At the two most recent Television Critics Association Press Tours, Fox’s entertainment chairman Kevin Reilly was living out the opening of Jerry Maguire. Just like Jerry, he’d had an epiphany about the fatal flaws of the system around him, and it was now his mission to fix the industry which was no longer working quite as it should, except in this case it wasn’t the world of sports agencies but the entire TV industry. Everything Reilly said made complete sense, speaking out against the insanity of the standard pilot season and the antiquated way in which broadcast networks operate compared to their more enlightened compatriots on cable, “The broadcast, development and scheduling system was built for a different era. It was built in a three-network monopoly when we had all the talent and all of the audience. It’s highly inefficient.”
His argument was that modern TV viewers now regard most of what the networks do as being crap compared to the higher quality programming on cable, and he was making multiple moves to have Fox operate more like a cable network with longer production cycles and shorter seasons. He even called out the Nielsen ratings system for no longer working:
“The standard Nielsen measurement is unfortunately outdated, and it is a mere fraction of the television viewing universe. The live-plus-same-day numbers is really a fraction of the [viewing audience]. Here’s what we are seeing this season: VOD is up 44 percent. Streaming on Hulu is up 55 percent. Those are some pretty amazing statistics with regard to how that audience interacts with TV. Weirdly, it’s almost a better and more engaged viewing experience. Of the Fox viewers who initiate a stream on Hulu, 60 percent of them complete that episode. Sixty percent, that’s extraordinary, much higher than you would see in any sort of channel-surfing environment.”
Well, you remember what happened to Jerry Maguire, right? They fired his ass. That’s exactly what happened to Kevin Reilly, replaced by people who are mostly there to make sure that the shows 20th Century Fox the TV studio make actually air on Fox the TV network because “vertical integration” is the new catchphrase in Hollywood. Wait, what do I mean by that?
20th Century Fox actually makes Modern Family, but it airs on ABC where it is a perennial ratings hit and awards winner. Going forward, Fox would rather that kind of thing not go to a competitor, stay in-house instead. Of course, Reilly wasn’t just fired for rocking the boat or missing out on Modern Family even though it was right under his nose, but it didn’t exactly help.
However, while Reilly was certainly among the more vocal proponents of change he is far from the only one. Over the summer FX basically said, “Hey guys, this isn’t that big of a deal, but from now on we are not going to report overnight Nielsen ratings anymore because they’re pretty much meaningless.” Now, we are officially into the new Fall TV season, and the networks across the board are all trying to downplay the overnight ratings (unless those ratings make them look good). New Girl and The Mindy Project are down on Tuesdays? Eh, you should see how many people watch it on Hulu. The second seasons of both Agents of SHIELD and Sleepy Hollow opened with less than half the total viewers that watched their season premieres last year? That’s okay because just wait until you see how much of a boost they get from DVR.
In a reactionary business, patience is the new key word, but the type of patience someone like Reilly showed with the rapidly dying (at least according to Nielsen ratings) New Girl and Mindy Project helped get him fired. Plus, around 70% of all new scripted programming on the 5 major networks (ABC, NBC, CBS, Fox, CW) over the past 2 years have failed to make it to a second season. With that kind of track record why should we pay attention to any of the news shows on TV right now? Plus, what does it matter if I still have Sleepy Hollow’s season 2 premiere on my DVR but have yet to watch it 3 days after it aired? I can watch it whenever I want – that’s kind of the point of the DVR. What do you mean I’m actually killing the show?
These are the type of questions which were expertly explored by TV writer Kyle Killen during a presentation at the ATX Television Festival in Austin, Texas this summer. As the creator/writer for such critically liked but short-lived dramas as Lone Star, Awake, and Mind Games, Killen has been forced to become very knowledgeable about the way ratings work in American television. You’d kind of have to after you keep getting told everything you’re doing is great, everyone really loves it, but the ratings were bad so your show has been canceled.
So, now that we are in store for what will likely be yet another year in which ratings are down I thought it’d be a good time to share Killen’s remarkably insightful presentation, as I have transcribed from the Nerdist Writer’s Panel podcast:
How Ratings Work
Since the 1950s, a company called Nielsen has had a monopoly on capturing TV ratings. They do that with a statistical sample of about 25,000 homes that stand in for the rest of us, and they use a machine called a people meter which monitors everything you’re watching, who’s watching for how long, what they fast-forward through, etc. They record those every night, and then they write up a report and release it the next morning and some people rejoice and some start jumping out windows. The actual ratings break down into these 3 numbers:
- The rating is a percentage of all the households that have a TV
- The share is a percentage of the TVs that are actually on
- The demo is the percentage of people who fall within a certain age range.
