How to create a high-quality American TV series requires both platform and content

American TV series are shifting towards high-quality products. The production cost of many American TV series in a single season has reached an astonishing US$100 million, which has exceeded the cost of many movies. The business model of American TV series is quietly changing.

Original title: American TV series is getting better and better. What has happened to its business model?

During the Dragon Boat Festival holiday, I finally finished watching the second season of the American TV series "Billionaire". As the most-watched TV series in Showtimes history, the content and filming of "Billionaire" in the second season were even more exciting than the first season. It contains very rich character descriptions, wonderful and profound dialogue, and the super-class acting skills of the two male and female protagonists. Thinking of the release of the latest season of "A Song of Ice and Fire" a month later makes people feel excited again.

In fact, in the past, we have found a large number of well-produced American dramas, including "Song of Ice and Fire","Westworld","Billionaire","House of Cards", etc. Many of them have produced a single season. A staggering 100 million US dollars has exceeded the cost of many movies. Today, let's talk about the changes in the business model of American TV dramas.

The production cost of American dramas is getting more and more expensive

. In the past 20 years, we have also found a big change that the production cost of American dramas is getting higher and higher.

When I first went to the United States in 1997, most American TV series were dialogue programs like "Friends". The production cost was not high, mainly due to the actors 'pay. These American dramas are often released for a season or two at a low cost first, and end if the yields are not high. The filming continues with high ratings until the actors feel tired. Including the previous "JerrySenfields","Friends","EverybodyLovesRaymond","ER" and so on, all have this model.

This kind of American drama is also called soap operas. Basically, there is not much connotation. The actors mainly tell jokes, and the scenes are very single.

In fact, the earliest thing I liked most was "Jerry Senfields", in which the male protagonist Senfields mainly gave "stand-up comedy". Later,"Friends", which became a household name, changed from stand-up comedy to a six-person dialogue. But the scene is also very single, basically in their small apartment building.

The characteristics of these American dramas are that the actors 'initial pay is very low and the trial and error cost is not high. At that time, there were a large number of such soap operas on the TV every day, and they were basically used for housewives to pass time.

At that time, many stars started acting in American dramas and eventually entered the film industry. Including Will Smith, George Clooney, Jennifer Anniston, Scott Speedman and others.

Internet TV has brought about changes in

the business model of American TV series. The biggest driving force comes from the emergence of Internet TV, especially a company called Netflix. Founded in 1999, Netflix was the first to subvert the traditional offline DVD rental provider BlockBuster through the Internet DVD rental model. In 2011, founder Reed Hastings announced that the direct result of the company's comprehensive transformation to streaming media was a significant increase in streaming content.

We can see that after a 10-fold increase today, Netflix's net profit in 2016 was actually US$187 million, down year-on-year from US$220 million in 2011. But the decline in profits has had no impact on Netflix, with the company's revenue and paying users more than tripling.

The decline in profits was mainly due to the cost of purchasing high-quality content in large quantities. But the capital market believes that Netflix has sufficient user stickiness (including price increases in previous years without any harm from user data). Here's a chart of Netflix's share price:

After the company reached critical points in user numbers and content spending, profits grew significantly in minutes.

The emergence of Netflix streaming media has changed the business model of the traditional TV industry. Users enjoy better TV drama content through subscription fees: there is no need to wait every week, they can watch it in one go, there is no advertising, and a large number of high-quality content can be selected from.

In Netflix's Internet model, products are more important than channels. In the past, a large number of bubble dramas relied on TV channels to survive. The three major TV stations ABC, NBC, and CBS all have a large number of soap operas with average product power and parasitic in their channels. Because they don't have a strong understanding of user data, these TV stations often see the market reaction through "trial and error" for one or two seasons. The monetization model is just an intermediate advertising fee.

Today, due to the large number of purchased and homemade high-quality TV series retained on Netflix, users are leaving traditional TV channels. For traditional TV stations, how to regain users must rely on more well-produced headlines.

Another change brought about by Internet TV is that the top TV series of traditional TV stations have secondary distribution capabilities.

For example, high-quality American dramas from CBS, HBO, and NBC can be sold to Netflix for copyright fees after they are broadcast on their TV stations. So from this perspective, Netflix is not really a competition for these big TV stations.

