Facing Reality

Reality is the new reality of network television. In a season in which six of the top 10 and 11 of the top 20 shows in adults 18-49 are reality programs, when The Apprentice and American Idol are the hottest things on TV and all the magazine covers and watercooler talk are about reality shows, it sure feels like fundamental change is afoot. In the new fall schedules, reality occupies a whopping 18 hours, versus six hours the year before.This shift in audience taste—TV people debate how much is generational and how long it will last—has the potential to reshape the business in profound ways. "It is affecting every single corner of the industry: networks, studios, stations, advertisers, talent and their representatives," says Sandy Grushow, the longtime Fox programming boss who this year hung out his own shingle with Phase Two Productions. "This is here to stay.""It's kind of scary, because broadcast networks have been the backbone of the TV industry," says Jordan Levin, CEO of the WB. "Networks generate shows that have value for secondary and tertiary usage. There is a detrimental value to undermining the production model for scripted programming, which has a down-river effect on stations and cable networks. It certainly is a game-changer."Many top industry suits maintain that reality is nothing more than a successful new—or not-so-new—genre, not some harbinger of drastic change. "Reality TV has been the best thing to happen to network TV in several years," says Jeff Zucker, president of NBC's Entertainment, News and Cable Group. "If we don't respond to what the audience is telling us, we're derelict in our duties." "If reality were 50 percent of the schedule, the ripple effect could be astronomical, but it will never get there," says Sam Haskell, head of television at the William Morris Agency. "Scripted programming is what brings the networks their prestige and, in success, real money on the back end. The current percentages of reality on the network schedules have grown about as much as they are going to.""It's cyclical," adds Preston Beckman, Fox's executive vp of strategic program planning. "Someone will come up with a great comedy or drama, and everyone will run in that direction. This is not the end of the world; it's a moment in the history of the business. In five years, we'll laugh and say, 'I can't believe we got so upset about it.'"At the moment, though, reality is ascendant, and the TV business is just beginning to feel the effects of this shift in viewer taste. Reality may be just one of several developments reshaping the industry—but it is a major one. The reverberations will be felt in the scheduling and branding of networks, in the studio production infrastructure, and by the syndicators and local stations that dine on the meat of off-network shows. Advertisers and media specialists will have to make important adjustments. And the added squeeze on scripted production might even call into question the media industry's rush to vertical integration. Just how far will the ripples of reality extend?The advent of reality has turned the network-TV race, which was never mistaken for a tea party, into a wild 'n' wooly free-for-all. Yes, a scripted mega-hit has always had the ability to shift the ratings equation, but reality has forced network execs to rethink the way they schedule programs, according to Levin: "You don't have a tremendous amount of flexibility with a predominantly scripted schedule of 22 episodes per show. Reality is a tool that allows networks to schedule year-round, with fresh, relatively inexpensive programming."But the landscape becomes more inhospitable, he adds: "You have to look at spreading out your originals, at staggering launches, at more competitive launch windows, at the impact of the amount of original programming you have to compete against. You have additional costs of marketing because you have to promote more and year-round." Repeats become an endangered species, especially at a drama-heavy network like Levin's. "Now you're running repeats against original reality competition, so you either eat the repeat or figure a way to get those two runs in the same week, and we may have to do that more aggressively."Reality provides instant gratification, but it can decay quicker," says Levin. "You may get multiple years, but still fewer than with a hit drama that runs half a dozen years."The half-life of reality hits is a huge concern when NBC, Fox and UPN have so much riding on them. "Will NBC get eight or nine years out of Donald Trump?" asks one senior TV exec. "They may not get eight or nine more episodes."Zucker, of course, expects that his biggest hit will run a good, long time: "[Fox's] Joe Millionaire was a gimmick, but I think The Apprentice is much closer to Survivor and Idol as a format that people respond to," the NBC honcho says. "It may have a longer life span than a scripted show with a gimmick. And Fear Factor is a huge long-term asset for us."The way that the nets are throwing tons of reality against the wall to see what sticks makes network schedules much more volatile, and that has long-term effects. "There's a disposability to reality that will create more churn for a network that's reliant on it," says Levin. "It is a seductive form that provides instant gratification, but you've got to be careful. We saw what Millionaire did to ABC. Anybody who sits in these seats has to think about forging an emotional connection to the viewer that will last for a long period of time. Advertisers look at a network for its consistency and stability of brand and programming.""Reality is more like stunting than continuity," observes Irwin Gotlieb, CEO