How the Web Is Changing TV’s Definition of a Hit

While revenue from time-shifted TV distribution can only account for part of a monetization strategy, the economics of television are changing for the cheaper, was the message from a group of production executives at the Variety Entertainment & Technology Summit yesterday.

“It used to be the hits would pay for the losers, now not so much,” said Marc Graboff, the chairman of NBC (s GE).

Instead, shows like The Office, The Biggest Loser, Prison Break and It’s Always Sunny in Philadelphia are successful based on different factors: strong advertiser support, cheap production costs, online popularity, and international and DVD sales.

Of course, it’s not only increased flexibility of consumption that is driving TV economics down; advertisers just aren’t ponying up like they used to. However the TV execs on the panel said they are none too comfortable with the current state of digital and DVR distribution, especially since measurement techniques are lagging viewership.

“We have a corporate agenda with Hulu which is to support it,” said Dana Walden, chairman of Twentieth Century Fox Television (s NWS). “It is personally challenging.”

“The idea that you can watch [TV] the very next day on Hulu is scary” — but she’d prefer it to bootlegging, Walden said.

“We’re glad we’re equity owners of Hulu as our companies, we’re hopefully going to see some money that way,” added Graboff. “This was an anti-piracy move. We may have been a little too aggressive with giving it away for free.”

But he acknowledged, “At least Hulu has been created as a destination site. I think they’ll eventually find a business model, hopefully sooner than later.”

Perhaps the best example of a show that has dealt with the pros and cons of online distribution is It’s Always Sunny in Philadelphia, which FX Networks President John Landgraf explained at length.

Ratings are up 70 percent for Sunny in its fifth season, but until now the show was made so inexpensively that it could make money without being a hit, said Landgraf. “That’s a fundamentally different economic structure,” he pointed out.

Sunny got a big push from its popularity on Hulu, where it made all existing episodes available when the site launched. “It was the first time the show had ever been in the same field of view as Family Guy and The Simpsons and The Office and Saturday Night Live,” said Landgraf. “Hulu really benefited from Sunny.”

But then FX had to consider the potential revenue from DVD sales and other venues for a popular show that had a good library of seasons under its belt.

“Since we own Sunny on behalf of the profit participants, we reluctantly took it down,” said Landgraf. “If we left the episodes up forever on Hulu, we might be damaging value,” he said.

“Hulu cannot replace all the other parts of that ecosystem,” Landgraf contended, speaking both of existing revenue streams and promotional tools. “Ultimately these linear channels have to actually create the hits.” Although considering his and his co-panelists’ other comments, it would seem that’s no longer the rule.

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