As Silicon Valley continues its quest to conquer television — with companies such as Netflix, Amazon, Apple, Google/YouTube and Facebook spending billions of dollars on original content, driving up prices — how does traditional media company like CBS compete? The question came up during CBS Corp.’s quarterly earnings call today.
While CBS Corp. CEO Leslie Moonves acknowledged the issue with comments including “There is a lot more competition out there” and “The cost of poker, in most cases, has gone up,” he did not seem too concerned about the recent talent raid launched by the deep-pocketed digital newcomers, illustrated by the blockbuster overall deals at Netflix for mega creator/producers Ryan Murphy (as much as $300 million) and Shonda Rhimes (at least $100 million).
“We are pretty competitive,” Moonves said. “On broadcast, we offer creators visibility and something called back-end. There’s a guy called Chuck Lorre who’s made more than a couple hundred million bucks on his shows that air on CBS.”
Warner Bros. TV-based Lorre, the top comedy producer of the past decade, is behind a string of CBS series that have gone to syndication: mega hits The Big Bang Theory and Two and a Half Men as well as the well-received Mom and Mike & Molly. His latest show, Big Bang spinoff Young Sheldon, is the No.1 new comedy series of the broadcast season.
Under the “Netflix model,” which has been adopted by most SVOD players, they pay creators and producers Cost + upfront, a premium over the production cost of a series that guarantees them profit from the get-go but greatly limits it within a pre-set margin. The high risk, high reward broadcast model involves the studios deficiting, aka losing money on a show for its first few seasons. But in success, they are poised to make hundreds of millions of dollars from “back-end” sales of the series in cable and broadcast syndication, streaming and internationally.
Maybe because the profit margins for broadcast series are not what they were even a decade ago as networks suffer from audience fragmentation and softening of the off-network market, the SVOD model, with its smaller but guaranteed financial upside, has become increasingly attractive, along with the larger creative freedom such places generally offer creators.
Take sitcom king Lorre, who has made his fortune off broadcast sitcoms, for example. Besides Young Sheldon, which was a spinoff of a CBS series, his two most recent comedy series, Disjointed and The Kominsky Method, both went to Netflix.