TV Financing and Portfolio Strategies (Part 2)
Last time, in Film Financing and Portfolio Strategies, I introduced Dotted Line readers to the ins and outs of film financing and portfolio strategies. This week, I will discuss the same strategy used in the context of TV financing. Although the general principles behind portfolio strategies stay consistent between film and TV, there are several unique considerations involved in the TV market that set TV portfolio strategies apart from its Film counterpart.
Product Reach and Range of Budget
TV networks are defined according to diversity, quantity and reach. In terms of diversity, networks must appeal to a broad spectrum of viewers to establish a proper portfolio strategy. They must cater to a variety of daily audience preferences including: news; kids television; sports; talk shows; dramas; sitcoms; etc. A channel must typically include the bulk of these categories in its daily programing to survive. For example, the average channel 2, 4, or 7 follows structured formats designed to appeal to the repeat demographic: morning shows followed by soap operas, followed by daytime and children’s programming, followed by news, primetime, then late night television. Let’s take CBS for example:
CBS: June 17, 2014 Programing List
- 4:00am – 9:00am: Morning News/Morning Shows
- 9:00am – 11:am: Game Shows
- 11:00am – 1:00pm: Soap Operas
- 1:00pm – 5:00pm: Daytime TV (Dr. Phil, Judge Judy, etc.)
- 5:00pm – 8:00pm: News
- 8:00pm – 11:00pm: Primetime (Hawaii Five-O, Criminal Minds, and CSI)
- 11:30pm – 1:00am: Late Night (David Letterman)
With the exception of children’s programing, the daily CBS programing pattern is spot on and completely consistent with the structured diversity format of most Networks.
Differing from movie Studios that call for specialization (i.e. particularized style, feel, and demographic targeting), networks are defined by their diversity and ability to transform and appeal to a wider range of the viewing audience. Studios must depend on heavy specialization when green-lighting films to maximize the film’s appeal to its target demographic. Films are all about nailing that specification, delivering a finished product that caters completely to the demographic in mind. If a Network were to utilize this same approach, its specific programing would cater only to a small subset of the available demographic, and the Network would eventually suffer. The majority of major Networks (i.e. CBS, NBC, FOX) depend on diversified programing to appeal to the spectrum of viewing audiences throughout the day, a necessary component of Network vitality. 
Furthermore, major Networks depend on the ability to capture a mass of national households, in network terms, “national coverage.” Their success is contingent on their reach to a mass demographic of TV viewers. It is likewise important to maintain the perception that the Network is able to produce a large quantity of original programing. For this reason, Networks are consistently exploiting potential new programing to keep original content flowing.
Time Slots by Genre
One of the main elements of a successful TV portfolio strategy is to diversify the daily programing by utilizing designated time slots for particular types of programing. Understanding target audiences in TV is only effective when the Network understands what time it has to target that demographic.
By planning TV programming according to time slots, Networks put themselves in the position to take risks. Let’s return to the CBS chart above. Let’s assume CBS wants to test a new program (“Test Program”) during its 10pm prime-time slot after Criminal Minds. Test Program is similar in TV format to Criminal Minds and targets the same general demographic. To determine whether Test Program is a hit or a flop, the Network will bundle the program with Criminal Minds and Hawaii Five-O, hoping to retain a portion of the audience from the well-known programming. Networks call this strategy, utilizing the “lead in” or “lead out” for surrounding series. If Test Program retains a good portion of the Criminal Minds/Hawaii Five-O “lead-out” audience, and manages to do this consistently, there is a good potential that the program will prosper as a hit. Vice versa, poor audience retention usually indicates that the program will fail.
Understanding the time-slot strategy not only allows the Network to take TV green-light risks, but also serves an important function in regards to establishing budget ranges. Naturally, there are certain time slots that are of high demand and attract more viewers, inevitably making more money for the Network. As such, the Network is more willing to allocate larger budgets to the higher audience, building time-slots (primetime) and lower budgets to the niche, low appeal programing.
Brand Extension vs. Creation
While Film portfolio strategy is often viewed as taking a sure-to-succeed concept to the big screen, providing Studios with the flexibility to green-light projects with less potential for success, TV Networks create that same flexibility. However, this flexibility is issued in a substantially different way form Film portfolio strategies. It is simple to create a laundry list of books that have a huge potential for successful adaptation into movies, but the same is not necessarily true for TV concepts. With the exceptions of children’s programing (the odd genre out), very few adult series are derived from existing material in the TV market. Many attribute this divergence in part to the rigid format of TV programing. TV shows must conform to specific formats and time designations and are therefore characteristically formulaic. A series like Breaking Bad, that always ends with a cliffhanger, needs to tell each episode-story in a repeatable 44 minutes (or 22 minutes for half-hour programs).
