How Do Tv Networks Make Their Money
When a network cancels your favorite TV show, you're understandably distraught.
You may wonder why the network chose to cancel the show.
The reason usually has to do with the amount of money the show was earning.
TV shows earn money differently compared to how movies make money.
Here are 10 ways TV shows make money.
How Do TV Shows Make Money? (10 Ways)
1. Broadcasters And Commercials
A producer gains money initially by pitching a TV show to a particular network.
The pitch contains the plot of the show, some of the actors who have signed onto it, and the budget for the show.
The network determines if the TV show can bring in a lot of viewers.
If they believe that it will, then the network purchases the rights to air the TV show.
The producer receives the budget they need to make the show, and the filming process begins.
The network, or broadcaster, then receives their money back through commercials.
Ads are the number one way that TV shows make money.
It isn't enough that they only have ads, however.
There need to be enough people watching the ads for the TV show to make money.
A standard episode of television is an hour long.
One-third or 20 minutes of that airtime belongs to commercials.
According to the TV industry, a general estimate of ad earnings translates to $1 per viewer.
That means if 15 million people are watching the episode, then the network earns $15 million.
That's why TV shows that don't gain a lot of viewers are usually given the ax.
They don't have the funding to continue to produce the show.
The problem with using TV ratings to base their funds is that not everyone can watch the episode when it's live.
They rely on DVR or other means of recording the show to watch later.
They're still an active viewer, but they aren't participating in the viewing of ads.
Since the network is more interested in the revenue that a TV show generates and not its actual viewership, that doesn't matter to them.
That's why DVRs and pirating have become a serious problem for TV networks.
It allows viewers to watch the episode without essentially "paying" for it by watching ads.
Even popular TV shows can find themselves without a budget if the bulk of their fans watch it on a DVR or through illegal means.
2. Subscription Services
Not all TV networks use ads to generate revenue.
Streaming services and cable services use a different method.
Streaming services like Netflix rely on a subscription model.
They charge a set monthly rate for the use of their streaming platform.
Their funding comes from those monthly payments.
It allows them to have a massive budget to create original series and movies that can attract more subscribers.
In this way, a TV show earns money by still pitching to Netflix.
It's even possible that Netflix may approach the producer if they like the content.
The TV show receives the budget they need from Netflix, but the money comes from subscription payments rather than ads.
Cable does something similar.
Networks like HBO and Starz are services you need to pay for in addition to your normal TV plan.
The monthly cost helps them generate enough revenue to produce more TV shows.
HBO and Starz will also air ads between shows or movies.
However, you won't see ads during the show or movie.
Many of those ads feature other shows on HBO that the viewer may enjoy watching as well.
By receiving monthly payments from viewers, TV networks can give TV shows money.
3. Investors
If there's money involved, then you can be sure that there are investors involved.
Some producers will approach media moguls for funding.
Like pitching to a TV network, they'll pitch the idea of the show to the investor.
They'll include details about the budget, the plot, the cast and crew, and other important details that can interest the investor.
Unlike with a TV network, the investor won't receive their money back through commercials.
Because of this, they make another kind of deal.
The investor may receive credit on the film and a certain number of royalties that the show generates through the network.
They may also receive other benefits.
Investing can be a great way for TV shows to earn money because it can inflate their budget and allow them to use more expensive technologies and locations.
It's also ideal for small-time and big-time investors who have an interest in the TV and movie-making business.
Investing in TV can be extremely lucrative if you're able to pick out the show that will become the next big thing.
Some investors choose to invest in TV networks instead of shows directly.
This can also help TV shows receive money because the investor can incentivize the network.
They may offer them a substantial amount of money if the network agrees to greenlight the show.
The show then receives its budget, and the investor gets their returns.
4. Crowdfunding
A relatively new way that some TV shows can make money is through crowdfunding.
This type of investing relies on small donations from a large populace.
It's a popular way for independent TV shows to receive a budget.
Some of the most popular places where TV shows receive crowdfunding are:
- Kickstarter
- Indiegogo
- Rockethub
- Ulule
On these sites, the producer will give the plot of the show.
If any actors or actresses have signed on for the show, then the producer will mention them, too.
To further sell the show, the producer might include concept art, storyboards, or even glimpses of the script.
On Kickstarter, in particular, investors receive small benefits and bonuses for investing early in a project.
For a TV show, this might be as small as a licensed T-shirt or an autograph from the cast.
