A different kind of market polarization

A few weeks ago, The Economist published an excellent essay exploring the evolution of the so-called “blockbuster,” the hit songs, CDs, TV shows, and movies on which content developers of all kind rely to drive profits. Since the dawn of the digital age, alternative channels for distribution, chiefly the internet, have played havoc with the traditional model for content development and distribution, upsetting the means whereby media companies commercialize their wares. Over the past decade, it even became fashionable for talking heads to predict the end of the blockbuster. Thanks to instant, on-demand access and a multiplicity of distribution channels, there would be no more blockbusters of the kind seen in the past, such as ET, Elvis Presley, or Seinfeld. The thinking was that, given greater options and flexibility, people will tend toward smaller market niches, abandoning mass-media culture.

This explanation has been trotted out to explain many of the significant events (or non-events) of the past decade affecting the media industry. Everything from declining network news viewership to the large-scale abandonment of the compact disc has been shoehorned into this niche-driven view of the future.

As The Economist explains, it’s not as easy as all that.

According to the magazine, blockbusters are still thriving, perhaps more than ever, yet the niche properties are doing pretty well, too. It’s the middle of the market – the middling properties aimed at a mass audience – that is getting clobbered. The Economist cites the recently released movie The Twilight Saga: New Moon as an example of the enduring appeal of the mass-market blockbuster. In its first weekend, it raked in $140.7 million in its first three days and set an all-time high for its opening day sales with $72.7 million.

Much as the pundits have predicted, niche properties are thriving as well. While small, their audiences are fervent and are often willing to pay more for esoteric stuff. Meanwhile, the “depressed middle,” as The Economist puts it, is absolutely toxic – too bland to occupy a niche or to attract a large mass-market audience. The magazine reports:

“What is a media company to do? As sales become ever more concentrated, it is becoming both more urgent and harder to establish a foothold near the top of the market. A book or film that fails to attract a mass audience tumbles quickly into the depressed middle. To avoid this fate, should a company spread its development and marketing budget over lots of products, hoping that one or two catch on, or should it bet on just a few? The problem is especially acute in businesses like music, where money is tighter than ever and even the hits are not quite as solid as they used to be.”

The fate of large media companies over the next decade is likely to turn on these questions. To make matters worse, it’s not just a matter of identifying “niche” or “middling” properties, because these labels are very fluid and depend greatly upon the channels available to any one company. For example, consider the fate of Monday Night Football (MNF). Well into the 1980s, ABC could count on MNF to occupy Monday evenings with a Top 10 viewing audience, but beginning in the 1990s, that audience began to dwindle, and the program fell into the teens and twenties in the Nielsen rankings. Years ago, a #17- or #22-ranked show could survive while largely paying for itself, but due to the factors identified above, the middle of the rankings had become a commercial no-man’s land. MNF was no longer viable as a network primetime program; it was expensive to produce, and its advertising haul was less and less each year. Rather than kill the franchise, the program was transferred to ABC’s sister network ESPN, the cable sports juggernaut, where the economics of airing the program are different. What was a “depressed-middle” program to one network was a solid primetime niche program to another. Clearly, as the example above indicates, media companies that have multiple distribution channels have an advantage in that they can sometimes rescue the sunken development costs associated with certain properties by finding more appropriate channels for broadcasting, thereby salvaging some of the investment and brand awareness.

In this respect, CBS stands alone. Unlike other major U.S. television networks, CBS has no large cable business and is largely dependent upon the television network itself. This has led to some interesting choices and strategies. For example, among network programmers, it is an article of faith that the younger demographic is the only one that matters. Hit shows that thrive due to a younger viewing audience command higher ad rates than shows aimed at an older demographic. That explains why so much network TV programming is aimed at youth culture.

But CBS has consistently bucked that trend. As an article from today’s Wall Street Journal aptly describes, CBS has long been associated with programs aimed at an older, so-called “heartland” audience. TV’s current #1 drama, NCIS, is a perfect example. While NCIS can’t command the ad-rate premiums of other shows, CBS is perfectly pleased with its huge weekly audience – 22 million each week. CBS has decided that it can live without the rate premium, not to mention the fickleness of the youth audience. That might explain why the only dramas ranked in Nielsen’s 2009 Top 10 are all CBS properties, and yet the network has none of the reality/event TV Top 10 hits of the other networks.

Given the thesis propounded in The Economist, it will be interesting to see how CBS tackles the evolution underway in the media industry. The network is clearly the dominant broadcaster of what I would call traditional network programming, and with its SEC football and NCAA men’s basketball tournament packages, it has a decent portfolio of sports properties, but if the media industry is experiencing a kind of market polarization, CBS is under a lot of pressure to hit the sweet spot each time it debuts a new drama or comedy. Who knew that creating middle-brow TV for Middle America could be so risky? But, as The Economist concluded:

“But nobody knows quite what to do. The old-media world of limited choice, in which any product that was not too objectionable was guaranteed a decent audience, was a comfortable place. Pleasing a customer who can choose from several hundred films and television programmes even without getting up from the sofa, by contrast, is an unnerving prospect.”