For more than 90 years, people around the world have enjoyed the entertainment of television.
According to Nielsen’s National Television Household Universe Estimates, 118.4 million homes in the United States tuned in regularly for the 2016-2017 TV season.
While the televisions of yesterday were regulated to a handful of UHF and VHF channels, the TV Land of today seems endless. But how do the individual shows make money?
How Do They Make Money
Television in the 21st Century is primarily available through three platform: networks, subscription services, and streaming services. These different services tend to make money through advertising and paid subscriptions.
Networks and other media distributors purchase the right to air an individual show from that show’s production company.
The cost of these shows is typically reported as dollars per episode and is based on the quality of that show’s ratings. The value of a new show is based on the results of focus groups who viewed the show’s prototype episode known as a “pilot.”
How an individual show makes money for their distributor can vary based on the business models below.
Network television lives and breathes on revenue generated by selling commercial time to a wide variety of businesses or “sponsors.” The value of a commercial’s time slot is based on the number of viewers watching at that moment. Television networks use ratings to determine which shows are the most popular and have the most valuable ad space.
Advertisers will use ratings, typically measured by the Nielsen Group, to determine which show they would like to sponsor in exchange for commercial slots.
The Nielsen Group measures ratings by randomly selecting households throughout the country and providing them with a special box that monitors their TV. In the past, the Nielsen Group would simply call random homes and ask the residents what shows they watched at specific times. Today’s system offers much more precise measurements.
Subscription channels like HBO, Showtime, Cinemax, and Starz all have one thing in common: no commercials. Viewers must pay a monthly or annual fee in order to access their favorite shows. “Tent pole” shows, like Game of Thrones, are used to draw in viewers who may not have subscribed otherwise.
Streaming services like Netflix, Amazon Prime Video, and Hulu operate on a similar business model as subscription TV. Many of the channels listed above, and some basic cable networks, have begun offering their own streaming packages that can be purchased independently from their TV counterparts.
Some of these distributors combine both subscription services and advertisements to generate revenue. Customers may have the option to pay more and view fewer commercials.
Click here to learn more about how Netflix makes money.