It can be as large as an invitation to the premiere screening of the show.
Another reason some producers choose to go the crowdfunding route is that it generates hype.
It's a great way to bring attention to your product.
As soon as backers start to flock to it and donate to the budget, the media usually takes an interest.
They'll write a piece on how fast the donations are piling up.
That only encourages more donors to give money to the TV show.
Crowdfunding can be a useful money-making and marketing tool for producers.
The caveat with using a crowdfunding platform is that you will need to pay at least a third or 20% of your donations to the platform.
The price varies depending on the platform.
You'll also be responsible for taxes that you generate.
That reduces the TV show's revenue to only a third of the donations they generate.
If the producer only relies on crowdfunding and doesn't run ads on the network they air on, then the donations are also the only source of income for the TV show.
This can be problematic if the filming experiences delays.
You can continue to attempt to crowdfund, but the backers may not always be willing to continue to donate.
You're at the mercy of crowdfunding as much as you benefit from it.
For small-time TV shows, however, crowdfunding can be a great way to make money and do what you love.
5. Merchandise
Like all brands, TV shows can earn money by selling merchandise.
T-shirts are a great way for networks to earn money.
They're inexpensive to make and fans love wearing apparel that showcases their love for a particular show.
Merchandise doesn't have to be restricted to apparel either.
Collector's items are huge among fans.
Making an expensive and limited edition of certain TV show props, character statues, and other novelties can earn TV shows a significant amount of money.
The emphasis on limited merchandise drives fans crazy.
Their passion for the show encourages them to belong to a limited group of people who can say they own a particular piece of the show's history.
Thanks to eCommerce, TV shows can sell their merchandise more easily than ever.
All they need to do is create their own licensed store and sell goods related to the show.
They don't need to rent out a shop stall or make a deal with another chain to front their merchandise.
eCommerce gets rid of the middleman and allows TV shows to make money directly by selling the merchandise themselves.
6. Ads And Subscription Payments
Some networks use both ads and subscription payments to pay for TV shows.
One network is Hulu.
While Hulu originally had a free and premium version without ads, it has since changed tactics.
Hulu has a monthly subscription for which viewers pay a fee.
However, they still see a limited number of short ads during their TV show.
The emphasis is on short.
Whereas standard TV networks have 20 minutes of ads, Hulu has roughly 10 minutes of ads for an hour-long show.
This combination can be frustrating for viewers, but it allows Hulu to generate its own original TV series.
It also enables them to make partnerships with other TV networks to stream the latest episode of a TV show a few hours or a day after it airs on its home network.
In return, the TV network gets a share of the ad revenue that Hulu generates.
The TV show thus gets money from a share of Hulu's budget through subscription plans.
It also receives money from ads that viewers watch during the episode.
It's unclear if this combination of subscription payments and ads will work out for Hulu in the end.
They partnered with Disney+ to extend their subscription to those who subscribe to Disney+.
At the moment, it's another way in which TV shows can earn money.
7. Bidding Between Networks
If a producer can hype their show enough, then they can get a lot of viewers talking about the desire to watch it.
That's something networks take notice of.
It allows the producers to approach several different TV networks with the show.
Each network will bid against one another for the rights to air the show.
If the producer is lucky, the bidding war will continue for a time.
The TV show can earn a lot of money this way.
The highest bid earns the right to air the show.
In some cases, a producer may go with a different network if they offer other incentives.
A bidding war can earn a TV show a lot of money.
Networks don't mind the hefty investment because of the hype surrounding the show.
Word-of-mouth is already doing most of the marketing work for them.
If they see that the show already has a large following, then they know they can easily make their money back through ads.
It's why some producers might tease information about an upcoming show early.
If they can show networks that there is a high demand and interest in the show, then they can prompt a bidding war and earn the TV show a lot of money.
8. DVD Sales
Although DVDs are slowly declining in use, they're still a way that TV shows can generate money.
Back in the days before streaming, DVDs were one of the main methods TV shows could earn money.
Fans bought DVDs of their favorite shows to watch in their homes.
The novelty of only being able to watch the episode once on live TV, but then being able to watch it again on DVD drove sales.
DVDs took over from VHS sales of taped shows.
Today, some fans still buy DVDs of their TV shows.
That's because DVDs are the only way to access special features.
DVDs often include commentary by the cast and crew on certain episodes.
