How to Generate a Golden Age: TV Edition

Joshua Gans at Digitopoly:

How to generate a Golden Age: TV Edition: When we think of Golden Ages it is looking back and realising that things were better during some period of time; we just never realised it at the time. But we are currently living in a Golden Age of Television. It is better than at any point in its history. And what is more, we know it. That is simply a remarkable state of affairs.

When did the Golden Age begin? Many will mark 2008 as a turning point with Breaking Bad (or maybe a year earlier with Mad Men). Others will go back to 2002 and 2003 with The Wire, Battlestar Galactica and Lost. In reality, the Golden Age, as we know it, is really a phenomenon of the last five or six years as knowledge of great alternative programming became widespread. And there is no end in sight.

What is remarkable about it is that at the beginning of the Golden Age, industry insiders were proclaiming doom for the industry. The Internet and YouTube, in particular, not to mention piracy were destroying all and sundry (supposedly) and with them any incentives to create good content. ...

To get into this, it is useful to remind ourselves of the basic economics of product design when the designer has a certain degree of market power. As Michael Spence showed, such suppliers will tend to design products to target marginal customers rather than average customers. ...

Let’s start with the marginal customer. In the old, pre-2002, days, the marginal customer was the customer who ... would plonk themselves down in front of the TV every night for a few hours a night. Their product design was focused on marginal customers whom they could attract in a routine way. ...TV seasons were year long and the prime time stuff grabbed attention so that programming around it could be even more routine and comforting.

The current Golden Age content does not fit this mould. It is rarely year long. It is irregular. It is sometimes intense. And it often requires investment by the consumer — miss some episodes and you are lost. Moreover, consumers have to decide what they ‘feel like’ watching. ...

But how does the Internet (broadly) change all of that? The Internet has taken away the routine for many people but, importantly, allows people to still fill their attention with television content. So they can still plonk themselves down for a night of entertainment. What they do now is choose what that will be. ...

Option demand is very different to immediate consumption demand. What will drive an incentive to be a regular subscriber is not purely access but whether they believe they will want to have that access on a random day. ... Critically that does not mean that you need to serve up options at 9pm that will appeal to most people on that night. Instead, you can have content that is demanded by a consumer at some point — that they feel they might want to watch. ...

How do you do that? You need to produce content that people decide they will want to watch at some point. And as I talked about in Information Wants to be Shared, the content that best does that is content that other people — your friends etc — refer you to. In other words, traditional marketing of television is replaced by social marketing. A completely different ball game as you must please the average consumer in order to attract more consumers at the margin. ...

As a final note: I have made lots of speculative assumptions here but I am confident that looking at changed incentives to attract marginal consumers and who those consumers are is the place to look to understand how the television industry has evolved.