New Media - Part 4

For the last year or two I have been trying to get solid numbers for the budgets for two of my favorite programs: Friday Night Lights, and Mad Men. These two shows are produced less expensively than traditional budgets – that much I knew – but what the budgets actually are seems to have been a State Secret. Until Friday that is, when Variety provided the information I was after inÂ Networks look for low budgets by Cynthia Littleton.

Friday Night Lights‘ budget is:

“about $2 million and change per episode, compared to $3 million-plus for many network skeins (or just under $3 million on the low end)”

For Mad Men:

“Given the scope of the period drama, production execs say they’re amazed “Mad Men’s” second season came in at about $2.5 million an episode. That was up by a few hundred grand from the first, and a princely sum by the standards of AMC and “Mad Men” producerÂ Lionsgate TV.”

FNL has around 4 million viewers on NBC in Season 3, (down from nearly 6 million for Season 1 and 2) Â plus the 4-500,000 viewers who saw the show on DirecTV. The drop off NBC was nearly 2 million – 500,000 of whom may have seen it on DirecTV. I suspect the other 1.5 million viewers saw the show via Bittorrent soon after it aired on DirecTV.

Mad Men’s second season rated about 1.5 million per episode.

So, how do the numbers stack up if we were to forget network and satellite delivery and simply sell the show directly to viewers? Let’s start with Mad Men because it lacks the DirectTV complication.

Mad Men

AMC is an advertiser supported network, although it would seem that Mad Men is a loss leader for the network. With costs around $2.5 million a show and an audience of only 1.5 million, the average cost per viewer is $1.67. To deliver that is about 350 MB for an SD version and 1 GB for a good quality HD version. Bandwidth cost per viewer (for Internet delivery) would be about 4 cents for SD and 12 cents for the HD version. The producers would have to net at least $1.71 for SD and $1.79 for the HD version beyond any partner commissions paid (like Apple’s 35% or Open TV Networks’ 15% – although Apple include the bandwidth for delivery).

So, Mad Men would be viable at $1.70 (SD) and $1.80 (HD) if sold direct by the producer. Through iTunes AMC would need to sell for $2.57 per purchaser to cover the production cost if the audience stayed static.

The numbers for Mad Men are so dramatically different from other shows (as we’ll see in a minute) that the hypothesis that it’s primarily viewed as a way to raise AMC’s profile, rather than be profitable in itself. I doubt AMC cover the cost of production from advertising, instead seeing the show as profile building and reputation building, which it certainly has been.

Friday Night Lights

The numbers work out much nicer for FNL. FNL has production costs of $2.1 million (“$2 million and change”) with an audience of approximately 4 million on NBC. Remember, NBC considers this audience to be insufficient to cover the cost of FNL alone, so it did the deal with DirecTV.

According to the Variety article:

For “FNL,” the license fee that DirecTV pays to producerÂ Universal Media Studios for the first window on episodes before they air on NBC covers about half of the show’s production budget, which makes “FNL” financially feasible for the Peacock even as it generates cable-level ratings.

Decoding that we get DirecTV paying around $1 million for 500,000 viewers (net cost per viewer to DirecTV, $2.00). On DirecTV the show aired without commercials, so again this is a loss leader for DirecTV being made up by higher subscriber numbers to the satellite service overall.

What is interesting is that NBC cannot fund the show’s $2.1 million budget from an audience of 4 million. NBC’s net return per viewer has to be well below 52c per viewer per show. (And yet, a net of $1.29 a viewer wasn’t apparently enough when NBC were arguing with Apple over iTunes selling price, despite it being many times higher than their advertising revenue per viewer!)

If DirecTV are paying $1 million, that means the show is viable on NBC at $1.1 million production cost per episode or at 27.5 cents per viewer. That makes the selling price through iTunes look trulyÂ usurious at nearly 5x the net revenue per viewer than the revenue from network broadcast. Is it any wonder they lost 1.5 million viewers for FNL to bittorrent?

At 27.5c per viewer the show is viable. Let’s allow some profit and say the network considers the show profitable enough to continue for two more seasons at 30c per viewer per episode. Add the same 4c and 12c per episode delivery cost and the Network should be selling the show, with iTunes margin added in SD for 52c and in HD for 65c. That would be fair pricing in this deal.

Assuming, as we do for new media that new media requires a direct connection between the producers and the viewers, then viewers would need to pay producers for the whole budget of $2.1 million. Working on the total audience of 4.5 million that equates to 47c per viewer per show. Add in bandwidth and that becomes 51c in SD and 59c in HD for direct sales by the producer, or through Open TV Network, 60c for SD and Â 70c for HD. With iTunes margins (but including bandwidth) the SD version should sell for 72c and the HD version for about 8c higher for the larger file, or 80c.

I would pay 60-70c for FNL in SD and I’m sure HD enthusiasts would happily pay 70 – 80c for the HD version.

Note: These are download-to-own pricing, not rentals!

We can fund high quality production using a new media model of direct connection between producer and viewer, and we can do it without resorting to the outrageous amounts currently being charged for download versions.

On Saturday (March 14) I was invited to be part of a panel presenting on “Marketing New Media” as part of the Los Angeles Brazilian Film Festival. My fellow panelists were much more experienced in the “traditional” (or old) media business than I. Most have spent their careers at WB, Discovery, et al.

It struck me that we were all using the term “new media” but for those coming out of the traditional production businesses – cable, network, broadcast – “new media” meant new outlets for their existing and future content. With some “webisodes” and social networking added on top. Indeed some of the webisodes are great stories on their own, but overall, ‘new media’ is just an outlet for the properties and brands created by old media.

Indeed, one of the panelists suggested over lunch following that the current conglomerates will simply buy up any ‘new media’ ideas or companies that might get traction and will therefore keep the hegemony going.

Since I don’t come from that background, I see new media as being something different from old media, but until Saturday had not been pressed to define how new media is different.

It’s not production values as some new media has very high production values and some cable shows have very low. Budget alone doesn’t seem to be a distinction. A lot of cable content had very low production values in the earliest days, but now, some 20 years later, cable is winning Emmies for quality drama production because audiences are now too small for network.

To simplify it to “reach” would mean that old media will always have the lead because it has already got the lead. New media could not exist.

To my mind ‘new media’ is the distribution corollary to democratized production and therefore has a distinct flavor difference than old media. After spending the weekend thinking about it, the distinction I would like to draw is that old media’s customer is the advertiser, and there are many layers between producer (creator) and viewer.

In new media there is a direct connection between producer and audience, and shows are made for the audience, not for the channel, network or advertiser.

New media is unmediated. It sinks or swims on the attitude of the viewers, not advertisers or executives.

What do you think? Tell me in the comments.