Hollywood’s Web Shows: The Future of Television?

I have argued before that the television industry would benefit from transforming its business model to enhance consumer engagement and adapt to new technologies. That is not to say that broadcast TV is in danger of disappearing (in fact a May 2008 Nielsen Report pdf found Americans are watching more traditional TV than ever) but DVRs, digital cable, and online video all make it increasingly difficult for networks to secure consistent viewers and advertisers. As a result, pilots, even beloved shows, either produce immediate results or face extinction. The system has become so reliant on statistics that a show whose viewership falls below 93% of its networks’ average viewers will be flat out NEXTed. (source: tvbythenumbers.com)

Wait a second. What about the people watching the show on DVD, on the Internet, or on mobile devices? How are they accounted for? And, if you’re like me, you don’t want to invest in a show when you know it’s likely to be abandoned without warning. But it is the nature of the business that a series won’t survive without the initial ratings. It’s a vicious cycle and breaking it would mean one of two things. Either audiences gain enough trust in the networks to risk their time and energy to invest in a new series, or the networks trust the audiences to improve the ratings of a show even after a poor start.

What we have here is what smart people call a Hegelian dialectic, the idea that the tension between two opposing forces is resolved through a synthesis. In this case, the tension between the networks’ old consumption expectations and the viewers’ new consumption habits has resulted in a new Hollywood experiment: web shows.

In an article featured in August’s Wired Magazine, “Hollywood Has Finally Figured Out How to Make Web Video Pay,” Frank Rose explains why online video holds such promise for TV and film Studios:

Sure, the YouTube explosion was fueled by amateurs, but it will be showbiz professionals who cash in on Web video. That’s because most big corporate advertisers want a safe, predictable environment – not the latest YouTube one-off, no matter how viral.

As an example, compare Hulu with YouTube. Hulu supports pre-roll ads and brief commercial interruptions because it has licensing deals with Hollywood content providers. In contrast, advertisers would never want to be associated with some (most) of the videos on Youtube and users would never want to see ads while watching amateur content. For this reason, Mark Cuban predicts Hulu will surpass YouTube in revenue by the year 2009. It is entirely likely.

I think it’s fair to say that we are entering an age where people would rather watch compelling stories than boneheaded pranks and gags. According to businessweek.com, ManiaTV scraped 3,000 user-generated channels and replaced it with professional content. As ManiaTV’s CEO Peter Hoskins explains in the article:

Roughly 80% of people were watching the professional content produced by celebrities such as musician Dave Navarro and comedian Tom Green. What we found out is, we don’t need the classical user-generated talent when we have the Hollywood talent that wants to work with us.

But while professional content is in high demand, developing a system to monetize it is incredibly challenging. Wired’s Rose notes:

So far, however, this is a gold rush without any gold. Nobody knows how the business is supposed to work – what kind of stories to tell, whether to tell them in 90 seconds or 20 minutes, whether to build a destination site or distribute episodes across the Net, how to generate revenue, how to do it all on a shoestring.

In this Wild Wild West of web video, there are many uncertainties, but the biggest one is how to make money. Allow me to address this concern:

Will Internet consumers and their ADD have the patience to watch commercials on the web?

I believe they will. Right now, Hulu has about 2 minutes total ads for an hour TV show. If the video’s streaming quality is good and the content is engaging, viewers will tolerate four 30 second breaks. If you ask me, watching a program on TV would make me more impatient. Without a DVR, I have to sit through 16 minutes of commercials for an hour long program. Why wouldn’t I flip to one of my hundred other channels during that time? In the two minutes before my show returns, I can search around for awhile, see what’s happening on From G’s to Gents or head to the refrigerator to make a sandwich. Or, if I have a DVR, I’ll just skip the ads altogether! On the Internet, I’m going to watch that 30 second ad. And I would think that the more a commercial is seen, the more value it has as an advertisement.

Actually, the best chance for an ad to be seen is to broadcast it to the most people. The television industry makes all its money off its traditional advertiser-supported business model. If consumers migrate to the Internet to watch TV content, they may never return. And a few short online ads won’t cover the affiliate fee revenues lost by the networks during their regular programming.

Certainly, right now, web ads can never substitute for TV ads. Rather, web content provides an excellent supplementary line of revenue, given its low cost. While according to this biz-tech report, TV still reigns over the Internet, there is still a definite audience for the Web. Thus, the key for the entertainment industry is to harness both arenas. It will take some serious experimenting from the corporate powerhouses to establish a lucrative business model and there will be some financial losses along the way. But the benefits of moving to digital distribution will keep the studios at the top of the online video food chain, no matter how many people have iMovie. As Rose writes:

Instead of pulling in millions a year, [the studios will] be scrambling for nickels and dimes. No surprise, then, that some of them think of Web video as a sort of farm club for TV: Why spend $2 million to make a half-hour pilot when you can shoot some high-quality Web episodes at $10,000 to $30,000 a pop, post them online to build buzz, string them together to make a series, and then port the whole thing back to television, where the real money is?

