Monday, June 24, 2013

Evolution of Television Revenue

Same Channel, Different Twist

By Kirsten Snyder - Director, Integrated Insight

The way television networks produce revenue is continuing to evolve.  While the traditional model continues to focus on advertisers, willing to pay to showcase their products to millions of viewers, footing the bill for network shows –- in many cases, the sale of the product has now become the show itself and networks are capitalizing. 

In the last decade, television networks have learned they too can sell a product, thanks to the web.  Shows like, American Idol and The Voice sell songs online as performed on each show.  In addition to being able to purchase just pieces of the show content, fans can now buy entire shows online before they are offered for free. 

This type of television-commerce was inevitable, but is just the tip of the iceberg.  For example, websites such as could usher networks further into the world of online selling.   Coolspotters is an independent website that found a market for connecting viewers with the products they see and love on their favorite shows.  With all major networks managing websites for their shows, it would be easy to begin showcasing the different products on each show and either selling the products through their own network “marketplace” or sending viewers directly to the brand website and collecting a referral fee. 

The sale of fashion has actually become the entertainment on Fashion Star.   Designers send one of their clothing designs down the runway to be critiqued by industry gurus and possibly purchased on the spot by one of three major stores.  If a store makes an offer to buy the design, then it is available for purchase in stores the next day and online that night.  Assuming NBC takes a cut of the sales (since many of those purchases can be directly attributed to the show) Fashion Star could be highly profitable for the network. 

This brings me to the most interesting example of new television revenue generation which stems from Shark Tank [add link] on ABC. Entrepreneurs in need of capital to launch or grow their business or product, plead their case to four “sharks.”    I love this show because, 1) it shows a nice snapshot of the ingenuity out there; and 2) it provides a great way for dreamers and inventors to showcase their idea to millions of potential buyers.  Even if the entrepreneurs don’t get a shark to invest, they are still getting massive exposure for their businesses or products.  And this is where the network can really make some money.

The exposure on this show doesn’t come without cost.  According to the fine print, “Sony Pictures Television, a Designee of Mark Burnett, and ABC may receive equity in or a share of revenues generated by the businesses included in this program.”  This is a brilliant move on the part of the network.  It realizes what the product exposure could mean for the entrepreneur and so it takes a cut.  Let’s use the ever popular “widget” example to see how profitable this can be.  Say “Super Widget” is presented on Shark Tank.  Now Super Widget is selling everywhere for $20 and in one year, 1 million are sold.  That’s $20 million in revenue.  Let’s say the network gets 5% of the revenue (probably not the reality for several reasons, but let’s just go with it).  That’s $1 million from one company in one year.  Over the course of the season even if all the products combined make “only” $20 million, that’s $1 million that the network is getting above and beyond any advertising revenue.  Even better, if the deal continues beyond the first year then the network could see a continuous revenue stream beyond the duration of the show. 

These are just a couple of examples of what I imagine we’ll see more of in the future.  As networks look to supplement or even replace advertising revenue, especially with more people watching shows online, integrating television-commerce strategies will provide a lucrative, alternate revenue stream.