This is normally reported as “Show X” had a 2.2 rating with a 4 share and 1.1 in the demo, the most important part of which is usually the 18-49-year-old demo because that’s what advertisers care about the most. They think that if you are under 18 you don’t have any money, and if you are over 50 you’ve already decided where you’re going to buy tacos the rest of your life and no amount of ads can change your mind. All you need to know is that Nielsen is how we’ve been capturing ratings pretty much forever, and advertisers care a lot about who they’re talking as well as just how many people.
How Have Ratings Been Lately?
In a word: Terrible. The best show on TV in 2013 was almost half of what it was in 1995. What is happening? If you ask network executives at something like the upfronts they will tell you that the problem is the DVR.
Is the DVR to blame for the ratings?
Not really. Nielsen actually does account for DVR viewing. They break it down into 3 categories: You have all the people who watch it live (Live + Same Day), within 3 days (Live+3), and within a week (Live+7). When we add all of them together does it counteract the nosedive we’ve been seeing in the ratings? No. The downward slopes are less severe, but ratings are still falling across the board.
But it can’t help that the DVR lets us skip commercials, right?
While the DVR is not killing ratings it is killing the traditional ad-based model of making television. Advertisers do not really care if you watch a show. They care if you watch the commercials, and they actually have their own rating which tells them exactly that. It’s called C3, and it is a super secret, shared-only-in-the-industry rating that tells them how many people actually watched the commercials within 3 days of airing.
The C3 rating actually ends up being very close to the Live+Same Day rating because many of the people who watch it on the same day still skip commercials. The same goes except even worse for the people who watch it within 3 days. Even when you add 3 days of actual commercial views you end up with a number which is still very close to the Nielsen Live+Same Day. So, that’s the problem with adding days to ratings – it quickly stops mattering to advertisers. You can make the rating go up, and say, “Look, this many people watched it within a week, “ but the advertisers are saying, “They watched the show, they didn’t watch my commercials. That’s what I’m paying you for.” Even if you showed the advertisers a study that said everyone who watches the show within 5 days watches all of the commercials a lot of those commercial views would still be worthless because so many of the ads are time-sensitive, e.g., come buy my clothes/food/cars/etc., come see my movie within this small window of time. Within 5 days there are new sales to advertise and new movies to cram down viewers’ throats.
You can even see the effect of DVRs on advertising even within the 3 day window. Traditionally, Thursday night was the night for advertising. It was the most expensive night because it was when you were watching TV while also planning for your weekend. So, you would get hit with a lot of car and movie commercials, which are some of the biggest spenders in advertising. Then advertising realized they had to move some of that money to Wednesday night because they realized you guys were watching the Wednesday shows on Thursday, and your Thursday night TV God knows when. So, if you they wanted to get you before the weekend they had to back up. The point is that DVR doesn’t just let you skip ads. It lets you wait to watch them until it wouldn’t matter if you skipped them. Either way, advertisers don’t want to pay for those viewers.
Is it all the DVR’s fault?
So, the DVR sucks for advertisers, but it’s good for you, right? You get to watch what you want to whenever you want to which should mean you’re watching more television. So, why are the ratings going down to all time lows? Because the explosion of original content is at all-time highs. Right now, there are roughly 200 dramas being programmed across 35 different networks. That is fracturing and expanding the audience in ways we’ve never seen before. You take essentially the same audience and you try to spread them across not 60 dramas but instead 200 and you’re going to get less people clustered around any one thing.
Why are there so many new shows?
Because original programming is exclusive. You can only get it from the network that it is on. So, if you like it you become very loyal to that network, and it turns out that loyalty is very valuable. When HBO started making its own series they very quickly discovered that people cited the series as the #1 reason that they were paying for their subscription. In fact, subscriptions would get canceled right after certain shows ended, and they would rise back up when those shows came back. That makes sense because you can get old movies a lot of different ways, but you can only get The Sopranos from HBO. So, original series helped HBO both expand its subscriber-base and charge more for their channel, and very quickly that idea spread to basic cable.
