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"The networks have been reluctant to acknowledge the size of their streaming business, partly because online video advertising has become a sticking point in the negotiations with Hollywood writers." So says the Financial Times, which then interviews media buyers to try to arrive at a dollar figure. This is an important and impartial article which both sides of the writers strike need to consider before going into Tuesday's talks. 
It finds after interviewing media buyers that "the four U.S. television networks in a pay dispute with Hollywood television writers over online video advertising are in line to generate $120M of revenues in 2007 from free web streaming of their content." It says advertisers are flocking to web streaming, and the total online video ad market will be worth close to $1.3 billion this year after doubling in size in 2006, according to the digital media research company Accustream.
"Revenues generated by ABC, CBS, NBC and Fox form a sizeable chunk of this total and are expected to grow sharply next year, partly because of the quality and popularity of the programming they offer. Desperate Housewives, Prison Break and Heroes have all been big web hits. 'In an expanding universe of content, advertisers cluster around premium inventory,' said Paul Palumbo, research director with Accustream. Media buyers expect streaming revenues to increase because online video commercials have better recall rates than traditional TV advertising." Syndication of online video commercials across social networking sites will also fuel future revenues, the article says. Disney, for instance, has streamed 160 million episodes of its TV program such as Lost and Desperate Housewives on ABC.com, according to CEO Bob Iger.
So stick that in your pipe and smoke it about the reality of web revenue.
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The Financial Times article is fascinating, especially when it comes to the comment regarding the increased effectiveness of streaming advertising over conventional TV:
“Media buyers expect streaming revenues to increase because online video commercials have better recall rates than traditional TV advertising.
‘You get 85 per cent recall [with web streaming] versus single-digit recall for TV,’ Ms Scheppach said.”
As someone who watches very little TV, but has checked out streaming shows such as Heroes on NBC.com, even I find it impossible to ignore the admittedly subtle but omnipresent logo of the sponsor at the bottom of the screen, not to mention the often very clumsily intercut ads.
I also find myself stunned by the argument from the studios that this method of delivering a show does not warrant residuals. If anything, it should warrant increased residuals, because the element of choice involved and the (admittedly relatively simple) web navigation required to find the particular episode of a show that you wish to watch involves far more conscious effort than sitting in front of a TV, even with Tivo.
As for the fact that studios have yet to offer anything at all for streaming or downloaded feature films (and I say this as a feature writer), what could possibly support that argument?
Content is content, and good content is good content. People will seek out what they want to watch – and those of us who create it should be rewarded fairly, and in a manner that can’t be “disappeared” (in the Latin American dictatorial sense – not such a distant analogy for the studios) by the “creative”/corrupt practices of studio back-end accounting.
Still, the most important thing isn’t current revenue, but future revenue. Your next generation television will be a computer/TV hybrid with built-in harddrive and internet connection, at which point the networks can consider EVERYTHING to be streaming. If we don’t get residuals for streaming now, while the medium is in its infancy, we’re never going to.
I’m having trouble following the numbers. The article seems to say that streaming revenue is both $120 million and $1.3 billion. Which is the actual number?
Now, now, don’t diss the networks. They offered that big $250 payment to the writers to stream their episodes for a year.
Sorry but Jeff Zucker and Ben Silverman both said the interweb is “too new” and it’s “too soon” to be projecting these kinds of revenues. Although that’s not what they told their stockholders. Hmm. But Nick “Can’t Count” Counter also said there’s no real profit online so I have to believe the Financial Times just doesn’t know what they’re talking about. We can’t expect to get 10% of $1.3 Billion that’s ridiculous. Better to be happy with the lousy deal they offered us last week. Let’s play it safe and forget about this crazy internet. The only thing it’s good for is reading Nikki Finke’s web blog. That’s my story and I’m stickin’ to it. Your pal, Les Moonves.
