Big Bang Theory of Advertising, or How Broadcasters Are Like Supermarkets
One of the most popular recent television shows is CBS's "The Big Bang Theory," broadcast on Thursday evenings. In addition, the most recent 5 shows are available online on cbs.com. As with the live CBS broadcast, commercials are interspersed in the show - based on what I can tell at the same places as when broadcast in its normal slot.
For decades, the entire broadcast television (and radio) business was based on advertising. Broadcasters create (or purchase) shows, then sell ads that air during breaks in the show as well las in between shows. The more popular the show, the higher the charge per minute of advertisement.
At heart, television is a type of lead-generation business. HP and Proctor & Gamble and Ford pay CBS and NBC to bring them customers. It may be an indirect lead-gen business - CBS doesn't actually bring customers to Ford, but Ford does pay CBS to get its name and products in front of customers, and to get lots of customers seeing that name.
Web publishing, including search, is not that different. Purveyors of real products and services pay companies (broadcasters and Web sites) with access to customers to, well, get them those customers.
The types of ads that a broadcaster show normally fall into two types:
- Revenue-generating: ads from GM, Ford, P&G, etc.
- In-network: ads from CBS for other shows.
The latter isn't too surprising. If CBS has one popular show, it is worth re-investing some of the potential revenue from one show into generating more revenue, via higher popularity, which leads to higher ad rates, for another show. Thus, it is not surprising that, while watching "Big Bang Theory", one might see ads for "Criminal Minds" or "NCIS".
This is exactly the question every CEO faces regularly: how much of my profit do I re-invest into my company to generate future revenues vs. keeping it as profit, which goes to the shareholders.
With the growth of pay-access, originally via cable TV, a third type of advertisement is available:
- Pay-in-network: ads from the network itself for other, paid premium offerings, e.g. ESPN2 or NHL.
I have noticed something interesting happening on the online version of "Big Bang Theory" over the last few months. The split of ads between the three types - revenue-generating, in-network, and pay - appears to be shifting in favour of pay and in-network and away from the heavily-weighted revenue-generating.
Without inside access to a major content purveyor, I lack precise knowledge as to what the actual split is. However, initial observation shows that at least 1/3 of the ads appears to be for paid content from CBS itself.
While I hardly expect CBS to give up lucrative advertising revenue from GM and Ford, it does mean that, to some extent, CBS is (at least partially) shifting its business model (possibly with knowledge, possibly not) from a lead-generation model to a direct sales with loss-leader model. The purpose of a show used to be to get viewers for whom others will pay for access; that is lead-generation. The new purpose of a show is to get viewers who are willing to pay for other products and services sold by the show's broadcasters itself; that is a direct sales with loss-leader model.
Supermarkets and other retailers for years have presented low-cost or even free products in their stores to entice customers to enter and buy higher, more profitable products. They carefully calculate the amount of loss they are willing to incur from the loss-leaders, balanced against the potential increase in revenue (and profit) from other products.
Are the broadcasters aware that their fundamental model is shifting, and are they pursuing and planning everything from operations to finance to sales to marketing around it? Or are they just taking advantage of an opportunity and "going with the flow"? The answer depends on whether or not they regularly calculate those losses vs. increases in revenue and profit, i.e. whether or not they operate with that mindset.
I'd be most curious to know what they think.