Before going into deeper analysis, lets compare a list of highly successful Films with highly successful TV programs.
|Pirates of the Caribbean (Adaptation from Ride)||24 (Original Programing)|
|Harry Potter (Book Adaptation)||The Close (Original Programming)|
|X-Men 3 (Comic Adaptation)||The Office (TV Remake of British Original Programing)|
|The Da Vinci Code (Book adaptation)||Survivor (Original Programing)|
|American Idol (Original Format)|
When comparing the two markets, there is a noticeable difference in the origin of the content. Where Studios depend on sure-to-succeed, already proven concepts (like book and comic adaptations) to make their no-brainer high profit films, TV Networks depend on a slightly modified strategy. Instead, they depend on sure-to-succeed, already proven concepts and formats. These formulas for TV programing have repeatedly driven network decision-making for the year. For example, Grey’s Anatomy was presumed a sure-to-succeed program, following the tremendously successful formula of ER. Thus, Networks depend on easy-to-green-light, sure-to-profit projects, with already proven concepts, to take creative liberties when offering their unique concepts to the Network.
So far, we have only talked about the major Networks (i.e. the big players in the TV industry like CBS, NBC and ABC). But what about the small channels like Bravo, E!, and MTV? Well, the reality is that these channels are part of larger portfolio strategies set by their parent companies. Each individualized and specific network is owned by a larger corporation, and introduced to market as a component of the Network’s portfolio strategy. None of these channels are diverse; they have limited scope and original programing targeted at a highly specialized demographic. Although they have limited demographics, they serve the purpose of creating robust spending for the Network.
For example, Cartoon Network, owned by Viacom (CBS), is a power brand. Although it is demographic-specific and highly specialized towards children, it has dominated its relevant market. Its ability to target children through 24/7 kids programing leaves no room for competition. Cartoon Network’s parent company, CBS, benefits not only from the tremendous success of the network, but also from cross-promotional opportunities including targeted marketing, that draws in big bucks for CBS to take risks. Thus, Cartoon Network is merely a piece of the CBS puzzle that provides extra income and the potential to take creative liberties in other affiliate channel and parent company programing.
The Final Consideration: Aftermarkets
As discussed in the context of film portfolio strategies, aftermarkets (IP derivatives in Film) play an important role in the company’s ability to derive extra profit aside from the actual creative content. Although there is a potential for derivative merchandising in the specialized markets, such as children’s programing, the bulk of secondary profit for the TV Networks comes from “aftermarkets” (i.e. licensing potentials). For example, after the lifespan of the TV program expires, the Network will license the program to a number of platforms including:
- Cable: if the program was originally launched on network or pay channel (Example: Sex and the City, licensed to TNT after the conclusion of its run on HBO).
- Syndication: licensed “market by local market” but typically requires a minimum of 65 episodes. (Example: Seinfeld involved one of the largest syndication deals of all time).
- Video: TV programing that is licensed by the “season” or as a collection for DVD sale (Example: The Sopranos series special edition).
- Download Internet: licensing the program for download on services like Amazon Prime and iTunes.
- PPV/VOD: TV series available after the original airing for free or purchase on platforms such as free on-demand.
Keeping these aftermath markets in mind, Networks often make green-lighting decisions based on the potential for growth beyond original programing. As such, the potential for aftermarkets plays a crucial role in TV portfolio strategy.
The Current Issues in the Market
Although the evolution of digital media has provided for alternative revenue streams and acted as a lucrative platform to exploit, it has also caused tremendous problems for the traditional structure of TV profit building. Commercial time slots were often the largest selling point for Networks and provided the greatest opportunity for profit. Commercial profiting also filtered into the creative, providing flexibility to take liberties with programing based on the presumed profit-earning from commercial sales slots. However, with the availability of on-demand programing, and the widely accepted use of DVR, commercials are viewed by less and less homes and are becoming a less lucrative means of profit for the Network.
This has filtered into the creative and taken a toll on the TV Networks portfolio strategy. Troy Dow, Vice President and Counsel, Government Relations and IP Legal Policy and Strategy at Disney, recently commented at an IP panel that digital media has impacted the creative of TV Networks tremendously, causing Networks to take far more conservative approaches towards green-lighting content and taking programing risks.
Although digital media has caused problems in the recent years for TV portfolio strategies, Networks will eventually adapt to the changing market. They must learn to capitalize on the digital media age to recoup the profit lost and restructure its portfolio strategy to reclaim the flexibility to take creative risks in TV content.
 Jeffrey C. Ulin, The Business of Media Distribution: Monetizing Film, TV, and Video Content in an Online World, p. 36, Focal Press Taylor & Francis Group (2013).
 Id. at 37.
 TV Guide, CBS June 17, 2014 Programing List.
 Id. at 39.
 Id. at 40.
 Id. at 42.
 Id. at 42.