How to generate a Golden Age: TV Edition

Breaking_Bad_title_cardWhen we think of Golden Ages it is looking back and realising that things were better during some period of time; we just never realised it at the time. But we are currently living in a Golden Age of Television. It is better than at any point in its history. And what is more, we know it. That is simply a remarkable state of affairs.

When did the Golden Age begin? Many will mark 2008 as a turning point with Breaking Bad (or maybe a year earlier with Mad Men). Others will go back to 2002 and 2003 with The Wire, Battlestar Galactica and Lost. In reality, the Golden Age, as we know it, is really a phenomenon of the last five or six years as knowledge of great alternative programming became widespread. And there is no end in sight.

What is remarkable about it is that at the beginning of the Golden Age, industry insiders were proclaiming doom for the industry. The Internet and YouTube, in particular, not to mention piracy were destroying all and sundry (supposedly) and with them any incentives to create good content. Suffice it to say, if that was something at play then it is hard to imagine just how good television could be today. That said, the more likely hypothesis is that precisely the opposite happened: the Internet has led to better incentives to create high quality content.

Interestingly, this highlights something important about creativity and whether we get it: obtaining creative content is a choice. To see what I mean by that let me dismiss something that might be a candidate for the current boom: a change in the supply of talent. One might think that the constraint in the past on great TV content was a lack of talent. Somehow now we have great writers, directors, editors, musicians and actors that weren’t there in the past. While it is hard to rule out, I would be very surprised if suddenly these appeared out of nowhere. More likely is that the talent was always there it was just deployed in ways that didn’t architect better TV content. From my here, value-laden perspective, it was wasted. Importantly, what that means is someone chose to have this great content where they previously chose not to have it.

Who made that choice? The first candidate off the mark have to be consumers. Did their tastes change so that now these programs were desired where previously they were not? This is a tough exercise but in thinking it through you have to note that it isn’t all consumers. The vast majority of TV content is still traditional — not good — stuff. So for most consumers their tastes and demand are the same. So these consumers haven’t driven a change.

Instead some smaller niche of consumers has got larger and now can support this content. This niche may be those who don’t like sitting down to watch broadcast television on a schedule but instead like to time shift to their own schedule. Moreover, this niche may be very large indeed as the Internet allows more of those options. But why would a desire to time-shift be correlated with TV of this quality? And if it is, why is the majority of that content still distributed on a weekly schedule? It is hard to draw the theoretical link here.

If we dismiss a change in tastes, the question of who made the choice falls to the publishers of content. These are the intermediaries who are primarily responsible for product design. And the Internet has given them far more power in the market as they have more options to access consumers than through broadcast television or cable channels. (See this useful discussion by Ben Thompson for more on that). That said, while you might think that this has raised the return they receive and so lead to better content, that would neglect a number of mitigating factors. In particular, they face far more competition between eachother and from others. Moreover, one suspects that talent is still the relatively scarce resource and so any greater ability of publishers to collect rents would flow back to creators. Instead, we need to look at how these changes have altered the incentives of publishers at the margin over the type of content they commission.

To get into this, it is useful to remind ourselves of the basic economics of product design when the designer has a certain degree of market power. As Michael Spence showed, such suppliers will tend to design products to target marginal customers rather than average customers. In this regard, what we want to look at to explain why we have the content we do is whether the marginal customer has changed and also to what extent marginal customer preferences will be more correlated with average customer preferences — you need that final step to explain why we all like TV content more now.

Let’s start with the marginal customer. In the old, pre-2002, days, the marginal customer was the customer who would bring their attention to a television channel. Why? Because television channels earned more advertising revenue (or affiliate fees) the more viewer-hours they had. My suspicion (and I’ll admit I am speculating) is that the marginal customer that both broadcast and cable television had in mind was someone who would plonk themselves down in front of the TV every night for a few hours a night. Their product design was focussed on marginal customers whom they could attract in a routine way. The focus was then on getting those customers to watch your shows rather than something else. This would make regular what your customers would bring to advertisers and make everyone’s job easier. Thus, importantly, when the television was switched on, the task for the consumer was designed to be easy. They knew what they were getting. And moreover, there were no big surprises. Outside of the summer when people may substitute to other activities, TV seasons were year long and the prime time stuff grabbed attention so that programming around it could be even more routine and comforting.

The current Golden Age content does not fit this mould. It is rarely year long. It is irregular. It is sometimes intense. And it often requires investment by the consumer — miss some episodes and you are lost. Moreover, consumers have to decide what they ‘feel like’ watching. Thus, it is hardly surprising that in the past it was not commissioned as part of the advertising and attention based metrics of television past.

But how does the Internet (broadly) change all of that? The Internet has taken away the routine for many people but, importantly, allows people to still fill their attention with television content. So they can still plonk themselves down for a night of entertainment. What they do now is choose what that will be. Here they were assisted by DVRs that allowed them to time shift traditional broadcast content. But at the margin, they could watch that or they could choose to watch something less traditional. It just did not matter whether it was served up at 9pm on a Wednesday or not.

The subtle change though is that immediate consumption of content was moved to the option of consuming that content. While what drove a consumer’s attention was more flexible, what drove their payment for that attention was different. By subscribing to Netflix or HBO, consumers were giving themselves the option of consuming that content on some evening. Option demand is very different to immediate consumption demand. What will drive an incentive to be a regular subscriber is not purely access but whether they believe they will want to have that access on a random day.

So while the demand to subscribe to cable TV in the past or to see what’s on broadcast TV was driven by routine and a belief that whatever was served up would be curated to appeal to many people and keep them in that routine, in the new world, curation has moved back to the consumer and that means to keep them paying requires them to believe that having the option is worthwhile. Critically that does not mean that you need to serve up options at 9pm that will appeal to most people on that night. Instead, you can have content that is demanded by a consumer at some point — that they feel they might want to watch. Moreover, you can do this without the added pressure of ensuring you grab them as it is showing so they don’t miss it.

How do you do that? You need to produce content that people decide they will want to watch at some point. And as I talked about in Information Wants to be Shared, the content that best does that is content that other people — your friends etc — refer you to. In other words, traditional marketing of television is replaced by social marketing. A completely different ball game as you must please the average consumer in order to attract more consumers at the margin.

And thus, we complete the picture. To summarise, the Golden Age is not the result of some explosion in talent or some change in tastes. Instead, it is a function of a structural change in the architecture of how television programming is brought to consumers. Time shifting combined with direct access by publishers to consumers has fundamentally changed what television programs do. Previously, they were marketed and designed to be a routine that removed curation from the consumer’s hands and appealed to the largest number of them. Today, they are designed to be something people want as an option and to achieve that they are marketed socially rather than prospectively. That means a closer correlation between average and marginal consumer preferences and from the perspective of publishers it drives them to take more risks in trying to get compelling shows. What we forget about the Golden Age is that there are many misses — just ask Joss Whedon — that have the quality of being loved by a niche but not a large enough niche to drive subscription demand.

As a final note: I have made lots of speculative assumptions here but I am confident that looking at changed incentives to attract marginal consumers and who those consumers are is the place to look to understand how the television industry has evolved.

4 Replies to “How to generate a Golden Age: TV Edition”

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s