For example, ABC-Family and AMC are two places which used to do one thing, but are now doing original content. Their original content has been very successful, but when they started down this path there were people within their own network who pointed out that they could get much higher ratings for re-runs of Full House than they could with original content. That is true. When ABC-Family and AMC switched to broadcasting original content ratings at both of those channels did fall, but even if there were less people watching those people now found the channel indispensible for something. If ABC were to go off the air people who were bummed about losing Full House re-runs could buy DVDS or find some other old show or any other number of things, but they were unlikely to call their cable company and freak out. However, if you take away the network that has Pretty Little Liars that is exactly what they do-they freak out. That allows the network to drive a much harder bargain with the cable companies like Time Warner because you know that they are backed by the Breaking Bad army.
Even if you had lower numbers you could charge more for your ads because the advertisers wanted their content buried in stuff that was new as opposed to endlessly repeating re-runs. So, you get higher subscription fees and more ad dollars, and that’s why everyone is doing it.
How do you make money in an era with too much content and ever-dwindling ratings?
The first thing you could do is to buy sports. Sports and live events are the one thing that audiences have showed that they have no interest in DVR’ing. They want to watch them live which means they will watch the commercials. 34 of the 35 most-watched programs of 2013 were NFL football games, which explains the astronomical rates that you are seeing for television packages for major professional and college sports.
Let’s say that you can’t own sports. The next step would be to own your content. Networks don’t actually make shows; studios make shows, and the networks sort of rent them. They make money by selling advertising during the show when it airs, and then they eventually give the show back to the studio. The studio then has multiple ways it can exploit the show to make money. However, if you’re a network and you happen to own the studio that you’re buying the show from, like Fox and 20th Century Fox or ABC and ABC Studios or NBC and NBC-Universal then suddenly you’re able to tap into all these other sources of income other than just ads. This is one of the ways where you can really begin to understand what gets on TV these days and what stays on TV.
For example, CBS doesn’t own any of its giant, hit comedies, which deeply bothers them. Other than the fact that they get the ad revenue, which is not insignificant, they don’t get anything. So, that is why they hired Greg Garcia to make The Millers for CBS Studios, and then put it on right after Big Bang Theory. They want a hit that they can exploit 7 different ways, not just 1. Or you take a show like Hawaii Five-0, which for CBS is very low-rated but CBS owns it. It is extraordinarily popular overseas, and they’ve sold the re-run rights to TNT for a ridiculously large amount of money. So, when you add all of that together because they own it they actually make more from Hawaii Five-0 than they would a show which gets twice its ratings but they did not own.
Bottom line, if you have less people watching you need to have different ways to make money, and owning the shows is one way to make that possible. All of that is not to say there isn’t a fortune to be made in advertising, but to get it you have to approach it differently. Instead of focusing on how many people are watching you have to really focus on who, i.e., the demographics. Advertisers will pay much more to talk to a small group of people who are the right people rather than a large group of the wrong people because any time you are trying to sell something you want to reach out to the group that can actually buy your item, even if that means focusing on a smaller group.
Until last year, CBS had the highest overall ratings, but their audience largely consists of older people advertisers are less interested in. So, you look at 60 Minutes vs. Bob’s Burgers – 60 Minutes has 5 times as many viewers, even in the targeted demographic they’re nearly a half a point higher, but ads on Bob’s Burgers sell for a third more. Why is that? You’re not just buying an ad but the content around it and how that reflects on your brand. 60 Minutes is not very cool. So, even if more 18-49-year-olds are watching it you don’t get a very good reflection from surrounding it. A cool show is worth more. The second reason is the reason that Family Guy was resurrected from the dead. At the time when it went away it was a show that spoke mostly to young men, and young men were not considered a particularly valuable audience because they watch everything. Then they started to get really interested in the internet and video games and suddenly young men weren’t watching anything. So, if you had a show that could target them that was extraordinarily valuable. So, Peter Griffin rides again, and Bob’s Burgers is more expensive than Mike Wallace.
You can also see this with New Girl. It’s audience is 1/6th the size of NCIS, almost half of its demo, but the people who watch tend to be young, affluent, and female. So, advertisers will pay a premium to talk to them and associate their brand with stuff that those people think is cool.
That’s good, right? It doesn’t matter how many people are watching, as long as we know a lot about them we can still sell ads for a fortune and everything will be fine. Except to do that you need to know a lot more about the audience than we used to, and that brings us to the problem with Nielsen ratings. They’re from an era of 3 networks, an era when audiences were so massive we couldn’t conceive of having to care about the difference between a .9 and 1.1. Those were both just things we should cancel. As the numbers get smaller in order to really squeeze money out of the shows you need to get down and see what is inside your audience and that is the problem. Nielsen is a ruler in a world where we now need a microscope.
