Why being a hit on iTunes (and Hulu) doesn’t matter yet
Good if obvious article regarding “Dollhouse” and the economics of TV — despite hitting the top of the charts in iTunes and Hulu, what matters still for an expensive network show is still ratings, ratings, ratings. See also: 30 Rock, Gossip Girl. Here’s the key part:
I estimate that it took somewhere around 25,000 downloads for Dollhouse to hit the number one spot on iTunes in just over two days time. There is a lot of data, particularly from NBC, but from other sources I’ve seen as well, to corroborate that estimate. It’s not precise, of course, but it’s not a wild assed guess either. It’s in the right zip code, and the right neighborhood, and if not on the right block, it isn’t far away.
Let’s say that a traditional TV broadcast network strives to have a $25 CPM for its commercial spots in prime time. In other words, it wants to sell its advertising at a rate of $25 per 1,000 people. Obviously scale matters, so in this 50,000 foot view example, if 10 million people watch a show, that means the network can sell each commercial spot for $250,000.
In a typical one hour show there are 16 minutes worth of commercials or 32 or so thirty second spots. By this simple 50,000 foot view, a show with 5 million viewers can sell each commercial for $125,000. Keep in mind, that with rare exception scripted shows with less than 5 million viewers on a broadcast network would get cancelled (though those same 5 million viewers on a cable network would make it a hit show!).
Because there is such a difference in scale, we can discount the price of commercial advertising down to even $100,000 per commercial for that show with 5 million viewers just to have a nice round number. With 32 commercial spots, it would generate around $3.2 million dollars in revenue.
If 25,000 downloaded a show from iTunes at $2.00 per download, that’s $50,000 in total revenue. Or one half of what the show would make for a single thirty second spot even at only 5 million viewers. And that assumes that all of the money goes back to the network, which of course isn’t the case — iTunes (Apple) gets a cut. Again, I’ve deliberately ignored many nuances and disclaimers here just for the purposes of keeping it simple. Adding all of that discussion and explanation back in just confuses things and doesn’t change the end result much. And the end result right now is simple. Watching television on television makes a lot more money — and I mean a lot more money — than Internet viewing of those same shows.
Many people will say, “C’mon, iTunes schmiTunes! WAY, WAY more people will watch it on Hulu because it is FREE!”
I completely agree. But even if 10x as many people watching, or say 250,000 people, it’s still not a big deal to the television networks, at least outside their PR departments. In fact, even if it’s a million people, it’s not that big of a deal. With a $25 CPM if one person were to watch ALL 32 commercial spots of a one hour show, that peson is worth about $.80 total to the network ($25×32/1000=value of 1 viewer)
But Hulu only has about four spots, or about 1/8th the number of television spots. Even if you doubled the fees of those ads on Hulu compared to TV, that would represent about $.20 per user. So 250,000 viewers on Hulu would generate about $50,000 in revenue in that example. Nothing to get very excited about yet for the networks. Both iTunes and Hulu could increase by TEN times and while it would then be something that was definitely very interesting to the networks, it still wouldn’t yet be a huge deal.
Brian Stelter also wrote an interesting article in this vein in the past week related to FOX’s experiments with limited commercial interruption with “Fringe” and “Dollhouse.”
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