How the Television Industry Works - Part 1

My new article explains how the Television industry works, the key stakeholders, key metrics, how do these key players interact with each other and the currencies of exchange between them. This article will be a multi-part series.

Note: I had created this article few years back. Since then, I have revised it to update new content. However, I couldn't invest the time to redo all my graphs and charts. But these graphs and charts does get the message across even though it may not have upto date numbers. If you find any instances where the content needs additional revision, please drop me a message.

Love to hear your experiences and new information!!

The Television Industry functions are broadly split into the below categories or functions with each stakeholder aligning in one of these categories:

Content Production

Content Production has two main players – Content Producers and Content Creators.

Content Producers primarily secure funding from sources like Television Networks or independent entities and manage the creation of content like television programs or series. They also manage the Content Creators. They can be in-house producers within a Television Network or as in some cases can be independent producers. In Television Industry, the Content Producers are predominantly vertically integrated within a television channel or network meaning that they produce content only for that Television Network. There are few independent producers who fund and/or produce independent content and sell programming rights or license the content to specific Television Networks.

Content Creators are the creative talent who work with the Content Producers and create the funded television program or series. Content Creators can be anybody like you, me or professionals like Directors, Actors, Artists, Independent Artists, etc.

So what is Content? Content can be anything from blogs, videos, infographics, television programs, advertisements, movies, music, soundbytes, content created by professionals, user created videos as in YouTube videos, etc. and could be in the form of structure, semi-structured or unstructured. In the context of the Television Industry, we will restrict the meaning of content to Television Programs, Series and Advertisements.

Content Aggregation

??????????????Content Aggregators are also called Content Providers. Content Aggregators are the key power players in the television industry. Their main functions are to produce, acquire, aggregate, license and provide content for distribution by Content Distributors to the end viewers.

Content Aggregators are classified as given below:

Broadcast Networks are Free OTA (Over the Air) Channel Networks. The available US Broadcast Networks are NBC, CBS, ABC, Fox and The CW. These channels are available for free without any encoding or conditional access systems. These OTA signals can be captured using Terrestrial Antennae in your home and connected to your television using a digital converter (since digital signals are the norm in many countries). In India, the equivalent of Broadcast Networks will be Doordarshan.

Pay TV Networks were originally called Cable Networks (more widely used and popular term) as distribution over coaxial cable was the norm in the old days. Pay TV Networks is a latest terminology given that the content distribution happens over Cable, Satellite and IP these days and not just over cable as earlier. Pay TV Networks are not available for free and require a television service to be subscribed with one of the Content Distributors like Comcast, DirecTV, AT&T, etc to view these channels. These channels are encoded with viewership allowed using CAS (Conditional Access System) or Smart Cards.

There are 3 kinds of Pay TV Channels – Linear Channels, Video on Demand (VOD) Channels and Pay per View (PPV) Channels.

Linear Channels are also called Linear Pay TV Channels since it involves a subscription to be paid to the Content Distributor (Comcast, AT&T, DirecTV, etc) to view these channels and it is “Linear” due to the nature of the content transmission (i.e. Content Providers transmit content directly one after the other and control all the scheduling of the content without any ability from the user to interact with the content using TV or Set Top Box remote). Linear Pay TV Channels are typically subscription based with the quantum of subscription fee determining the category of the channel. If the subscription fee is very low, it is typically a Basic Channel e.g. CNN. The majority of channels on most cable systems are devoted to basic cable networks. These are termed "basic" because the subscriber can obtain a large number of them for a low price. There are over sixty basic networks. If the subscription fee is high, it is typically a Premium Channel e.g. HBO and ESPN. Some channels which offer ad free viewership by charging a very high subscription fee are called Ad Free Channels e.g. HBO Defined and HBO Hits.

??????? Video on Demand (VOD) Channels are nonlinear in nature with the viewer having the ability to control the content to be viewed, time when it needs to be viewed and do trick plays (FF, RW, Pause, etc) using the Set Top Box Remote. VOD Channels are further classified into Free VOD, Subscription VOD, Transactional VOD and Catch up TV.