But not only do web shows function as an inexpensive experiment, they also allow viewers the time to get to know the characters and sink into the story line. Web series do not require immediate results, enabling viewers to be more trusting of new content.

Plus, with web video, studios can more accurately understand a show’s popularity. Whereas TV depends on measurements that are largely speculative and inconsistent such as the Neilsen Ratings, the Internet’s audience measurement (with the likes of Nielsen/Net Ratings and comScore) offer detailed analysis on consumer demographics and behaviors. It is now possible to show advertisers definitive proof that their target audience is being reached. Additionally, content creators can make more informed decisions about what works and what doesn’t if they decide to translate the property to broadcast TV.

Surely you’re not suggesting webisodes and TV episodes can be easily exchanged and tossed around to and from the television set and the Internet?

I am not. Let’s first compare the two media. While webisodes do not have a definitive form, they are shorter in duration (2-15 minutes) and typically span across many episodes (around 100). Webisodes are released daily, weekly, or monthly and often stick to a serial storyline. TV episodes on the other hand are longer in duration (30-60 min) and are usually released in a weekly format. Traditional TV is more of a social activity, Internet video is an individual experience. Internet video can be watched whenever and wherever, appointment TV brings content to a fixed location, at a fixed time. As you can see, both TV and web stories are designed to meet their respective forms. So you can imagine the problems when a five minute series designed to be watched on the fly is inflated to a thirty minute show.

Producers Marshall Herskovitz and Ed Zwick discovered this first hand when NBC decided to bring their popular web series Quarterlife to prime time.

The cast of Quarterlife

According to their social network, Quarterlife’s target audience consists of “creative people, passionate people, people who want to change the world.” Sounds like the perfect audience for an NBC show doesn’t it? Why Ben Silverman and NBC thought that mass audiences would also relate to this show, I don’t know. The series averaged a strong 250,000 views when it ran on MySpace but on NBC it collected a measly 3.1 million viewers. It was the worst performance by any NBC prime time show in 17 years. Say it with me now: NEXT!

But why the epic flop? Quarterlife follows a group of college graduates struggling to find employment, relationships, and their own identity. The main character, Dylan, video blogs about her feelings on the quarterlife social network, an act which many critics found to be self-obsessive and whiny. And that’s just it. The people who relate to her internal and external conflicts and her use of an online social network are the twenty something year olds currently entering the job market. A show designed for a specific audience – creative, artistic millennials – belongs where that group spends the most time: on the web.

How can web shows ever make a substantial profit off advertising?

Rose cites an upcoming NBC web series, Gemini Division, as utilizing innovative product placement. (check out Cisco’s TelePresence) This has certainly been an option for many web series. The show Quarterlife featured blatant Toyota branding as well as promotions for its own social network, quarterlife. But Hollywood needs a more dependable model than a few car logos and an ad that says, “This program is brought to you with limited commercial interruption by some toothpaste brand.” As Variety’s Dianne Garrett notes,

However, advertising, while also growing, is lagging. And it definitely doesn’t cover the cost of production for most of the Web series popping up online. To help underwrite the costs, producers are lining up sponsors, but even they don’t necessarily cover costs.

In November, Eisner told the New York Times that “Prom Queen” cost $3,000 per 90 seconds, that it made a couple thousand dollars and that the sequel lost money. “Quarterlife,” meanwhile, cost north of $80,000 per 8-minute episode; sponsorships by Toyota and Pepsi didn’t fully cover the costs.

How to make money off advertising is a huge concern and it may be worth exploring untraditional approaches. For instance, one popular system amongst video sites involves advertisers paying a fixed amount based on the views a video receives. Advertisers on Blinkx will dish out $60-plus per 1,000 views to be placed alongside professional content. (while paying 7$ for user generated content). In the future, higher demand for online video should increase the expense of advertising even further. But could this model work for Hollywood?

Additionally, because web shows appeal to a narrow audience, advertisers increase their chance of reaching their target audience. For instance, athletic apparel, trucks, and movie trailers would play before a webisode about a fictional sports team. But that has not been enough to fuel an advertiser-support model. Tim Leavitt takes this narrowcasting a step further on his blog by imagining a highly calculated advertising system:

I envision a web site (or a stand-alone downloadable application) that tracks users’ media-watching preferences, coupled with a Netflix-like ratings and recommendations system. Taking into account users’ basic profile information (age, sex, zip code, etc.) and previous clicks on various advertisements, this detailed profiling would create an advertiser’s dream – the ability to narrowcast their advertisements to an ideal demographic with specific interests, to a very controlled degree.

Viewers would see different advertisements than other people watching the same program, based on the information included in their unique profile. In return, advertisers would pay a premium for this luxury to make up for an overall decrease in advertising that would go along with each program. This system works better for the viewer as well. Imagine only seeing one or two commercials per program, and they’re always for your favorite beer or department store.

