Sunday, January 22, 2012

Digital Dollars


            The way that production companies make money off of television shows in America is a disorganized hodge-podge of business methodologies that were obviously slapped together as quickly as possible by the Federal Communications Commission in conjunction with a number of legal and business representatives while attempting to maintain the integrity of the United States anti-trust laws.
            The situation isn’t as difficult in other countries where they were able to look at what had been done in the States, and then formulate their own system without the complexities that had developed through the spurious period of adaptation to a new form of technology.
            Today we are seeing this same response in the techniques being used by production companies to try and capitalize their products within the digital medium. Internet distribution is rapidly becoming just as needlessly complex as the American television distribution system due to the speed with which corporations are being forced to adjust their core business practices.
            However, the American broadcast system does provide a surprisingly reasonable framework upon which to base the evolution of Internet based production distribution.
            In order to operate within the laws of the United States, no business may control more than a certain percentage of a total market. This means that the major television networks are not allowed to own all of the individual local stations within the country. The business repercussions of this are remarkably similar to the situations inherent in on-line distribution where a variety of individual sites are competing on a global scale.
            There are three primary ways for a production company to make money off of a television show that they have produced in the United States.
            The first is called First Run Syndication. This is where the production company signs an exclusive agreement with a network to air new episodes of the show while it is being made.
            The second is called Off Network Syndication, or Second Run Syndication. This is colloquially referred to as “reruns”. This is the aspect of American distribution that most closely resembles Internet distribution. In this phase the show is sold as packages of multiple episodes (one to four seasons worth) to all of the individual local stations around the country.
            The specific purchase arrangements will vary from one station to the next. However, there are two specific methods that can be seen as viable to the digital medium. These methods include straight sales and bartering.
            In straight sales the production package is sold for cash with the station taking all advertising rights within the show.
            In bartering the show is given to the station for free, and the production company keeps the advertising rights in order to make their profit off of the sale of commercial time when the show is airing. This method will usually have a contractual agreement stipulating that the show will have a specific time slot.
            The third way of making money is non-broadcast sales. At this time that primarily consists of selling collectors sets of DVDs. While it can be very lucrative for a successful show it is not directly relevant to this discussion on conducting business within the on-line market.
            Now, if we look more closely at the system for Off Network Syndication we can see how the overall structure is quite closely related to Internet distribution. And, how the evolving business methodologies are reflections of the predecessing sales structure.
            At first, on-line video distribution involved no commercials or any exchange of money. It was used primarily as a vehicle for gaining publicity. Just as television shows were originally free, because they were actually trying to sell the television sets that people were using to watch the shows.
            Then, some enterprising individuals began adding commercials to on-line videos. This quickly developed into a system nearly identical to Off Network Syndication.
            Now, we are seeing the more successful digital distributors (such as Hulu) beginning to produce their own First Run shows. This then opens the door for other production companies to begin selling their shows to the larger digital distributors for First Run Syndication.
            The important aspect of this is that the digital platform allows the audience to choose what they want to watch at any time. Prime Time slots are now irrelevant. Additionally, the major networks were always constrained to the number of hours in a day. The digital platform does not have this limitation.
            A digital distributor could, in all plausibility, launch 300 First Run shows at the same time. Then, only keep the ones that get strong ratings after the first season.
            While it does mean a drastic reduction in the amount of money available for production costs, it has one huge benefit. In an increasingly tight market where production companies are constantly fighting for airtime it is now possible to give every show an equal chance.
            The potential for increasing revenue by allowing every consumer to choose which shows to watch instead of leaving the choice for airtime up to a small focus group is exponential. It also allows for a drastic shift in the way that shows are made.
            Small production companies with great but unknown writers can now have the same opportunities as large companies that get away with cranking out over used material just because the producer is friends with the right person at the network.
            It brings the success of a production company back to a merit based system. And, most importantly, it opens up new doors for fiscal gain through proven techniques that can now be refined.
            Quite frankly, I think the next decade of digital entertainment is going to be a lot of fun to make. And, I’m really going to enjoy the additional revenue it is going to generate.

Thursday, January 5, 2012

Death of a Salesman


            Over the past decade there has been a great deal of positive declarations about the benefits of on-line retail. Money Morning even compiled a lengthy article detailing how on-line sales were not only growing, but also benefiting the economy as a whole.
            Many businesses have found it as a way to expand their existing services in order to reach new sales markets. It is also true that the advent of digital retail has opened up a low cost opportunity for small businesses that have interesting products, but lack the capital to found a brick and mortar enterprise.
            However, I have just read an article by Larry Downes that was published by Forbes that suggests otherwise. The articles can be seen HERE.
            Mr. Downes begins by trying to explain the complexities involved in the current downward spiral that is being experienced by Best Buy. He veers off slightly when he goes into detail about a personal encounter when he went shopping with a friend at the aforementioned mega store. However, his over all message is related most specifically to Internet sales.
            The main point that he brought up is that larger retail stores have now placed such an emphasis on digital sales that they are neglecting to maintain their standards for in store live customers. This is not entirely surprising.
            Stores used to conduct regular free events. They would employ live musicians and host elaborate holiday parties. Malls contained fountains, plants, and things to see. In the 1930’s people would go to Macy’s just to see the tree. In the 1980’s pop singer Tiffany became a household name by doing a tour of malls. And, then they stopped.
            It would be easy to blame on line sales for the losses in retail outlets. You could simply say that people aren’t showing up, because they have other options. But, that isn’t true. The reason customers aren’t showing up in person is because the stores aren’t giving them a reason too anymore.
            It began with cost cutting measures. Reducing over-head is such a simple way to make it look like you have an increase in profits without actually making any gains. Then they reduced salaries. This looked great in the budget, but employees who feel under appreciated are not overly eager to provide quality service. Then there is the ever-present threat of lay-offs, and the fact the retail stores only higher part-time employees so they don’t have to pay for benefits. Employees won’t be loyal to a company that isn’t loyal to them.
            But, the main problem is the atmosphere. There is nothing left to make it an experience. Now people are just wandering into a warehouse full of merchandise where people are rude to them.
            If retail wants to save its’ brick and mortar businesses they need to bring back the show. Add a little P.T. Barnum to the shopping experience. Get people to come because they want to see what you are going to do next, and they will spend their money while they are there.
            The best way we could save the American retail business market as a whole is if we started teaching entertainment classes in business schools the way we teach business classes in the schools for the entertainment industry.
            If they don’t give the customers a reason to be in the building, then the customers are going to stop showing up completely.