Quality TV squeezes networks

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Television production costs are rising at an “unsustainable” pace as media conglomerates pay for top writers, actors and special effects in an effort to lure a generation of viewers faced with unprecedented entertainment options.

The cost of making a one-hour drama episode has tripled in the last 15 years from about $1m in the early 1990s to $2.7m, according to some studio executives.

Costs of thirty-minute comedies have also spiralled to $1.5m from around $700,000.

“Over the last several years, our costs have gone up at an unsustainable pace,” said Gary Newman, president of 20th Century Fox Television, the studio responsible for such hits as 24 and Prison Break.

The issue will get an airing next week, when the networks unveil their new fall schedules for prospective advertisers. As costs rise, Mr Newman and other studio executives say that the job of developing those programmes has become more challenging than ever – with the chance for huge payoffs but also expensive mistakes.

“It’s become a bigger bet business,” said Marc Graboff, president of NBC Universal Television West Coast, who has warned that production costs are reaching a crisis point. “You’re placing bigger bets that have a more uncertain payout.”

Part of the reason for rising costs is structural. In the mid-1990s, the Federal Communications Commission repealed longstanding regulations that restricted the networks’ ability to own and produce their own programmes. Now that those entities are typically under the same corporate roof, executives say that there is more incentive to take bigger bets since the corporation keeps all the resulting profits.

At the same time, the networks – which once dominated the US market – have found themselves under pressure from a proliferation of cable networks. One, HBO, the premium network owned by Time Warner, single-handedly changed viewers’ expectations for quality TV programming with the introduction of The Sopranos in 1999. Things have only become more challenging with the emergence of video games and internet sites such as MySpace and YouTube, which have pulled young viewers away from the TV.

Studios have opened their chequebooks to compete. For example, Fox’s 24, starring Kiefer Sutherland, hit the small screen in 2001 with special effects and production values more commonly associated with Hollywood movies. The bar was set even higher in 2004 when the two-part pilot for ABC’s Lost weighed in at a reported $14m, making it the most expensive ever.

This season’s pilot crop features several projects that are said to hover around the $7m mark, including The Sarah Connor Chronicles and The Bionic Woman.

“Once a couple of shows started spending money, then competition kicked in,” said Bruce Rosenblum, president of Warner Brothers Television Group, the largest television production company.

When a programme works, the payoff can be spectacular. On the strength of Lost and Desperate Housewives, ABC vaulted from fourth to second-place among 18 to 34-year-old viewers in primetime, swinging the network to a profit and bringing in tens of millions of dollars in new advertising revenue, DVD sales, and international rights for their parent company, Disney.

But, studio executives fear that those burgeoning markets will not expand forever. The biggest source of revenue - advertising - is under pressure as audiences fracture and new technology allows viewers to skip past commercials. Another traditional source of cash for the studios – the syndication market - has weakened for all but the top programmes because of a consolidation of station owners.

Meanwhile, new media opportunities – such as selling programmes through Apple’s iTunes store – are still more about promise than profits. “The economic model is under real pressure,” one top studio executive said.

The studios have launched initiatives to rein in costs. As part of a restructuring announced late last year, NBC will rely more on inexpensive reality and game shows during the first hour of prime time. Meanwhile, Warner Brothers and Fox are borrowing a page from the film industry by creating specialty labels to do more creative work on lower budgets.

Still, Carolyn Finger, vice president of TVTracker.com, a television industry consultancy, predicted that the studios would face continued pressure to spend. “That’s the on-going battle,” Ms Finger said. “They need to cut costs, but the audience has other demands.”

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