Fractured Televison Tales

Austan Goolsbee explains why broadcast networks have downgraded their programming:

'American Idol' Is the Price We Pay for a Menu of So Many Channels, by Austan Goolsbee, Economic Scene, NY Times: Kinga Tompos, a graduate student at DePaul University, ... was ecstatic. “Sanjaya is gone,” she said. “Finally! I can’t stand him.”

Sanjaya, of course, is Sanjaya Malakar, by wide consensus the worst contestant ever to get into the final rounds of “American Idol.” And for those of you ... who never really got interested in the reality television fad, “American Idol” is a singing contest that runs on Fox. It also happens to be the most popular show on television. ...

I will admit the show is fun... Yet I can seldom get past the question of how we got here — how America lost interest in scripted shows and came to embrace all manner of reality television and its who-sang-what-song, who-ate-what-bug ethos.

Some say it’s just that people now lack the attention span for old-style television or that our tastes have changed. Most insiders point out that reality shows cost much less to make than scripted shows, and, they argue, this is just a profit play by the broadcast networks.

But that does not explain why reality shows did not take over television long ago... Surely the broadcast networks wanted to save money back then, too.

In his book “Switching Channels” ..., Richard E. Caves, the don of entertainment economics and professor emeritus at Harvard, blames (or credits, depending how old you are) cable and satellite providers and the way they have changed the broadcast networks’ incentives to invest in programming.

He points out that such incentives depend on the size of the potential market. The programming is a fixed cost — networks pay for the programs even if nobody watches. If paying an extra $1 million to get a star onto a show, for example, raises every customer’s love of the show by the equivalent of $1, the investment more than pays off if there are 10 million potential viewers. But the $1 million investment would be a terrible flop if there were 10,000 potential viewers.

You can see the mechanism at work in a comparison of the cable networks. The ... bigger the market, the more a cable network spends on programs. Not even counting sports juggernauts like ESPN (whose annual expenses on programming top $3 billion), industry analysts say that the average programming costs at networks with more than 90 million subscribers — networks like Discovery, Nickelodeon or MTV — average more than $250 million a year.

Networks like Bloomberg, Nicktoons, and National Geographic, with 40 million to 50 million subscribers, average less than $35 million in annual programming costs. Fledgling networks with 20 million to 25 million subscribers, like Boomerang, the Sleuth Channel or the Anime Network, average only about $12 million. ...

With the big shift to cable and satellite television (we now watch more cable than broadcast programs), cable networks have had a big incentive to upgrade their product, while the incentive for broadcast networks has moved in the opposite direction.

So the increase in reality programming is not just a matter of broadcasters wanting to save money. It’s that a shrinking potential market gives the networks less incentive to spend money. They can’t recoup it with enough viewers.

Nor is the shift to cable and satellite complete. It continues. And now, more and more people are also turning to the Internet and YouTube instead of broadcast television. So you can see how this ends.

You may be like Kinga Tompos, calling in and voting to give Sanjaya the boot. But remember the economist’s dictum: you don’t know what something costs until you have seen the alternative. Celebrate Sanjaya’s demise all you want. But just wait until you see what’s next.

Update (this is from comments): I thought about saying that this was good - more choice and competition in programming would enhance consumer welfare - but I kept coming up with special cases in my head where that wasn't necessarily true so I didn't make that point (too many qualifications needed to make the assertion). But even so, I still think more choice than that offered by three networks in an oligopoly structure likely enhances welfare.

Comments

[reason]

I thought someone was creating a market for broken TV sets. How disappointing to find it is just another Lowest Common Denominator complaint.

Blogs are much more interesting than TV, I can interact with a whole virtual community.

Still it is interesting what a social phenomenon cable is. The explosion of choice may end up destroying TV completely. Not sure that that is a bad thing.

[real person from the real world]

How come Simon on American Idol is sooo cheap? Isn't he or Paula Abdul getting a mil each? As I recall, most people get hooked on Soap Operas. Problem is that we are all working all the time today. You only get into the soaps when in a hospital or out of work. We also seem to be living in a harsher society, where so many are struggling, perhaps there is comfort in watching someone else go thru it, and picking up tips for the real jungle.... society.

[robertdfeinman]

There is a logical fallacy in his argument. He claims the amount spent is proportional to the size of the potential audience, but then goes on to use this logic to explain the decline in spending by the broadcast networks.

The potential audience for the broadcast networks hasn't decreased, everyone on every cable system still gets the big networks so their potential market is the same as before.

One could make the argument that spending is proportional to the actual viewership, but where's the insight? Everyone knows that increasing spending to bring in more customers is one of the options in any business and that how far one goes in this direction is one of the skills that some firms have and others don't.

[Callahan]

When major news stations are placing junk like Rosie O'Donnell leaving the "View" as major news, what do you expect?

[btgraff]

i still don't see how this logic explains why HBO can create shows like The Sopranos, The Wire, Rome, etc., while there are few shows of that quality on the broadcast networks (the exception being that cable can do more truly adult programming because they are allowed nudity, bad language etc., which gives them a little more creative freedom).

