How a Hit TV Show Makes Its Owners RICH! RICH! RICH!

Ever why so many obvious non-writers (you know what we mean) keep trying to get into TV writing? Wonder no more:

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The Economics of a Hit TV Show
by Jon Nathanson

Ten million Americans can recall where they were the night of September 29th, 2013. They were watching the series finale of Breaking Bad. And they were watching it on AMC, a cable channel that once cut its teeth airing reruns of black-and-white movies.

The suits at the network were prepared. Like Walter White, the show’s ruthlessly efficient meth dealer, they knew they had a quality product on their hands. And they charged their customers accordingly. AMC extended the runtime of the last two episodes from 44 to 54 minutes – 75 minutes apiece with commercials – and raised its advertising rates to as much as $400,000 per 30-second spot. The 21 minutes of commercial airtime in “Felina,” the show’s final episode, may have earned the network $7-8 million in advertising revenue.

But keeping Breaking Bad on the air was a big investment. Shooting the show cost about $3 million per episode in 2010, and $3.5 million per episode in its final season. The show’s last 16 episodes cost approximately $56 million to produce.

And finding a hit like Breaking Bad – or even finding a viable show to put on the air in the first place – often costs networks hundreds of millions of dollars each year in development costs and pricey, failed pilot projects.

Things could get even more expensive. Breaking Bad uberfan Jeffrey Katzenberg, co-founder of Dreamworks, reportedly offered to pay $25 million per episode to produce three moreepisodes. That’s a total of $75 million, at an average of $568,000 per minute of final air length.

This is just the tip of the iceberg. AMC catapulted itself from backwater cable channel to Emmy-winning network in just a few years – and now everyone wants in on the action. Netflix paid $100 million up-front for two 13-episode seasons of its original series House of Cards, and CEO Reed Hastings has stated his intention to create at least five more originals per year at similar budgets.

Microsoft recently opened an original content business under CBS veteran Nancy Tellem. CAA, Hollywood’s leading talent and literary agency, expects Microsoft to compete with Netflix on a similar pricing structure.

Few industries would routinely pay millions per unit of an item, sight unseen, with minimal (and sometimes no) market research. So how can the TV business afford to operate this way? To understand the economics of scripted television, we need to examine the idiosyncratic journey of a show from concept, to pitch, to script, to screen. And we’ll see why, in a business where only a few hits stand out any given year, lavish spending is the cost of staying relevant….

Read it all at Priceonomics