There are competing ratings systems which have risen in recent years, and they know stuff about you that are scary. They have hundreds of thousands of measuring points, and then they marry that data to data they are getting form social networking sites and shopping sites. They’re way beyond telling you how many 18-49-year-olds are watching; they’re telling you how many 24-year-olds who make $80,000 a year and drive a Toyota and eat at Olive Garden and saw 6 movies last year are watching. Having that kind of data opens all kinds of new ways to exploit your audience, but to do that you have to switch away from Nielsen. That’s not happening.
Why are we still using Nielsen?
The standard response you get is because of the historical data, the fact that we have something to compare today’s shows to. We know what we are willing to pay for something that gets a 1.1 in the demo on Thursday night because we know how that compares to the rate we paid for it last year and 5 years ago and 10 years ago. Nobody has a frame of reference for what 5% of the BMW-owning audience on Thursday night is worth. That’s why these new services are trying to simultaneously sell themselves to advertisers and to networks because you have to get both sides speaking the same language, but right now everyone just speaks Nielsen.
The other problem is that if I happen to have the best Nielsen rating I have no motivation to change since that only does a favor to my competitors. If I have the worst Nielsen ratings of course I want to change. So, advertisers are suspicious when you are at the bottom and saying that the system is broken, and when you’re at the top you’re never going to say the system is broken. As a result, we just keep doing the same thing.
Eventually, all of these issues are going to catch up with us, and what will TV look like then?
Whether or not Nielsen buys one of its new competitors or someone knocks them off our approach to understanding TV and audiences and advertising is going to become a lot more like it is on the web, data-driven and hyper-personal. One of the things that really lets us exploit that is the other thing that scares networks, and that is streaming. For as nice as the DVR is it is basically a souped-up VCR, but what it tells us is that people want to watch what they want to when they want. If you embrace that mentality by embracing streaming, a lot of the problems that the DVR creates go away. You don’t have to guess who’s watching your stuff on Hulu. They know exactly who’s watching which lets them sell different commercials to a 65-year-old man and to an 18-year-old girl who are both watching the same show at the same time. You can sell ads for weekend movies on a Thursday night even if what you’re watching on Thursday night is a Monday night show from 5 weeks ago. All of that stuff stops mattering. So, streaming is going to be the savior of ad-based TV, not the death of it.
There’s also HBO GO and WatchESPN on your phones and tablets, which is ultimately where TV is headed. Even the heads of the cable companies will tell you that these giant subscription packages are over-priced dinosaurs and that eventually, people are going to get rid of them. In fact, young people are rejecting cable packages in record numbers. Once you start to dismantle that system essentially channels just becomes apps which compete to take space on your phone or tablet, and whether or not you make space for them is going to come down to their ability to provide one service and that is called curation.
We are so overwhelmed with content that we become reliant upon smart people to watch everything for us and tell us what’s cool, what looks interesting. Whether you’re HBO or ABC I’m only going to pay for your channel if your content is something I can trust you to consistently pick out and deliver in a way that I like. That’s a big shift for networks which have historically been run like shopping malls, they have a little bit of everything for everybody, and they’re very dependent on foot traffic and large crowds. However, we’re entering an era in which broadcast networks are going to have to act a lot more like cable networks, which is more like personal shoppers. You’re very busy, you want someone to consistently go out and get you stuff you like. If your personal shopper is consistently bringing back a grab-bag of seemingly random stuff then you are probably going to fire them.
You can see where the networks are failing in this by their single-season cancellation rates. All of the broadcast networks cancel at least 50% of their new shows after or even before a single season, and NBC and ABC are actually up around 65%. Compare that to HBO which is only at 35% and Showtime is under 10%. Why does that matter? In a world where the problem is an overabundance of choice if the person who is supposed to be telling you what is cool keeps changing their mind eventually you will stop listening to them. In this age of endless content and curators, you have to learn how to throw less shit at the wall and make more of it stick.
Head over to Nerdist to listen to Kyle Killen’s full presentation as well as the panel discussion with some of the leading TV critics which followed his presentation. I thought he was spot-on with his assessment of the state of American television. What about you?
Sources: Nerdist Writer’s Panel, THR