'Friends' and 'ER': Money Changes Everything
Last week, NBC renewed Friends at an astronomical $20 million per episode. Despite the aging sitcom’s diminishing viewers, Madison Avenue is expected to pay $5 million per minute for ad time. And still, NBC says it will barely make a profit.
That get your attention? Welcome to the new age of TV money. While that Friends deal may be a fantasy today, the record $13 million per episode NBC will pay for ER next season — and the $17.6 billion Fox, CBS, and Disney are spending on NFL football — has everyone in the industry rethinking economics.
Network TV is actually something of an anomaly. In any other business, if you lose customers, products get cheaper. Not so for the Big Three: Each year millions of viewers abandon the broadcast nets, and each year advertisers shell out more dough. That could change soon enough, however. “The worst fear,” says one network president, “is 100 channels each getting 1 percent of the audience. It’s starting to happen, and the economics are eventually not going to make sense.”
“The network-TV business on its own is not a particularly good business,” agrees PaineWebber analyst Christopher Dixon. Indeed, Dixon believes that the entertainment divisions will ultimately become loss leaders, with network-owned TV stations — and affiliates — providing the revenue.
But that day has yet to come. And for all the shock over NBC’s ER payout, it’s actually a fair price. Consider this: For the drama’s first four years, NBC paid $1.2 million per episode to Warner Bros. TV — and made that back with a couple of commercials. Warner Bros., meanwhile, was eating a deficit of a couple hundred grand per show (studio losses, of course, are recouped when a show is sold for reruns; Turner Broadcasting is paying more than $1 million per episode of ER). What’s changed is that now Warner Bros. will make money before NBC, which will have to settle for considerably less than the roughly $200 million it made on ER last year.
West Coast prez Don Ohlmeyer insists NBC will continue to make a decent haul. And it definitely will in the long run: NBC’s deal allows it a limited number of reruns. Immediate profits, however, are uncertain: If, as predicted, ads will cost more than $1.2 million a minute next fall, NBC could still come up $1 million short on each new episode. Then again, if you factor in the $1 million or so in local ad revenue from NBC-owned stations, there’s a chance of a small profit from a first airing.
The downside to the ER payday, of course, is less to spend on development. So far, NBC has ordered only six drama pilots for next season, about half the usual for a network.
Football is another story. Even the most optimistic Wall Street analysts anticipate losses. Merrill Lynch VP Jessica Reif Cohen estimates CBS, ABC, and Fox could swallow $400-500 million combined each year of the contract. CBS, however, has an advantage. The Eye, which will pay $500 million annually for the NFL’s American Football Conference, owns stations in seven key AFC markets, and Reif Cohen figures that equals stronger ratings and more cash.
Still, should the economy go south, and ad revenues drop, everybody loses. At least CBS’ Mel Karmazin has reasonable expectations: He recently joked that the Eye will make “at least one dollar” off football. Hey, that’s still a profit.