Let's take CBS as an example. In the past, this TV station's revenue was from advertising and paid channels. Let's look at CBS's 2016 financial report: Among the annual revenue of US$13.1 billion, advertising revenue was US$6.28 billion, content copyright fees and distribution revenue was US$3.67 billion, and user paid revenue was US$2.97 billion. In other words, traditional advertising revenue accounts for less than 50%, while user payment revenue and copyright content redistribution revenue generated by high-quality content have accounted for more than 50%.

Showtime's well-produced "Billionaire" will not only increase Showtime's paid channel subscribers, but also sell it to Netflix to earn secondary copyright fees.

We have also seen that the purchase of corresponding content copyrights between traditional TV stations and Netflix has also become a game under different business models. On the one hand, Netflix still needs to purchase large quantities of content from other TV stations; on the other hand, Netflix does not want to choke itself in the hands of competitors. In the past few years, Netflix has comprehensively promoted homemade dramas.

In his previous analysis of Qiu Mengchen's article on Netflix, he mentioned two points worthy of attention:

at the 2016 Emmy Awards, Netflix's homemade dramas won 54 titles, second only to the two major cable TV channels HBO and FOX, highlighting Netflix's homemade drama capabilities;

in 2016, Netflix provided 4335 movies and 1197 TV series; compared with 6848 movies in 2014, 1609 TV series showed a decline. This also confirms what we have seen. The value of the header content is getting greater and greater.

Today's audiences don't need all content, but good content.

The TV industry has entered an era of subtraction

Today, the entire TV industry has entered an era of subtraction. Compared with 20 years ago, the market shares of the three major TV networks NBC, CBS, and ABC have further increased, and small TV stations are increasingly unable to survive.

For users, they don't need as much invalid content and channels. A few months ago, we wrote about YouTubeTV's new attempt, which will launch 35 packaged TV channels including Fox, ESPN, DisneyChannel, ABC, NBC, etc. Although most users in the United States subscribe to more than 100 cable channels, the vast majority of content is actually invalid. Standardized news channels will be replaced by the mobile Internet, and fewer and fewer people will watch small local TV stations that cannot produce high-quality content.

In the past, users would often sit in front of the TV and flip through the channels, only to find that there was no good content after 30 minutes. Today, users are getting lazier and more picky, and they want to cut back on ineffective channels.

Several major vertical channels, including sports, entertainment, finance, cartoons, and mainstream news, will become more and more valuable, while most comprehensive TV stations will gradually be used as Internet channels.

As the entire TV industry enters an era of subtraction, users 'attention to top American dramas will be greatly increased. People will no longer watch one drama from east to west, but will pay attention to those American dramas that truly have content quality. This will also cause TV stations to transform into headline content. Whether it is a TV series or a TV program. The nonsense talk shows and soap operas of 20 years ago have become less and less attractive.

The era of high-quality American dramas has arrived, which has also promoted high investment in American dramas. In the end, we find that the production of American dramas is getting better and better!

Some inspirations for our investment

In the transformation of TV content models, the United States has always been ahead of China. Today, we have seen a significant increase in the penetration rate of content payments in China, and Internet TV platforms are concentrated in several large companies such as iQiyi, Youku Tudou and Tencent Video. Judging from the transformation of American TV dramas, we think it will bring several enlightenments:

the exclusiveness of content. Although "In the Name of the People" has been very popular recently, it is broadcast on multiple platforms. In the future, the exclusivity of top content will become increasingly important, similar to Netflix's homemade drama model. Only exclusive content can obtain pricing power for a long time and bind users.

Sustainability of exclusive content. At present, most TV series models in China still produce 30-40 episodes in one go. In the future, users need to be bound through a multi-season TV drama model. After one Season, make a second one immediately to make users sticky to the platform.

From the perspective of content depth, most domestic dramas are still biased towards entertainment. Similar to the United States 20 years ago. Today, as the price of headline dramas has increased, more and more capital will be invested in screenwriters to improve the content depth of domestic dramas.

Payment will inevitably become the main source of income for Internet TV in the future. With the rise of the middle class, China will inevitably pay more and more for spiritual consumption. At present, content charges for single platforms in China are still very low. However, with the cooperation between Netflix and iQiyi, this model may change.

In the long run, companies with head-content production and platforms with the largest user traffic will benefit from the overall wave of rising TV drama costs.

Editor: jessica