend rewards?
Several reasons come to mind. I once heard media mogul Barry Diller comment that "most television fails most of the time." Failure is expensive in primetime, and history shows that internally generated shows fail more often than those developed by independent producers.
Another explanation is that networks these days are expected to show a profit, and programming is usually produced by sister studio divisions, which have separate income statements and profit targets to hit and keep the syndication revenue from the shows they produce.
For networks, game and reality shows generate immediate profits -- Kantar Media estimates that Fox's "American Idol" generates $32.4 million in ad billings for a two-hour episode -- without waiting for the backend to kick in.
It was this focus on generating predictable profits during the current fiscal quarter that likely played a major factor in NBC's original decision to strip "Leno" at 10 p.m. The bet was that by dropping the cost of an hour from $1.5 million-$2 million -- the normal license fee for a drama -- to $400,000, they not only had a shot at significantly higher short-term profit but also had a safety margin even if ratings were a lot lower.
What the spreadsheet and the endless huddles of the head honchos didn't predict was what would happen if "Leno" and "The Tonight Show With Conan O'Brien" both stumbled badly, and the NBC affiliates -- which only have a handful of primetime ad avails to sell but depend on strong lead-in and lead-outs for their local news, where they sell those avails -- threatened to defect.