There is a difference, of course, in that with cable, because people pay a flat fee, cable channels can run the same programme several times and pad the schedule because they do not have to "optimise" every minute of programming, whereas with the networks, there is an incentive to maximise the viewers for each show because advertising is directly linked to the viewers for each show. this can explain some of the "lowest common denominator shows", but the networks have so much time to fill with new programming that it fails to explain why there are not also a few more high quality shows, like "The Shield".

Maybe the difference is in the general nature of the programming - cable gets runs of 10-13 shows per year of each series - and many series are created with the idea that there might only be a few years of shows, and so the plots tend to evolve - characters can be killed off, the characters can develop - broadcast tv has runs of 22 shows and the idea is that until recently (lost, desperate housewives) the shows had no continuing story lines - though good shows like Law & Order could be created with no continuin story.

The difference is in the writing - because cable shows are presold, there is less interference and there is greater freedom for writers/directors/producers to be innovative.

What is also true these days is that Hollywood films are also pretty bad - driven by special effects because the main audience for films - teenagers and young adults, will go see this stuff but more serious films that lack a "high concept" don't have big opening weekends. Older, more demanding viewers, are staying home and finding that the cable series are the most intelligent and demanding things available.

[yartrebo]

The drop in production costs brought on by the computer and electronic revolution have more than countered any loss of audience by the main networks. Therefore, one must look at other factors for why broadcast TV is changing.

I don't know what this is, but I'm quite certain it's not excessive per viewer production costs.

[bccheah]

I've had on occasion watched some TV whenever I have traveled to Asia. These shows (sometimes known as variety shows) are pretty common in Thailand and Malaysia, the two places I have usually traveled to. However, there is no voting by the TV audience in those cases although there is some audience voting. I have also noticed that Spanish television also seems to have a fair amount of these types of shows.

[Asif Dowla]

For the economics professors reading this, this is a great example of "excess capacity" under monopolistic competition. The defenders of MC pointed out that society is willing to pay a price for having too many varieties. Sanjaya is the price we have to pay for the right to have 100 plus cable channels.

[Holly W.]

I'm not sure I see a point here ... reality TV shows seem to rule on TV lately not just because they're inexpensive, but because they're popular: they attract viewers who wouldn't be watching a scripted program. As Goolsbee points out, American Idol is the most popular show on TV, period. America's Next Top Model is one of the most highly-rated shows on the CW. The mother-trading and nanny shows seem to have dedicated audiences. Even game shows like Deal or No Deal or adults competing against 10-year-olds get high ratings.

To my mind, the question isn't 'why are these the shows the networks want to air,' but 'Why are these the shows that Americans want to watch?' And a corollary might be, 'Would these shows have been as popular if the networks had gotten this idea 30 years ago?' What about our culture has made everyone so eager to expose themselves on TV, and the rest of us so willing to be voyeurs?

[anne]

[Mark, there is a Typepad problem in that comments are not automatically appearing in the comment box unless the box is refreshed. The problem is Brad DeLong's as well.]

[Mark Thoma]

thanks - will check to see if I can do anything.

One note as well since I'm here. I thought about saying that this was good - more choice and competition in programming would enhance consumer welfare - but I kept coming up with special cases in my head where that wasn't necessarily true so I didn't make that point (too many qualifications needed to make the assertion). But even so, I still think more choice than that offered by three networks in an oligopoly structure likely enhances welfare.

[Bruce Wilder]

Network news programming?

Redundancy in news gathering and broadcast is duplicative and inefficient, but as the number of channels multiply, the ability to recover sunk cost investments made in news gathering and analysis decline.

Some of this can be made up by relying on centralized resources, like the Associated Press.

But, proliferation also tends to move news broadcasters in the direction of emphasizing partisan commentary over research. And, it makes news organizations more vulnerable to manipulation by news sources with greater incentives to invest in the generation of public relations materials aka "news".

[econ grad stud]

If bundling ever ended I'd expect quality to return to TV. There are just too many crappy TV channels whose cost to consumer is essentially zero.

[Matt Festa]

I have to agree with the commentator who says that the increased amount of channels is a net plus. More networks have allowed a more diverse set of programming as well as specialization. Further, I doubt that there is a lack of high quality TV series available, they have just migrated to cable televison (The Sopranos, The Wire, Deadwood, Rescue Me, Nip Tuck, The Shield, Dexter, etc.) Even here you can argue that the Networks have a few decent ones (Heroes, 24 a few years ago, House).

What we are seeing is not so much a movement towards all reality tv shows (although if you don't have cable it looks that way), what you are seeing is targeting by the new networks. If you are a sci-fi fan you have a channel, if you are a celebrity worshipper you have several. If you like high quality television programming that does not have network censors, you have HBO or showtime. Heck, ESPN has made countless amounts of sports games available to consumers who would not be able to watch the games earlier. Local cable networks (at least in New York) Have YES, SN, and MSG. This makes every single regular season game of the Yankees, Mets, Nets, Knicks, Rangers and Islanders available. I can even watch Yankees batting practice if I want to.

I'm sorry, I just don't see how this works out to be a net negative.

