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Networks Revise Rerun Strategies

Oct 27, 2003  •  Post A Comment

Once upon a time there were three broadcast networks that rolled out a new schedule every fall filled with original episodes of scripted TV shows. The dramas and sitcoms were expensive, but no worries, the networks would recoup the hefty price tags by airing reruns in the summer.
Viewers would tune in and watch the reruns. Advertisers would pay good money to reach those viewers. And the broadcast networks would live happily–and profitably–ever after.
Today, that scenario is exactly what it sounds like–a fairy tale.
The big bad wolf, in the form of cable and the Internet, which lure viewers away, has been knocking on the broadcast networks’ door for the past decade. Add one evil stepsister called reality television and it’s easy to see how the power of repeats has deflated and helped throw the economics of prime-time television into a tailspin.
While repeats typically drop about 30 percent to 50 percent of their original audience, a network usually still needs a second run to cover the show’s license fee and start making money on it. The problem: More and more scripted shows these days are turning in such dismal repeat ratings that networks can’t afford to keep the show on.
“The network television business has fundamentally changed, and there is no willing it back to the way it was,” Sandy Grushow, chairman of Fox Television Entertainment Group, told TelevisionWeek. “Vertically integrated media companies can’t and should not get overly bogged down on the issue of lack of repeatability for certain television shows. The real challenge is to come up with alternative means through which to create value from one’s shows, whether that’s through repurposing on alternative platforms, a back-end cable or syndication sale, a DVD release, subscription video-on-demand or video-on-demand. The fact is that everything is in play.”
The Big 4 networks experimented with their schedules more than ever this summer, airing various permutations of reruns, original episodes and fresh reality TV shows. The moves were relatively successful at stemming viewership erosion. For 14 weeks of summer, TV usage among adults 18 to 49 was down 2 percent year to year, and total viewers were down 1 percent, according to Nielsen Media Research. That’s good news, considering the six broadcast networks saw a 9 percent decline in adults 18 to 49 the previous summer. Another plus: Top executives at all of the Big 4 networks said they met summer ratings guarantees to advertisers and had no make-goods.
NBC, which programmed about a dozen original reality series instead of heavily repeating its scripted series, won all 14 weeks of summer between Memorial Day and Labor Day in adults 18 to 49. Five of the top 10 shows of the summer in adults 18 to 49 were NBC reality shows. Excluding sports, NBC was flat in the demo summer to summer.
Only 35 percent of NBC’s summer schedule was repeated series. Axing repeats for reality during this summer helped add an extra $30 million to $40 million to the network’s coffers this summer, NBC Entertainment President Jeff Zucker said–and that’s a strategy the network intends to use next summer as well.
Still, sorting out the perfect balance of original scripted episodes, repeats and reality stunts and series remains challenging for the networks as the television landscape continues to change.
Equations, Amortization
When deciding whether to run repeats of a series or replace it with reality, Mr. Zucker said NBC uses an equation to predict performance in each scenario.
“It’s the opportunity cost of not running the repeat plus the cost of the new original reality program, and that new reality program has to do a certain rating that is significantly above what the repeat would do to justify it,” he said.
Reality has to do better than reruns because reruns are already at least partially paid for. A network may not make all of its money back on the license fee in the first run, but a second run can be virtually free, depending on how the network accounts for its programming costs, said Rino Scanzoni, president of national broadcast at WPP Group’s Mediaedge:cia, New York.
“[Networks] will amortize the cost of a license fee very differently,” he said. “Some networks will take an original and put 60 percent of the license fee against it and 40 percent against the repeat. Others will put 90 percent against the original and 10 percent against the rerun. It really depends how they do their own financial bookkeeping. The bottom line is that you need repeats to make a show pay out. There aren’t too many scripted shows that can pay themselves out on an original run.”
CBS Chairman and CEO Leslie Moonves said CBS typically charges 90 percent of the cost of a show to the first airing and 10 percent to the second airing. So if a first-year drama’s license fee was $1.2 million, about $120,000 of that would essentially be the cost of the rerun to the network.
In other words, reality works in place of repeats as long as the reality show draws high enough ratings–and therefore enough additional ad revenue–to make up for its production cost and the cost attributed to the scripted repeat it replaced.