Free VOD Channels are usually certain free VODs offered by the Content Distributor based on their service packaging or marketing campaigns. These VODs may be available for free for the entire duration of your television package or for a limited duration based on the different marketing campaigns being run. Subscription VOD Channels are usually offered based on a user subscription to that channel. Transactional VOD is all about immediacy. Consumers can often access movies and TV series much sooner after their general release, and they usually have the option of either renting or buying content. Catch up TV (or Replay TV) is VOD in which TV shows are available for a period of days after the original television broadcast. Services provided by broadcasting agents use this terminology when offering typically time limited on VOD options on schedules aligned with their main transmissions. Catch up TV may not be a separate channel based on the packaging being done.

??????? Pay per View (PPV) Channels are channels where subscribers pay only for those programs they actually watch. If they have not paid for a particular program, a scrambled signal appears on the pay-per-view channel. Movies can be seen for a few dollars, while major sports events may have a higher price tag in the $20 to $50 range. Their staple programming is newly released hit movies, but they also present sports and entertainment specials e.g. ESPN GamePlan. These channels repeatedly run the same movie (or the same ten or fifteen movies). The fundamental evolution of pay-per-view television is to compete with the video rental business i.e. enable viewers to see movies at their convenience without having to leave their homes.

Public Broadcasting Service (PBS) is an American public broadcaster and television program distributor. It is an independently operated non-profit organization and is the most prominent provider of television programs to public television stations in the United States. PBS stations are commonly operated by non-profit organizations, state agencies, local authorities (such as municipal boards of education), or universities in their city of license. PBS provides television content and related services to its member stations or affiliates. Each station is charged with the responsibility of programming local content (often news, interview, cultural and public affairs programs) for their individual market or state that supplements content provided by PBS and other public television distributors.

Content Distribution

??????????????Content Distribution is primarily done by MVPDs (Multi-Video Programming Distributors) who package content offered by different Broadcast Networks, Pay TV Networks and independently available/licensed content into different packages and offer television video programming services to households on a subscription basis. MVPDs invest in content distribution and delivery networks which provide television video programming directly to each household. They install customer premise equipment such as Set Top Boxes, Satellite Dishes, etc based on the distribution mechanism.

Content Distribution is primarily classified into the below categories:

Terrestrial Distribution is done by the Broadcast Networks which is basically the Free OTA (Over-The-Air) Channels. These signals can be trapped using Terrestrial Antenna installed in each household.

Cable Distribution is done by MVPDs where centralized reception at a central head end is via satellite and distribution is done over a hybrid-fiber-cable (HFC) system where fiber runs to the neighborhoods. From there, the television video programming and offerings are sent via coax cable to the home. Set Top Box is installed at the home to receive the signal, decode and display it on the television E.g. Comcast. At each neighborhood node where the fiber terminates, the coax cable drops can number from a few hundred to over a thousand, meaning that lots of neighbours share the bandwidth. It doesn’t matter with TV, but for Internet access, speed must be shared. A STB with a tuner selects the desired channel with input from the customer’s remote control. A separate cable modem is used to connect to the PC. While cable is essentially a one-way system, there are so-called reverse channels that allow the STB box to talk to the cable head end. The cable company can block any channels that the customer doesn’t pay for.

Satellite Distribution or Direct to Home (DTH) is also done by MVPDs where television video programming is beamed directly to home via satellites. Satellite Dish and Set Top Box is installed at the home to receive the signal directly from the satellite, decode and display it on the television E.g. DirecTV

IPTV Distribution is also done by MVPDs where IPTV uses the Internet and IP, and as such is inherently a two-way system. The video is encrypted, then compressed and put into IP packets. After that, the packets are sent via fiber and eventually by an Ethernet connection to the TV set. Set Top Box is installed at the home to receive the signal, decode and display it on the television E.g. AT&T Uverse and Verizon FiOS. ?Because the system is two-way, the customer can easily talk back to the distributor in several ways. Two-way transmission is supposedly one of the great benefits of IPTV over cable.

Note: In some of the below statistics or tabulations, the IPTV Distributors will also be referred to as Telcos or Telephone Companies.

Over the Top (OTT) Distribution is done by various players like Roku, Apple, Google, etc. They stream various content licensed from the Content Aggregators or independently available/licensed content streamed via the internet and displayed on your television using a Set Top Box like device. These boxes may need to be purchased separately as a one-time payment and independent subscriptions need to be done to watch various OTT content like Hulu, Netflix, Amazon, Pandora, etc. Everything you can watch or do on these OTT boxes is something you can already do with your computer. The OTT Box is just an easy way of getting it on your TV and provides a simplified experience (for example you can select and control your Netflix and Amazon movies via a remote control).