[TDDG]

I think our memories of what TV was like years ago is distorted. Is anyone really going to tell me that the Beverly Hillbillies or Dukes of Hazards weren't lowest common denominator shows? I think we tend to remember the higher quality shows more prominently.

I also think reality TV is an out growth of consumers increased desire for interactivity. American Idol allows viewers to play along with the judges. And I'm not talking about the actual voting. I mean that anyone can watch the show and form an opinion on the contestants. In my office, there is a contingent of American Idol watchers who are constantly debating the merits of one contestant over another. Other scripted shows aren't discussed nearly as much.

Even a show like Survivor or Deal or No Deal allows the viewer to mentally play along with the contestants. The contestant is a real person making real decisions, and we can have fun debating those decisions. In a scripted show, it isn't the same. The decisions made by various characters are for dramatic effect, and the audience knows this. The plot twists are imposed on the characters. While it might be fun to watch, you can't put yourself in to the situation as easily, because you know its all pretend. A show like Survivor obviously does not depict a "real" survival situation, but it does involve real people making real decisions under duress. We can all identify with that.

[reason]

I think there is an issue to the way TV has moved, there is no public information anymore. I can remember when everybody was on the same page, and well informed about the latest issues. Us blogosphere junkies are informed, but I wonder what proportion of the population has heard of peak oil for instance.

The social role of television was much more important when there were fewer channels, and I think democracy worked better, because everybody got exposed to major ideas. I can remember regularly seeing J K Galbraith and Milton Friedman for instance debating local (in Australia) academics on TV and so did most of my peers. Does that still happen?

[real person from the real world]

Matt Fest has a good point, you have channels for specific viewers, Sci-fi for Sci-fi, Hi-brow adult for "Mature", porn for porn lovers, et al. You get more of what you want.

Reason also makes a good point. You don't seem to have the informative shows as much anymore.... but most of that was on PBS, and PBS is still around. You used to have news papers, now with them online, you have to pay for anything really interesting.... certain columnists like Krugman cost to read, never mind that they discuss issues that affect us all. I guess you have to be one of the overpaid elites to read the opposition view, or have plenty of free time to get to a library, which I don't.

PBS does not seem to do much in the way of informative shows, anymore. That's where you'd see Milt Friedman and JK Galbraith. I did see one show, I would love to find. They talked about the Kenysians and the Chicago School, but apparently it was not made into a transcript. Never got to see it all, and it was some years back. Anyone remember it?

[maria]

There are some very good programs on TV, just not many of them. You need to pick and choose and stay alert. Bill Moyers on the shameful performance of the main media in the runup to the war was splendid. And you don't want too may super good programs; you couldn't watch them all. If you can separate the wheat from the chaff, TV isn't all that bad.

[btgraff]

The 1950s were seen by some as a golden age of TV - you had all sorts of live drama written by people like Paddy Chayevsky and others - but there were also game shows and other crap long fogotten - like the srooked $64,000 Question.

True, the 60s had all sorts of "lowest common denomintor" comedies, like the Beverly Hillbillies - but that is partly the fault of demographics - the baby boomers were young and much TV content was geared to children and the fact that there were only 3 channels meant it was almost like "winner take all" in terms of viewers - westerns were the main form of dramatic programming, like Gunsmoke and Bonanza - variety shows, like Ed Sullivan, were also popular because they would have something for everyone, and people had to sit through the things they didn't really want to watch to see the things they did, but often this was in a family setting - most families only had one TV.

There were some memorable programs in the 60s, like Twilight Zone, or the Dick Van Dyke Show, just as the 50s produced Lucy and Phil Silvers. The 70s were a golden age for comedy - All in the Family, Mary tyler Moore, Bob newhart - but the dramas were formulaic cop shows for the most part - Cannon, Streets of San Francisco, etc. - onlt th erockford Files is still worth watching. Then you had T&A shows - the baby boomers were in their teens now - Charlies Angels, Three's Company etc.

Some may view past decades as a golden age, but for the most part that is because most of the garbage is forgetten and never seen, only the few shows that had lasting value are still shown - My Mother the Car isn't. So it skews our view.

Apart from comedies, which have become pretty dismal in the last few years, the last 15 years have prodiced some of the best programming ever - either on cable or on the networks. Larry Sanders, Seinfeld, early episodes of Law & Order, House, all those HBO shows. Even 24, despite its silly aspects, is compelling viewing that has far more thrills and tension than the special-effects driven movies like Spiderman that are even more cartoonish than tv.

TV, like the movies, tends to be overwhelmingly imitative - these days it is "procedurals" - Law&Order begat CSI which begat all sorts of other shows - the next hit will bring other imitators.

Yes, there are too many reality shows - low production costs means that a relaity show with so-so tratings is more profitable than a drama with good ratings, so we will see more reality shows.

When people get tired of reality shows, then what? In other countries, the equivalent of soap operas are a mainstay - melodramas with cheap production values - even Britain had Eastenders and Coronation Street, maybe the networks will shift the soaps into prime time - with so many women working, and thus not able to view them in the afternoon, they can't survive as part of the daytime schedule, and they cost too much for cable.