While most reality hours cost less than the average $1.2 million per-episode license fee a network shells out for a first-year scripted drama (which includes two to three runs), they aren’t as cheap as they used to be. Depending on the concept, reality shows can cost anywhere from $300,000 an episode for a show such as “Big Brother” to more than $1 million an episode for a show such as “Survivor,” and very few reality shows can repeat because of their serialized nature.
“When I get [repeats of] `Without a Trace’ doing those high numbers and a `CSI’ doing those high numbers and the Monday night comedies doing those high numbers, then the summer is very profitable,” Mr. Moonves said. CBS aired more repeats than any other network this summer, with 52 percent of its summer schedule being repeated scripted series.
CBS aired several series, such as “Hack” and “The Guardian,” that did not repeat well for part of the summer, but then gave them a break so it could air relationship show “Cupid” and “Big Brother” three times a week. “Big Brother,” which costs a relatively cheap $300,000 an hour to produce and averaged a potent 3.5 rating/12 share in adults 18 to 49 and 8.7 million total viewers, can easily make the network more money than repeats of a middling series.
“Cupid,” with a 3.2/9 18 to 49 rating and 7 million viewers, did not rate as highly as “Brother,” so it didn’t pan out better than if CBS had aired repeats. “It sort of was a wash with doing a rerun,” Mr. Moonves said.
Of all the networks last summer, ABC probably stuck closest to the old traditional model, heavily airing repeats of all its returning sitcoms, debuting reality show “The Real Roseanne Show” and running a do-over of spring reality entry “The Family.” Both reality shows were short-lived.
“The challenge is to make economic success of your business, but at the same time not sacrifice ratings in the process,” said Lloyd Braun, chairman of the ABC Entertainment Television Group. “That’s what we are trying to do every single day. The economics are generally improved a great deal by broadcasting repeats unless the repeats perform so dismally.
“Terrible ratings will always tarnish any financial plan. If your shows don’t perform at a certain level, then what they cost really becomes much less significant,” Mr. Braun said. “The challenge is to be able to figure out a way to be able to run repeats and also have those repeats perform.”
ABC, which had sunk to fourth place in adults 18 to 49 at the end of the 2001-02 season, chose to rebuild the network with a backbone of sitcoms. If the sitcoms are successful, that’s also a profitable strategy, since sitcoms tend to repeat well during the year and in the summer.
Last summer, “My Wife and Kids” and “George Lopez” repeats beat reality shows they went head to head with in their time slots. “Wife and Kids” repeats averaged a 2.7/10 in adults 18
to 49 in its Wednesday 8 p.m. to 8:30 p.m. time slot. That beat the ratings average of NBC’s “Fame” and “Race to the Altar,” which averaged a 2.2/8 in the same time slot.
“George Lopez” averaged a 3.0/10 in adults 18 to 49 in its Wednesday 8:30 p.m.-to-9 p.m. time slot, besting Fox’s “American Juniors” (2.7/9) and NBC’s “Fame” and “Race to the Altar,” which averaged a 2.6/9. Tuesday night sitcom “According to Jim” came in second in its time slot, behind NBC’s “Last Comic Standing”/“Dog Eat Dog” (3.4/10), but ahead of Fox’s “Paradise Hotel” (3.0/9) and CBS’s “Cupid” (2.5/8).
Some rival network executives and media buyers questioned how NBC was able to make $30 million to $40 million with all of its reality production costs last summer. If a network pays the average going-rate for a reality show–about $750,000 an hour–for five hours of reality shows a week throughout the summer, that’s an extra $3.75 million a week in programming costs–or $52.5 million over 14 weeks.
Stacked on top of the cost of covering license fees on series that rarely repeat, the bill can add up quickly.
Mr. Zucker said NBC was able to make money because the reality shows attracted such a large number of viewers, that it offset the extra costs. “Because of the reality programming this summer, our ratings were sufficiently higher than they would have been with repeats,” he said. “We were able to monetize it to a great benefit.”
What’s more, while logic would follow that an advertiser would pay more money for a higher-rated reality show than a lower-rated scripted repeat, that is not always the case, said Ray Dundas, senior VP, group director, national broadcast for Initiative in New York.
“What we saw in the first six months of this year were some pretty offensive [reality] programs,” Mr. Dundas said, and some advertisers will steer far clear of those because they have corporate policies about the kind of content in which their media messages can air.