of the media agency Group M. "In that respect, it does significant damage to audience flow and retention. That's not a good thing. All this churn on the schedule makes it more and more impossible to promote and to attract an audience, and that is deeply troubling. Look, TV is about what works, and you can't be a programming chief and say, 'I refuse to put on reality because it's not the right thing for television.' WB tried to fight that fight. My issue is that it's so disruptive that it's damaging to the medium long-term.""I completely disagree," counters Zucker. "Reality has brought the four biggest hits of the last four years, and they have been very stable. Volatility is no more so than any other time."Churn isn't such a big factor in the regular season, argues Steve Sternberg, executive vp/director of audience analysis for Magna Global USA. "Survivor, Idol, Fear Factor, The Bachelor, Average Joe—they're just part of the schedule now," Sternberg says. "The real churn is in the summer, when you'll see a zillion of 'em." Making audience estimates gets trickier, but not impossible, he adds: "It can be more difficult to estimate ratings for reality than for scripted, but really only for the second installment. People overestimated the second Joe Millionaire, and no one will make that mistake again. If the second one holds up, though, the third you can estimate. And now you have enough reality shows to look at something similar for prototyping purposes."Sternberg notes that in a recent prime-time study, reality provided fully 20 percent of the adult 18-34 ratings points over a six-month period this season, up from 3 percent five years ago. Interestingly, scripted series provided essentially the same percentage of GRPs in that demo (52 percent) as five years ago, and a larger share of GRPs in adults 35-54 and 50-plus. Newsmagazines, movies and game shows took the hit. "Reality has taken away from everything else, but it has not really supplanted scripted series," Sternberg says. But reality will invariably increase its share of viewing next season as it takes over more time periods and scripted programs recede.Ratings look more volatile because reality doesn't provide traditional lead-in power, Sternberg adds. "Idol can gain 20 share points, and then 24 [following Idol] gains a share or two. I haven't seen ABC come up with anything after The Bachelor. It doesn't seem to have a lead-in effect." To be sure, Survivor helped put CSI over the top and Fear Factor boosted Las Vegas, but to a large extent, reality hits are appointment shows whose audiences don't stick around."You've got to use your unscripted hits to build scripted shows," says Grushow. "Good luck trying to start a scripted show at 8 or 9 o'clock without some serious downfield blocking. The notion of asset management has never been more complex."Networks often are embodied by their biggest scripted hits, such as The Simpsons on Fox or NBC's Thursday comedies. Likewise, do reality shows feed network brands? "Without a doubt, The Apprentice is clearly within the brand for NBC," says Zucker. "It's the single most upscale show on the most upscale network, and Average Joe is in the top 10 of upscale. American Idol is a brand for Fox." "I think they can be brand builders if deployed correctly," offers Gotlieb. "Because of the way NBC spun The Apprentice to The Today Show and Dateline, it's been very closely associated with the network." But there's nothing particularly brand-specific about Average Joe or The Bachelor. Meanwhile, reality has become a big part of Fox's brand. As more reality series are copied, brand equity declines. What's the difference between all the dating and makeover shows?CBS, the network least caught up in the reality vortex, is well-positioned by virtue of its stability. As one observer notes, "For years, people looked down their noses at CBS as having an audience between 50 and the grave. But their audience is more tolerant of scripted shows. It's broad-skewing, and that's becoming more of an asset than a liability in broadcast. The opposite is true of Fox and WB. They are so youth-focused, and that's an audience that becomes harder and harder to reach and keep around." Reality is elbowing out scripted shows—on the fall schedule, scripted fell from 73 hours to 62 hours, a 15 percent decline. This can only be bad news for the Hollywood studios that supply prime time's comedies and dramas. "That real estate was the manifest destiny of the production companies," says Levin, "but it has been commandeered by these reality pirates.""Reality makes it tougher for production companies," says Grushow, who ran one until recently. "The big studios are set up to produce scripted TV, and the only way to pay for that privilege is to make some money on the back end. It's getting harder and harder to do so, but not impossible. Being in that business unaligned to a network makes less sense by the minute."But there are others in Hollywood who say that scripted production has not been hurt by reality. After all, Warner will produce 25 prime-time hours next season. "The networks and studios are all producing the same number of shows, as many pilots and series as in previous years," reports Morris Haskell. "The bottom line is, the fall schedule is still predominantly scripted choices. It takes an awful lot for a reality show to make it on the fall schedule, especially a new one. Most of the reality shows are midseason or summer orders. And now that the networks are programming 12 months a year, there's no lack of shelf space." Haskell's agency represents an estimated 50 percent to 60 percent of network reality shows, so the plethora of 