As an extension to OTT, TV Everywhere and Online Video Distributors (OVD) also need special mention since they also distribute content to the end viewers through mobile or online platforms. In TV Everywhere, many Content Providers and Content Distributors are providing the end viewers to watch their content via online, smart TV apps and smartphones. Typically this service is offered free if the viewer is already subscribed as part of the Content Distributor’s video service. Viewers are usually provided login credentials to access the content online. Online Video Distributors are online video service companies like Netflix, Amazon, Hulu, etc who package content from different Content Providers and provide them to the end users for consumption via OTT boxes, online, smartphones and smart TV apps. You will need to subscribe to their online video service in order to watch content through any of these mediums. They also sell content via Electronic Sell Through (EST) and Rentals.

A representative Content Distribution network is given below:

Audience Measurement

??????????????Audience Measurement is the scientific process by which the number of viewers who watch a specific content and their demographics is identified, sampled and extrapolated for an actual population through statistical means by Media Research companies like Nielsen, Rentrak, Kantar, etc. Since the content that we consider is the television video, audience measurement is typically done in terms of TRPs (Television Rating Points).

One single TRP represents 1% of viewers in the surveyed area in a given minute. There are around 120 million television households in the United States. Thus, a single national household ratings point represents 1% or 12,000,000 households. When used for the broadcast of a program, the average rating across the duration of the show is typically given. Ratings points are often used for specific demographics rather than just households. For example 1 TRP among the key 18–49 year olds demographic is equivalent to 1% of all 18–49 year olds in the country. These TRPs is the main currency of exchange between all the key players in this ecosystem. The TRP of content determines whether a television serial continues into its next season, the cost to advertise in a particular content in turn impacting ad revenues and also negotiation of the retransmission or subscription fees between Content Providers and Content Distributors.

Media Research companies like Nielsen use various audience measurement aids like Electronic Set Meters (ESM) (or) Polling Boxes, People Meters (PPM), Viewer Diaries and Internet Meters to measure audience for a content. Electronic Set Meters are small electronic boxes that are attached to your television and connected to People Meters – another electronic box installed in your home. Each selected household where these audience measurement aids are deployed is a valid representative sample of the overall population demographic. Such households which Nielsen selects to participate in these audience measurement programs are called Nielsen Families. There are numerous contractual obligations that they will need to meet to be considered as part of this audience measurement program. In each such household, the Electronic Set Meter ,which is connected to the television, determines the channel being watched based on its transmission signal frequency whenever a viewer switches between channels using his remote. It continues to poll all this data including channel frequency, time of viewership and duration of viewership at predetermined frequencies. The people in these households are contractually required by these media research companies to enter their demographic data like age, gender, etc for each member watching the content at that time of viewership. Both the ESM and PPM in each household are connected to Media Research company’s Data Center via online and transmit the polled data overnight. This collected data is then screened, cleaned up, parsed and aggregated for the actual population. The output turns out as a TRP across demographics and other various dimensions for each content. These TRPs then become the “currency of exchange” between Advertisers/Brands, Ad Agencies, Content Providers and Content Distributors.

Ad Placements

Brands or Advertisers like Coke, Ford and other companies will have their own marketing campaigns either based on a new product launch, relaunch, seasonal or special needs. They may try to run their marketing campaigns via in-house or hire external Ad Agencies like OMD, Oglivy and others to run these campaigns. Whichever the case, based on the target market and target demographics, different avenues of advertising such as Sports Events, Social Events, College Festivals, Regional/National Events, Out of Home, Mobile, Television and Online are chosen. Likewise for television/online video, data from these Media Research Companies and other research data is considered to select the channel, specific program, specific Day Part (primetime, etc) and specific Day of advertisement. Ad Agencies usually work with Production Houses to produce and create the Ads. Then they work with Content Providers to buy Ad spots where these Ads will be telecasted or shown. Ad spots are booked in terms of CPP (Cost per Person watching the ad) or CPM (Cost per Mille [French for thousand] people watching the ad).

Once a spot is booked, the Content Providers include the Ad Video as part of their broadcast scheduling and telecast the ads. The cycle repeats itself with the Media Research Companies measuring audience viewership and rating the content which in turn is then used by Ad Agencies to further buy ad spots based on their requirements.

In the follow up article, I will cover the currencies of exchange in this ecosystem, retransmission consent, network compensation and how the Ad-Buy Sell process works.