“Many clients are just looking to find the next `Joe Millionaire,’ so they will take a leap of faith for new reality programs in lieu of a repeat,” he said. “Other clients are happy with a repeat of `Frasier.”’
Even more irritating for advertisers is when they buy time in scripted shows, including repeats, during the upfront in May, only to see the network swap them out for a reality show.
“If you just look at a sitcom or a drama switching to a reality program, in a buyer’s mind, they feel that they are not getting fair value,” Mr. Dundas said. “They know what a repeated drama or sitcom will do [in the ratings]. They certainly know the content of the programs, yet oftentimes they don’t know what the content will be for reality programs.”
Because content issues are often a problem, Mr. Grushow said, you can assume cost per thousands on a reality show will be lower than scripted programming. “Only when a wildly successful unscripted summer show like `Survivor’ or `American Idol’ comes along do the economics truly favor benching costly scripted shows for original unscripted programming,” he said.
One case in point is “Paradise Hotel,” which Fox aired multiple times a week. It pulled decent young adult ratings, but Mr. Grushow said it “was not a particularly profitable show for the Fox Broadcasting Co. principally because advertisers tended to shy away from it, just as they tend to shy away from some of edgier new unscripted shows.”
However, the goal with that show was to try to create a summer franchise like CBS’s “Big Brother,” which could turn out to be valuable in the long run.
“The odds are pretty good that the show will come back next summer, hopefully to stronger support from advertisers now that they’ve seen the sky hasn’t fallen,” Mr. Grushow said.
Executives interviewed for this article agreed that some age-old generalizations do still apply. Sitcoms, for example, repeat better than dramas, and closed-ended dramas such as “Law & Order” or “CSI” repeat better than serialized dramas such as “ER” or “Alias.”
The Case of `ER’
Sometimes a network has to air a second run of an expensive high-end drama that doesn’t repeat well to make money on it. “Even though we know that `ER’ doesn’t repeat very well in the summertime, we do rerun it for that reason,” Mr. Zucker said.
NBC pays producer Warner Bros. about $13 million an episode for “ER.” An average 30-second spot in “ER” during the regular season costs about $400,000, according to Advertising Age’s annual fall prime-time pricing survey. Therefore, an original episode of “ER” brings in about $8 million in advertising dollars–$5 million short of the license fee. So even though “ER” repeats attracted 58 percent fewer adults 18 to 49 viewers than an original during the TV season, NBC has to repeat the show because it needs the advertising dollars to recoup the cost of the license fee and profit on the show.
While a rerun typically gets less than half of what a 30-second spot costs in an original, the demand for a show and perception of quality can up that price, so an “ER” rerun–which has a desirable audience makeup–would get a higher price than an unproven first-year show, media buyers said.
Fox’s “24” is a unique case and the exception to numerous rules. The drama doesn’t repeat well because of its serialized format, but the show still makes a profit even with only one run, Mr. Grushow said.
“Because our CPMs are so high, given the desirable audience that `24′ attracts and because it rates so well among that audience, the show is profitable,” Mr. Grushow said. “Would it be more profitable were we able to take multiple runs? Absolutely.”
Mr. Grushow said the show, which is produced by sister studio Twentieth Century Fox TV, has been profitable almost from the start on the studio side because it was able to generate huge international revenues and DVD sales. Most shows have to wait four years to release the first season on DVD.
Further complicating decisions to repeat or not to repeat are numerous intangibles to airing encores of scripted series during summer. Among them: exposure. Researchers said that millions of viewers who had never watched ABC’s sitcoms or CBS’s “Without a Trace” during the season were exposed to the shows over the summer and have now become regular viewers this fall.
“We estimated 15 million people saw `Without a Trace’ this summer who had never seen it before,” Mr. Moonves said of the drama, which outperformed “ER” repeats in the same time slot this summer by 23 percent in adults 18 to 49 and 69 percent in total viewers. “We think that is going to contribute to the tightening of the gap between `ER’ and `Without a Trace.”’
While summer experiments so far have provided the networks some intelligence on how to fine-tune the economics of prime time, finding the financial formula of the future is a struggle they all continue to face year-round.
“It’s really not so easy,” Mr. Braun said. “There just aren’t that many other revenue streams for these shows.”