Assume that studio web ad revenues grow at 50% /year (from 120 million)over the next three years, generating just under $1 billion of studio revenues (2007 – 2010, inclusive). And make the unlikely assumption that writers get the existing TV residual rate 1.2%.
That’s just about $13 million, over four years, most of it going to writers of hit series and films.
It’s a safe bet writers have lost that already in foregone revenues. Every day they stay out, they put themselves in a worse postion. Even if web revs double every year for three years, it’s barely $20 million in residuals.
As the studios have been saying all along, the market’s still much too small to warrant a strike. Having chosen to strike now, the WGA will have no choice but to agree to a precedent that will be much less than had they waited until it really mattered.
Wow. Now studio shills like Anonymous aren’t even bothering to think up names. They must really be desperate.
Andrew,
It appears that $120 million refers just to money made when the content is free to the viewer, while $1.3 billion refers to the total money made.
“Having chosen to strike now, the WGA will have no choice but to agree to a precedent that will be much less than had they waited until it really mattered.”
Yes, we should have heeded the successful precedent set in the field of home video, where we deferred negotiating a fair deal “until it really mattered,” and saw our patience richly rewarded when the studios, now flush with cash from home video sales, agreed to pay writers a generous — oh, wait….
So, $120 million in online ad revenues for the big four networks. Now, let’s try some back-of-the-envelope calculations here. They’re offering to pay writers around $260/hour (that is, $240 for an hourlong TV episode, and $140 for a half-hour one). The big four networks program 81 hours of primetime shows/week. And their shows usually produce 22 episodes/season. So the grand total of what the big four networks are offering writers, per year, is approximately $460,000. Divide that by $120 million, and they’re offering writers around 0.38% of their revenues — or, in other words, almost exactly the percentage writers get under the DVD formula.
There’s only one difference, actually: When the size of the online ad market doubles in the next few years, our percentage of the nets’ revenues will go down, to 0.19%. And when it doubles again? 0.095%. And so on, until our percentage is invisible to the naked eye.
And this is what they call the New Economic Partnership. Y’know, if this is how they treat their partners, I’d hate to see how they deal with their enemies.
Excellent work, Anonymous @4:39 pm. You’re scaring them! Our plan is working! Nothing can stop us!
Sincerely,
An AMPTP Troll
$120 million is FAR less than I thought it was considering all the hand wringing over the issue.
1) “revenue” does not = “profits”
2) the operating costs aren’t revealed which as anyone who runs a website knows, it’s not cheap once the traffic is huge so once residuals are taken off the GROSS it could end up putting it into a loss if the number isn’t right.
3) kinda sounds familiar to writers CONSTANTLY bitching that their reps take 10% of their GROSS pay for ‘doing nothing’ huh? Something to keep in mind when accusing the studios of holding out on them. It’s not different than what most writers would like to do to their reps.
4) the deal with the TV residual rate for internet really should have been sufficient. It’s amazing this hasn’t been settled yet. Well it’s even more amazing that it came to this but, ya know we are where we are now.
5) this thing is going to the force majeur stage for sure. They will unload $250+ million in dead weight studio deals and then pay 1.2% residuals out of that. Congrats you ‘win’
If the writers had waited three years for the studios to figure out how to possibly make a profit from this new technology they would’ve been completely left out of any future business plans. To think otherwise is to not understand history.
They are asking for a reasonable deal — not the best deal, but a fair one. I hope they get it.
The WGA needs to hire a big-time lawyer like the DGA and use that person to counter Counter to haggle out a deal ASAP. This would help take some emotional pressure out of the dealmaking.
Have been involved in new media for several years. Sat with Zucker and Gaspin and pitched the significance of the web, web content, and the power of ad reach online. Literally handed them an iPod with my online content. They sat befuddled, claiming they didn’t get it. Two years later NBC launches Hulu.
Oh, they get it.
They know all too well how valuable online advertising is and will become, and that’s why I’m defiantly supportive of this strike, and anyone who doesn’t see what’s at stake, and what’s coming, is an idiot.