If executed properly, this idea seems like it would appeal to producers, distributors, and advertisers, but there are of course privacy issues: how well do people really want advertisers to know them? I can’t help but have an image of Minority Report…

Thus, the question of how to make a substantial profit does not have a definite answer. I am confident, however, that as web video becomes more popular, the advertising dollars will follow.

Who will watch web shows, besides the occasional insomniac web surfer?

Right now, online hits tend to be viral one-offs rather than serial narratives. But that’s changing. In 2007, Electric Farm Entertainment produced “Afterworld,” a show about a catastrophic event which leaves 99% of the human race missing. The show ran for 130 episodes on a 3 million dollar budget, and has a loyal LOST-like fan base.

One of the best ways to draw huge numbers is through star power. Joss Whedon’s Internet film “Dr Horrible’s Sing Along Blog” starring Neil Patrick Harris, crashed after 1,000 people accessed the site in a single second. Electric’s latest project, the NBC distributed Gemini Division, is poised to have similar success with Rosario Dawson.

Other times, no names become a phenomenon because of their endearing pseudo-realism. Lonelygirl15 exploded on MySpace and YouTube, where it has generated 50 million views. Now Dr. Horrible and Lonelygirl could not be any different in terms of style, production, and distribution. But they are both examples of web series which have gone viral and attracted “insanely massive traffic.” I believe if Hollywood more actively embraced web 2.0, and involved Hollywood and/or YouTube celebrities, they could appeal to an audience beyond web crawlers.

And some have. Warner Bros. has started to get serious about made-for-web TV shows, launching Studio 2.0 in 2006. Of the 24 web productions (costing 3 million dollars), Viralcom is the most notable, a show about a movie studio which produces professionally scripted user generated videos. The New York Times, which tracked Studio 2.0 early on, highlights the need for Hollywood to commit to a stronger web presence:

The shift underlines a growing realization among the big Hollywood studios: Web entertainment is evolving so quickly that they must take on more financial risk to keep up. So far, Warner and most other traditional studios have tried to lock down a comfortable, low-risk business model before venturing too far online. That approach has slowed them down, delivering a competitive edge to scrappier, upstart production companies.

Indeed, the risks are great. But if Hollywood devoted its capital and human resources to produce engaging web content, and promoted it like they do TV Shows and movies, they could potentially draw large audiences and in turn, advertisers, who would compete for the right to provide limited commercial interruption.

Web video holds exciting opportunities for Hollywood. The studios have been, and will continue to be, the masters of stories; they just have to be willing to adjust how they present them. Assuming a successful business model develops for web video, see if you can imagine these scenarios:

  • ABC’s web show expand on the world of LOST, following minor characters or background stories, and each episode makes a meaningful contribution to the whole. These webisodes are not deleted scenes or behind the scenes coverage but their own separate serial narrative.
  • NBC airs the PG version of Friday Night Lights on broadcast television and the rated R version on the Internet. As a result, the show appeals to a diverse range of audiences.
  • FOX places its cancelled show, Fringe, on the Internet, where it gains a loyal fan base. The series’ popularity soon reaches a broad audience and FOX returns the show to its line up, where it thrives in primetime.
  • CBS discovers an intriguing independent web series, The West Side. The network pick its up, provides a larger budget, promotes it, and distributes the series online, all while allowing the original creators to have complete creative control.
  • Finally, all of the major networks host their own original web series, where they profit off low budgets, inundated traffic, and elevated advertising fees.

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3 Responses to “Hollywood’s Web Shows: The Future of Television?”

  1. Brent Friedman Says:

    Very interesting piece. To clarify, on Gemini Division our sponsorship partners were (in no particular order): Cisco, Intel, Microsoft, Acura and UPS. The show does not feature ads by any of these companies but, rather, we have integrated each of these brands into numerous episodes because each of them enhanced the world of our show in some way. This, I believe, is a new model for monetizing on the web wherein everyone wins – the producers, the brands and, most importantly, the viewers (who don’t have to sit through traditional ads.)

    Brent Friedman
    Electric Farm Entertainment

  2. Aaron Says:

    Thanks for stopping by and commenting. I plan on blogging more about Gemini’s business model in future posts. By the way, I’m extremely excited for the show. I’m not only interested in the story itself, but also how it will be presented across multiple platforms. Good luck, I’ll be following closely!

  3. Tim Todd Says:

    Hi Aaron,

    My originally intended comment became part of my next blog post (the comment that follows is in lieu of my original comment). The title for my new post will be, “Category Confusion: Nielsen, Gartner, the Federal Census Bureau, and You”. Notice the addition of Nielsen. I believe that Comscore (which you reference) does a much better job in capturing the consumptive patterns of the 2.0 viewer than does Nielsen. My next post should illustrate that Nielsen needs to step it up. I will let you know when I post it.

    Thanks for another detailed post with lots of links to additional information. I like Tim Leavitt’s idea. Sounds similar to the gamer tag for the XBox360. It would be interesting to merge Leavitt’s idea in with something like a XBox360 gamer score and achievement type system. This could further promote and direct participation as well as tie viewers to specific ad types.


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