A new report just came out from new cable channel Pivot, saying that 13% of 18-34 year olds who have broadband have cut the cord to pay TV providers, and rely on broadband content only. The new “Millenial” generation is cutting the cord, PAY TV and cable as a whole is in trouble, and the area to really watch to see the future of this is kids. If your kids are spending more time online than watching TV, then guess what they’re NOT going to do when they grow up and decide on the family entertainment budget…pay for cable.
There was a time many years ago when a producer could make millions of dollars producing kids programming. The kids networks were king, and even broadcast networks retained major Saturday morning audiences. The times though are a changing.
The formula used to be easy…produce a cartoon, sell it to a network, retain licensing rights, sell the IP rights to every licensing category known to god, repeat in as many countries as possible, and everyone gets rich. Just ask the master of this Hiam Saban, exactly how much money you can make off one IP.
Let’s look at the kids business today:
Kids TV Networks
Networks are losing audience to online, a recent 2013 Mintel report on Tweens and Teens shows Tweens aged 8-13 are spending more time online than watching TV, 53% say spending time on the computer is their favorite way of spending spare time. The kids business is going the way the of the record industry, and needs to understand and adapt. The networks seem to be completely adverse to the second screen mentality, and even less adept to make money this way.
Yes Nickelodeon FINALLY has brought out an app, and if you can navigate though that app, has some content on it. What it isn’t though, is Nickelodeon in a true streaming 2nd screen format. I am very close to Nick, having been part of the launch team for it’s first international channel in 1993, Nick UK, and have witnessed a steady decline in the ratings over a number of years. The most important sales demo in my opinion in the kids business is kids 6-11, and I have tracked this rating for Nick over the past five years and seen a steady year on year drop in ratings. What has led to this? There used to be a time when a Nick program was identifiable. There was only one network that would do Ren & Stimpy, there’s only one home for Spongebob Squarepants. Now it seems that Nick is playing catch up to Disney Channel and trying to emulate their success and programming. It’s interesting to note that they haven’t had a Spongebob sized hit since Herb Scannel left the network six years ago. In my opinion Nick has lost it’s identity with its audience.
Again, I am close to this brand having worked for Tuner setting up international Cartoon Network shows around the world many years ago. Online, Cartoon Network has a strong offering, mainly thanks to Paul Condoloroa who is an excellent executive. I suspect given more of a runway Cartoon could really forge ahead in this area. Out of all the networks Cartoon Network has been a more proactive online player. Programming wise on the network though I just don’t know what Cartoon is anymore, and what its audience is? It used to be young boys, and they ruled this demo, but now, I give up. Is their programming animated or live action, and how can Cartoon be a live action offering?
The amazing machine that is the Disney machine. Disney Channel used to be the “baby” channel, no Tween with any self respect would go near them, and then through executives like Adam Bonnett, they developed amazing Tween sit-coms, and now they own that market. Disney is now cool, and their shows create stars. The “machine” integrates an amazing cross platform promotion, from Radio Disney, to retail, you don’t launch a show on Disney, you launch a property. That being said, for the independent producer it’s very still very hard to get a show on Disney. They tend to develop their own within a community of approved producers, it’s hard to break in. Digitally, the “Mouse House”, has had trouble getting traction. From the failed Go.com to various online kids platforms, they seem to miss the mark. Recently though there have been some light at the end of this tunnel, but I do not feel Disney are doing half of what they could online.
By law, free to air networks have to provide three hours of educational and informative information a week. This used to be served through their own Saturday morning blocks, and also used to be a cash cow. As long as a show contained a supportive educational element, (Zack has a moral dilemma in Saved By the Bell, how will he deal with it?), it was counted as E/I content. Now the ratings have fallen off, and networks farm out their three hour blocks to producers who try to sell advertising and licensing against the pitiful dwindling ratings. This just isn’t a business anymore.
The economics of making content suck. To be a producer involves an enormous amount of masochism. If you make a show for say $300,000 an episode, and if an average large network pays you $60,000 an episode, you have to sell five major territories to break even on your budget. But reality is, most networks will not pay you $60,000, it’s more like $20-30,000, so you could be looking at ten major broadcasters. That’s a hard sell. If you do manage to sell to your broadcasters and break even against your budget, you have probably had to give up licensing rights, have no control over how many times they play the show, where they play the show, IF they play the show. Home entertainment dollars are in the toilet, (still a market in pre-school but thanks to the iPad that’s declining). Licensing if you have been able to retain it, have killed advances, (OK if you’re Spiderman that’s a different deal), and will not guarantee the levels of advertising against their product that they used to. Shelf space at big box retailers like Walmart have declined whilst their expectation per foot of shelving has increased.
Network economics. If you’re audience is in decline, the advertiser will do two things. First they will drop the effective CPM base against your inventory, second they will start to move advertising dollars over to where the audience is going; in the kids case, online. Networks like Nickelodeon have desperately tried to maintain their bottom line by doing major licensing deals to online services like Netflix and Amazon. Recently Netflix dropped their Viacom deal, showing the strength of their platform and the lack of strength they place against the Viacom programming. Viacom has immediately shopped their deal to Amazon. So let’s think about the logic, or as I ascertain, lack of logic for doing this. You network is in major rating decline and has been for a couple of years, you know the audience is going online, but instead of building your own online presence and capturing the audience under your own flag, you sell out to get dollars in quickly and help build someone else’s platform. They then turn around and leave you standing as a wallflower at the dance, and move on, “thank you but I don’t need you anymore”, and in order to not show a huge hole in your bottom line you HAVE to do another deal. What happens when Viacom programming has built up Amazon’s audience? Do they drop Viacom as a dance partner and move on?
First of all, if you own a library of shows, is it worth doing a network deal hoping it will get a platform? A network deal would pay a small licensing fee for library content and tie your shows up for three years. So let’s for example say you get $10,000 per episode, over three years that’s $3,340 dollars a year. Online, against a $20 pre roll CPM, that equates to 170,000 views. On a dedicated online platform with millions of Tweens and the right promotion, could you get say, 300,000 streams per month per episode? If so you are looking at generating $6,000 in revenues per episode per month, or $72,000 a year, or $216,000 over the three year license period a network would take. A 30% revenue share against that would be $64,800 per episode. That is $54,800 better than the network deal, and you keep your rights. Now of course this all depends on how many streams you get against your show, BUT, it seems like a better deal to me! This is why I am going online for my next business.
If you make content for the web, you approach the production from a completely different perspective. Long gone are the $300,000 per episode budgets. Imagine your starting place being $30,000 per episode. Return against that would be 1.5mm streams and then you’re in profit. You own the content to license against in other territories and platforms, all of which is profit. I successfully did this at KOL. We made a number of cartoons, Princess Natasha being the most successful. We cleared a profit online, we sold the show to Cartoon Network, did a home DVD deal, and then licensed the IP to 22 separate licensees. Profit, profit, profit. This is why I am going online for my next business.
So where does this leave us?
The business is changing. The dominance of networks has gone, kids cable channels are losing audience share year on year, kids spend more time on iPads and computers than they do sitting in front of TV’s and this will only increase. Advertisers are growing their online commitment, according to Adweek, last year the Tween space accounted for $17 billion in US ad spend, a greater percentage of that money is going online every month, forget every year!
Networks are never going to get back into the kids world. Cable channels have to adapt and rebuild their own programming brand, and totally re-think their online offering, or they will loose. But if you were me, and you were starting up a new business, aimed at Tweens, what platform would you go to?