Assume you have been hired as a consultant to ABC Television. It is actually a part of Disney, so some questions overlap with movies, but the main focus is on television. Sorry, they are not interested in you as an actor.
The power of online, and eventually mobile, video could be enormous. Even by the end of 2010, companies were seeing changes in viewer behavior. SNL Kagan, a research firm, noted that the number of U.S. households paying for TV service from cable, satellite, or phone dropped in 2010—with a decline of 335,000 households paying for service between the first and third quarters of 2010. For over three decades, those numbers had only increased—never decreased. Of course, the continued economic recession and housing crash might have led people to drop expensive services, but online options also made it easier (Schechner 2011).
Nielsen Co., the firm that monitors TV viewership also noted that the fourth quarter of 2010 saw a drop of 1.3 percent in the number of people between the ages of 18 and 49 watching any TV on a traditional set. At the same time, comScore, Inc. noted that U.S. consumers watched about 3 billion videos over the Web in December 2010 alone (Schechner 2011). Jason Kilar, CEO of Hulu, noted that Hulu is on track to hit one million Hulu plus subscribers in 2011. The firm is also seeing a 10 percent increase in users initiating streams from one quarter to the next (Kilar 2011).
A key question is how much people will pay for television shows. Many different companies have created new ways of watching shows and they all have different pricing methods. In these early days of the Internet and video, companies are experimenting and answers are sometimes hard to find. The Television Bureau of Advertising (TVB 2011) notes that in the first quarter of 2011, over 28 million people (over age 13) were watching video on a mobile phone—for almost 4 and a half hours a month. Of course, individuals in the U.S. spend 4-5 hours a day watching shows on traditional TVs (in 2009). On the other hand, TVB also demonstrates that the percentage of households watching on traditional wired cable has dropped from 70 percent in 1996 down to 60 percent in 2011. Direct broadcast satellite penetration increased from 2.1 percent to almost 31 percent in that same time frame.
Hulu was created in 2007, largely by NBC Universal (now owned by Comcast) and News Corp (Fox). Providence Equity Partners kicked in $100 million for a 10 percent equity stake, and Hulu employees also own stock in the company. The site launched public access on March 12, 2008 (Hulu Web site). In 2009, Hulu wooed Disney/ABC Television by offering an equity stake in Hulu in exchange for access rights to the ABC shows.
In late 2009, Peter Chernin the Hulu CEO who came from Fox, left Hulu. Chernin had been a big believer in expanding Internet access to television shows. Chase Carey was appointed the new president and chief operating officer. He had been head of satellite provider DirecTV, and he believed in the TV subscription business. He was reported to be concerned about training people to expect entertainment to be “free” and supported by ads (Schechner 2011). His ideas eventually prevailed and Hulu began offering Hulu Plus which requires people to pay a monthly or annual subscription fee to watch the back catalog of shows and movies.
By 2010, the Hulu owners were quarreling with each other and with the Hulu managers. In particular, Hulu wanted access to current shows which could be viewed for free on the base Hulu site. These shows attract the most customers and increase advertising revenue. But, content owners voiced concerns about Hulu cutting into regular viewership—which generates massively more revenue than Hulu. (Schechner 2011) In 2010, Hulu reported revenue of $263 million (Kilar 2011), but Netflix hit $2.16 billion, and television advertising brings in billions a year for each company. Plus, subscription fees for cable and satellite TV generate additional billions for the broadcast companies.
According to TVB (TVB 2011), in 2009 (a bad year for advertising), network, syndication, and spot TV shows brought in a total of $42.5 billion. Cable TV earned another $19.5 billion. In terms of dollars, the top ten advertisers in 2010 were 1. AT&T, 2. Ford dealers association, 3. Political campaign—governor 4. Verizon, 5. Toyota dealer association, 6. Honda, 7. Dodge, 8. XFinity, 9. Political campaign—senate, 10. McDonald’s.
When Apple unveiled the iPad, the company struck a deal with Disney (hence ABC) to sell content through its iTunes store. Some of the ABC content was free—supported by advertising. A concept similar to that employed by Hulu—of which ABC is an owner. However, Disney had signed only a two-year exclusive deal with Hulu (Schechner 2011). Apple and Amazon, Microsoft, and Google all of deals to sell streaming access to movies. Reportedly, ABC has built its own streaming service which would also compete with Hulu using a subscription service (Schechner 2011). Although Disney’s actions might seem to present a conflict, (Ovide 2010) notes that Apple’s Steve Jobs was Disney’s biggest individual shareholder and a member of the board.