You are the same people who laughed and scoffed as I pitched all the networks the value of online entertainment as far back as 1998. Wake up. This strike, and what it represents, is the single most significant issue writers will face in the next 20 years.
Agree completely with the ideas presented on this site that well-known show-runners should be in discussions with new media money and forming their own network and/or series. THAT IS THE REAL FUTURE. It’s also more difficult than people realize because of the layers of grunts who don’t understand the content side of things. It’s an interesting conundrum.
When this is said and done, there’s still no time to rest on laurels. We need to come together, collaborate, and figure a way to turn the tables. It will only take a few, and the rest will follow.
Visionary
We do know the operating costs. Hulu will be streaming shows from NBCU and Fox. They will take a 15% fee and cover all distribution and bandwith costs (and make a profit, I assume). The other 85% goes to the studios.
One point omitted from the streaming discussion is license fee. As we all know, the nets pay the studios a license fee to run a program. Reruns are based on a repeat system. However, the repeat is up to the net, who licenses the show. The studio sees no money from the ad revenue, as the net pays for the right to run and make ad money. The residuals are paid by the studio. Look at the cable model, which continues to evolve. Streaming is not like DVD’s, streaming is like another network.
Sorry, DGALP, but the days of networks and studios being independent is over. They are the same companies now.
Klaatu, that’s an enormous oversimplification, re: license fees and studios and networks being the same companies. Look at Warners, still the top supplier of shows on the studio-side in terms of numbers of series, in business with all the networks. Twentieth has shows all over the place, too. And even when the studio and network are under the same umbrella, they’re still operating under license fee / deficit models. Ask anyone at Touchstone/ABC.
And even when the studio and network are under the same umbrella, they’re still operating under license fee / deficit models. Ask anyone at Touchstone/ABC.
Sorry, Mike, but that’s a scam. Just because they have ABC pay Touchstone less than the (supposed) cost of production, doesn’t mean the show loses money for Disney. It benefits the studios to make shows look like money losers — that’s why they do it to EVERY SHOW! Profit participants have a piece of Touchstone’s profit, so if they shift the profits to ABC instead (by having a license fee that is lower than the cost of production), they can pretend the show loses money. Meanwhile, ABC makes plenty of money for the same parent company.
DLJ makes an interesting point, largely the one that Lindelof made in the NYT piece: we’re moving to a place we’re the definition of all free electronic media is ’streaming.’ eager as i am to want to wring as much money out of that as possible (i am always eager), i’ll admit, hopefully safely, that it makes me wonder: is streaming not another aspect of the primary window then? EST is a seperate conversation all together, but viewers are already migrating pretty seamlessly between their TVs, DVRs and computers for their ‘live’ ad-supported content. i doubt there are many people who Friday Night Lights live or on their Tivo (as my mother and sister do) and will later watch it nbc.com (as I generally do). Is it reasonable then to assume that the gross ad revenue is just being gradually redistributed to follow the viewers? i know this is a dangerous and slippery argument for us – i’m just, you know, wondering.
To put this $120 million in perspective, consider that prime time advertising revenue dropped 3.8% in the first half of this year. That’s about a $200 million loss. Will the losses in broadcast revenue continue to outpace the gains made in streaming income? Certainly seems possible.
http://www.marketingcharts.com/television/us-ad-spending-down-05-in-first-half-2007-online-up-236-1738/nielsen-1h07-vs-1h06-ad-spend-changejpg/
Klaatu wrote:
I think we’re going to have to agree to disagree about this particular point, but going back a little bit, take a look at the current prime time schedule. A significant portion of shows are produced by studios not aligned with the network in question. So, how can you really say that licensing fees are “over” like you did a few posts ago?
The $120m refers to the networks piece of the online video pie. The $1.3bn refers to all revenues from online video advertising. So in that you include YouTube, other user generated content, non US sites, sports etc.