HBO's 'Newsroom' Milestone In Emerging T/V Business Model Continuum

Last week’s premiere of “The Newsroom” on HBO marked the return of Aaron Sorkin’s special brand of premium television: fast-paced dialogue, well-crafted plot, creative set design/staging, engaging characters well-acted and a smart script.  Personally, I found watching the first episode of “The Newsroom” inspiring and exciting – everything that great television should be.

It makes sense that Sorkin -- whose previous shows, "The West Wing, "Studio 60 On the Sunset Strip," and "Sports Night," aired on NBC, NBC, and ABC respectively -- has turned for the first time to pay cable giant HBO as distributor rather than traditional television networks.  The initial financial commitment to a series like this requires a huge cash outlay, and content producers/distributors today must consider the cash-certainty of the business model they are working with. 

Broadcast and cable networks have declining ratings and related ad revenues per-program.  Profit margins from reality shows and newsmagazines along with increasing retransmission fees from cable and satellite systems for broadcast networks have helped insulate overall bottom lines for these players.  The fact remains, however, that without steady and predictable income stream,  the possibility that an expensive program might be low-rated is too great for traditional ad-supported networks to risk the kind of money HBO is committing to Sorkin and “The Newsroom.”

With premium subscription fees flowing in monthly, HBO and Showtime have become a kind of commercial PBS. with more cost-certainty than the voluntary donations and government support that public television relies on.  HBO is the largest U.S. pay cable network, with over 28 million subscribers.  I pay $13.98 a month or $167.76 a year and get quality programs where I don’t have to watch or even fast-forward through ads. The math says that domestic subscription income alone provides $4.7 billion that HBO can work with, without the worry of variable ratings-driven ad revenues.

Beyond that base number, HBO and Showtime are also leading investors in emerging multiplatform delivery technologies through HBO and Showtime On-Demand, HBO Go, Showtime Anytime, streaming outlets and DVD sales.  All of these reinforce or add in a big way to their bottom line. Then consider parent Time Warner’s and Viacom’s leg up on International sales in the global marketplace, and it is easy to understand why Sorkin would move to HBO for his next big series.  

HBO and Showtime have little choice but to invest in the very best programming to maintain their subscriber base, and the advanced math of their revenue model allows them to attract the best and brightest talents in the content creation industry.  (It makes one wonder how HBO could have passed on the “Mad Men” franchise, which landed on AMC and changed the whole image and nature of that network.)

This is yet another milestone moment in the continuum of the shifting business model of television --or as it should now be called, T/V (Television/Video).  At the same time, OTT (Over-The-Top) distributors like  Netflix and Hulu are getting into the premium series production business, further challenging the traditional network television model. 

In 2012, people still love quality television dramas, as shown by the success of, and acclaim for, PBS’ “Downton Abbey” and Showtime’s “Homeland”.   It is hard to believe that something as expensive to produce and as high quality as “The Newsroom” could ever again find its way onto the historical, tenuous business model of linear ad-supported television, except as a high-risk loss leader for an aspiring traditional network.

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