The Continuing Evolution of TV Economics

348,000 people in the U.S. cancelled their cable in three months time.  Why?  This article suggests that the use of OTT (which stands for over-the-top) boxes, used to access Netflix and Hulu, are responsible for the drop.

To date, the majority of what's available on Netflix and Hulu is pre-existing material.  In other words, the production of this content was paid for under the existing TV model, where broadcasters pay a license fee and producers sell to multiple markets in order to finance their shows.

But if the number of cable subscribers continues to drop, subscription fees and advertising revenues will also drop, making it even more difficult to finance original programming.

TV's evolution from a business standpoint has been very interesting.  Initially, when there were limited choices over the air, every program got a substantial audience.  A show didn't have to be the best, it only had to be the best in it's time slot, and the competition was less than half a dozen shows.  Everything had a sizable audience, which meant that everything was able to attract solid advertising revenue.

Then came cable and the 500 channel universe.  With more choice, viewership for individual shows fell.  That meant less advertising revenue and budgets were reduced as a result.  That's where reality programming came from, whether it was Survivor or the Home and Garden channel.  Cheap programming became the standard instead of the exception.

Now, with OTT, the ground has shifted again.  In a 500 channel universe, competition was still somewhat limited.  A show was still competing against everything on in the same time slot, there were just a lot more shows.  OTT is built on the idea of on-demand programming, which means that a show is now competing against everything on at the moment and everything in the libraries of OTT service.  And if people continue to dump cable, then newer shows are cut off from that revenue stream.

The trend has been towards a continuing fragmenting of the audience into smaller and smaller chunks for each show.  We could theoretically reach a point where a show is competing against every show ever made as well as every movie ever made.

As the audience for each show gets smaller, how do you finance a show?  Lower budgets are not the answer if you're competing against past product made with good budgets.  This is especially true for  animation, as older shows date less badly than live action and children are less sensitive to when a show was made anyway.

I'm very glad that I'm not depending on the TV market for my livelihood anymore, and I wonder how aggressive TV animation studios are at finding new revenue streams.  Budgets have been shrinking for years and will continue to shrink.  Even The Simpsons is being done for less money (since 1991, viewership is down by 66%).  At what point does the creation of animated TV become unsustainable?  And what replaces it?

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