Diehard fans love listening to the commentary and gaining information about the filming that others don't have access to.
DVDs also feature other shorts like exclusive interviews, deleted scenes, and beloved blooper reels.
Some TV shows have turned from DVDs to digital codes.
It's the next evolution of selling the show after it airs.
A digital code allows fans the same kind of experience with DVDs except they don't need to buy a physical copy of it.
DVDs and digital codes are a great way for TV shows to earn extra money after the season has already aired.
9. Sponsorships
Some TV producers will seek out certain corporations for sponsorships.
Sometimes corporations will seek out the producer instead.
A sponsorship is similar to investment except that they're present in the show's world.
An investor will give a producer money without receiving recognition in the show apart from credit.
One example is Pepsi.
If a TV show receives sponsorship from Pepsi, then the writers may need to include a line somewhere in the script praising a Pepsi product.
The product may also be present in the scene.
There could be a can of Pepsi on the counter.
You might see an ad for Pepsi in the background.
In some way, Pepsi's branding is noticeable on the show.
This practice is known as product placement.
The method behind this marketing is that Pepsi will believe that the fans of the show might start buying Pepsi products.
If they see their favorite characters drinking Pepsi or mentioning their enjoyment of Pepsi, then they might drink it, too.
A TV show usually only takes on a few sponsors.
One reason is that many sponsors compete with one another.
A TV show can earn more money by playing each sponsor against one another.
Whoever offers the most money will receive sponsorship.
Another reason is that having too many sponsors in a show can be jarring for viewers.
The show becomes a walking advertisement with a plot rather than an actual TV show.
It can turn viewers away from watching the show.
Certain sponsors may also be derisive towards certain audience members.
TV networks, in particular, may not allow TV shows to accept certain sponsors if they believe it will alienate part of their audience.
That said, sponsorships remain a powerful way for TV shows to make money.
10. Syndication
A TV show knows it has it made if it receives an offer for syndication.
Syndication is an agreement between the producer or studio and the TV network.
The network will offer a certain amount of money to the studio for the right to continuously air episodes from the show.
As a result, the TV show continues to generate revenue any time viewers watch it with ads.
It's a great way for TV shows to generate money even if they're done producing new episodes.
TV networks will offer this to certain shows that have amassed a large and popular following.
A few examples of syndicated shows are:
- Friends
- Frasier
- Seinfeld
- M*A*S*H
- I Love Lucy
You may have noticed that these shows are still shown on your TV despite being over years ago.
Those shows still generate money any time someone watches them, and someone is always watching them.
It's a great way for studios to continue to earn royalties and for networks to keep generating revenue.
In some cases, it can even prompt a reboot for a TV show.
A reboot can earn a TV show even more money because it brings old and new fans together.
Syndication is the ultimate money-making deal for a TV show.
Are TV Shows Profitable?
You may wonder if TV shows can become profitable.
In fact, some TV shows can be even more profitable than movies.
It has to do with views and commercials.
A movie may generate $5 billion at the box office.
However, its budget was $1 billion.
That leaves it with a $4 billion profit.
It may receive more money through DVD sales, but the movie will only ever make $4 billion during its theatrical release.
A TV show has several episodes.
It thus has several chances to make more money than a movie.
A TV show that lasts for several seasons and includes several episodes can easily make more money than a movie.
An example is a TV show that has one million viewers.
Since every viewer equals $1 in ad revenue, every episode of the TV show earns $1 million.
If the budget to make the TV show was $500,000, then the profit is still $500,000.
Add other sources of income like merchandise and DVD sales, and the TV show can earn even more.
If the TV show goes on to become syndicated, then it earns money without detracting from a budget because no more episodes are being made.
As a result, the TV show continues to earn $1 million per episode.
Even a reduced number of 300,000 viewers earns the show $300,000.
Other than a few fees, that's untapped revenue.
Because a TV show can keep producing new episodes, it has more chances of earning more money than a movie that's only released once.
As a result, a TV show can be extremely profitable if it has a high viewership and relatively low budget.
Conclusion
There are several ways that a TV show can make money, but most of its money comes from ads.
There are a few other methods producers can use to earn money for their TV shows.
Syndication is a studio's dream to generate long-lasting revenue for a beloved TV show.
Consider these ways for a TV show to earn money if you want to support your favorite show.
How Do Tv Networks Make Their Money
Source: https://www.thecoldwire.com/how-do-tv-shows-make-money/
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