In December 2010, ABC/Disney signed a deal with Netflix to stream ABC television network, Disney channel, and ABC Family channels on Netflix. Content from the channels will be delayed by at least 15 days from the original broadcast date (Jarzemsky 2010). Netflix also noted that more subscribers were streaming movies and shows instead of waiting for DVDs in the mail.
Comcast is a major player in the video world—it is the largest cable-TV provider in America. However, Comcast took a giant step in mid-2011 when the company purchased NBC/Universal. After a relatively easy pass by the FTC, Comcast gained stronger control over Hulu and over a huge library of older TV shows, movies, and current series. Keep in mind that NBC owned several cable-based channels as well as the standard NBC shows—including SyFy, MSNBC, Bravo, Versus, the Golf Channel, USA Today, and E! Television.
Note that many of the channels acquired by Comcast are delivered only over cable or satellite feeds. Putting the shows on Hulu—whether for free or through the low-cost Hulu Plus subscription—enabled viewers to “cut the cord” and drop cable and satellite service—using the Internet to watch the shows whenever they want. Or wanted (past tense). Shortly after Comcast sealed the NBC deal, most access plans to the shows on cable stations were changed. For example, SyFy shows such as Eureka and Haven were no longer released on Hulu at all—with the statement that the shows would be released after the end of the season as part of a pay package (personal observation/frustration).
The process of choosing new TV shows is intense and stressful for everyone. Each year, around 500 new ideas are sent to TV executives, who then select about 70 to written as scripts. The producers then narrow the list down to 20 ideas to create as pilot shows. In a given year, only 4-8 of the pilots become a new series. In a typical season, only one or two of these shows will go on to multiple seasons (Chozick 2011).
Stress is added to the process by falling audience shares—spread across dozens of cable channels and competition from online activities. TVB reported that in the 2010-2011 season, the most-watched show (Super Bowl XLV) was watched by 46 percent of the households. Even the number 100 show (CSI: NY) which is relatively popular, had only a 6-percent viewership rate.
TV shows can be expensive to produce. At the low-end a pilot might cost $500,000, but network averages are around $1.5-$2 million per episode. Although NBC reportedly paid Warner Bros. $13 million per episode to produce ER (C Shell 2010). If a show succeeds, and an actor becomes a “star” through the show, he or she can often demand a million or two for salary alone. But, by then, the show would be successful enough to cover the costs. Unknown actors taking the lead in a one-hour pilot might earn $50,000—which can drop to $20,000 for later episodes.
When should ABC release shows to the Internet?
What charging method should they use and how much should they charge?
http://blog.hulu.com/2011/04/04/q1/ Jason Kilar, “Hulu Blog Q1,” April 4, 2011.
http://online.wsj.com/article/SB10001424052748703779704576074283037958472.html Sam Schechner and Jessica E. Vascellaro, “Hulu Reworks Its Script as Digital Change Hits TV,” The Wall Street Journal, January 27, 2011.
http://blogs.wsj.com/digits/2010/08/31/apple-set-to-announce-99-cent-fox-abc-rentals/ Shira Ovide, “Apple Set to Announce 99-Cent Fox, ABC Rentals,” The Wall Street Journal, August 31, 2010.
http://www.freepress.net/ownership/chart/tv Ownership Chart: Television
http://online.wsj.com/article/SB10001424052748703493504576007300627972290.html Matt Jarzemsky, “Netflix Signs Streaming Deal for ABC, Disney,” The Wall Street Journal, December 9, 2010.
http://online.wsj.com/article/SB10001424052748703864204576315240324571266.html Amy Chozick, “The Math of a Hit TV Show,” The Wall Street Journal, May 12, 2011.
http://abovethelineproducer.blogspot.com/2010/11/dramatic-television-series-cost-of.html C Shell, “The Craft of Independent Film Production,” November 14, 2010.
http://www.tvb.org/media/file/TV_Basics.pdf Television Bureau of Advertising, TV Basics, August 2011.
You will have to do additional research to provide background information and perhaps some useful statistics. But, answers to the case require analysis, not simple research.
***An initial version of the case (5 pages max) must be handed in on the early due date for review. It must contain an initial outline, a list of references, a brief description of data you have collected, and a brief description of how you are going to answer the main questions.
Grading will be based on a stardard rubric.