Executive Explains TV Economics 101, But Maybe It's Time to Change the Syllabus

Want to know the ins and outs of how TV networks actually make money in the digital age? A top TV executive is answering such questions for us layfolk for the next couple of weeks over at Boing Boing.

Craig Engler, the vice president and general manager of SyFy's digital side, is guest blogging there for a couple weeks, and so far, he's offered some informative posts that help explain some tricky issues about the changing economics of TV in the often confusing download-on-demand era.

He's writing about other cool-geeky stuff as well, but it's worth reading his posts about the business for some clear answers to such basic but thorny questions as why it's often difficult to find the shows you want on legal streaming sites, or why online viewing doesn't really help a show's ratings.

He hasn't yet addressed (but I hope he will) some even more basic points about the business -- points that explain why the networks aren't terribly responsive to the concerns of you, the viewer.

Engler's explanations are good so far as they go. He does a good job of explaining why different ad costs on different media mean that online viewing doesn't count as much toward a show's ratings health as TV viewing (at least not yet), and why the tangled international licensing agreements that allow shows to stream in some countries but not others are necessary (those license fees provide the seed money to create episodic television shows, which are expensive to produce).

In the comments, however, Boing Boing's astute readers note that these arrangements seem to create a whole lot of unnecessary middlemen between the show producers and the worldwide audience; that people around the globe are already viewing every show online for free, legally or not; and that a more efficient system would figure out how to make paying customers out of viewers who want to watch shows at their convenience, as soon as they're available for broadcast, on whatever device, in whatever country.

What I'd like to see Engler address is the reason why the TV business isn't reorganizing itself to make things easier for viewers, and that reason is the most fundamental -- but most easily overlooked -- aspect of the business. It is this: that TV's function is not to deliver content to you, the viewer. Rather, TV's function is to deliver you, the viewer, to the advertisers. The sponsors, not the viewers, are the network's customers.

Once you recognize that the money comes not from delivering shows but from delivering eyeballs, everything about the business falls into place. It's why Nielsen viewers are worth more than online viewers (because while online viewers are easier to count, the retail impact of online ads is still much harder to measure).

It's why networks still exist as a middleman to bring you your favorite shows even though online distribution would be so much easier (because the licensing money to buy a season's worth of episodes comes mostly from sponsors buying a season's worth of commercials up front).

It's why quality writing and acting aren't any network's primary concerns (the show only has to be the most congenial possible delivery system for the ads).

And it's why flash mobs and petitions alone won't save 'Chuck' (for example) if people aren't actually watching the show.

This is the way the TV business has operated for decades. That's not to say it should continue to do so in an age of digital distribution; indeed, if it does, the TV industry risks crumbling the way the music industry has. A business model that's more responsive to viewers than advertisers seems like a necessity in an age when viewer demand is enormous and worldwide -- and will be satisfied whether or not it has to pay to do so.

Until someone figures out how to get the audience to pay, however, the industry will be reluctant to tear down the obsolete sponsor-based system it knows and replace it with an unknown beast. Still, one of the people charged with figuring out what that new system will look like is Engler, and I look forward to reading what he has to say about it in the coming weeks.

• Follow Gary Susman on Twitter @garysusman.