15-minute reality pseudo stars isn't a problem, "as long as we've got the producers that create the shows."Certainly, the blossoming year-round schedule means more studio production, but many of those network hours will be filled by second plays and by reality. The trends are so ominous that a business-as-usual attitude borders on a state of denial. "The growth of reality rattles the creative community to its core," says one independent prime-time producer. "There's no end in sight.""There haven't been fewer series orders and the nets are developing as much as ever for the past six or seven years," says Dana Walden, president of 20th Century Fox Television. "But success is slimmer. You don't have those big hits, those revenue generators. And reality has clearly affected the amount of space on the schedule for scripted TV. We'll see the effects of that, to our detriment." At the moment, there's a general sense of panic at most of the networks, which continues to fuel scripted development, says Grushow. "There's been a significant rise in the number of unscripted shows but the same level of scripted development, and in time I believe that will change. That won't be all bad—and I say that with a producer's hat on—because the quality of shows might benefit from a higher level of focus.""The studios? That's their problem," says Beckman, bluntly. "If they'd make good shows, they'll get on any network."The studios are already under intense pressure because foreign revenues are drying up as broadcasters worldwide make more local programs (again, reality is rampant). It is no surprise that studios are jumping into the pool: 20th makes The Simple Life, while Warner's Telepictures produces The Bachelor. DVD revenues have proved a lifesaver, and cable is buying more scripted shows, but the latter does not nearly make up for what's been lost at the network level. "Do we view cable as a viable alternative? Absolutely," says Walden. "Does the economic model make great sense? No. It's hard to make money on the back end of a cable show." The changing economics of studio production theoretically undermine some of the rationale for vertical integration. Remember that the network/studio mergers—and the creation of UPN and the WB—were predicated, in part, on keeping those production pipelines open, and now the nets have less appetite for studio fare. "There is a certain amount of irony," notes one observer, "that NBC's bacon was saved by The Apprentice, and they've just aligned with a studio whose agenda is scripted programs."While reality may help put a crimp in studio profits down the road, it is not big enough to get Wall Street analysts all hot and bothered. "Yes, reality does change the economic paradigm of the business," says veteran analyst Hal Vogel of Vogel Capital Management. "With so much reality, there is no [off-network] syndication business and they don't get the huge lollipop at the end of the rainbow. For the studios, it may become a diminished role. But in terms of media values, that's so deeply buried I don't know that it makes much difference. You wouldn't sell a media stock because of problems in syndication. It's one of many reasons media stocks are down."Reality did not cause the Great Sitcom Drought, but it exacerbates the problem. Glance at the network grid today and it seems like reality is putting the last nail in the sitcom's coffin.The lack of hit comedy shows will have a devastating effect on the TV studios' economic health. "Who benefits from reality?" asks Dick Robertson, president of Warner Bros. Domestic Television Distribution. "The networks. Who doesn't benefit is the whole Hollywood creative community: the actors, writers, directors and studios with their large infrastructures. The back-end values are not what they once were, and that's coming home to roost for a lot of people." Reality so clobbered one of Robertson's sitcoms that he felt it necessary to factor that into his pitch: "For The George Lopez Show, we showed how it did against Idol and not against Idol, and it's night and day."Robertson says syndicators and stations will just have to become better at managing change. "Maybe first-run becomes more active," he says. "If reality is making more sense, we'll be very aggressive in that space. Maybe some of this stuff will repeat. Look at Fear Factor. They're all opportunities." Fear Factor is expected to perform well in syndication this fall in late-night time slots, but it is the sole exception to the rule that reality is not repeatable. It will be interesting to track sales for the just-released DVD of Survivor's first season. But nothing here will match the billion-dollar back-end bonanzas generated by Seinfeld and Friends."You have to be smart about how to define your back end," offers Grushow. "On Idol, [exec producer] Simon Fuller is making money on his control of the talent. Mark Burnett has changed the model with product integration. Now, with The Contender, he's trying to manage the next Muhammad Ali. That's a new kind of back end, and the studios will be forced to think differently."Advertisers are more sanguine about the sitcom slump and about managing the changes wrought by reality. "Syndication has been in decline for some time in terms of available GRPs," says Gotlieb, "but cable's going up. GRPs aren't going down—they're being fragmented, moving around, which gives me greater tactical flexibility."Echoes another top buyer, "There are plenty of programs and plenty of points to be bought. And with shows like Survivor and Idol, I have more opportunity to get involved with embedded content. It's more of a problem for suppliers than anything else."Buyers are learning to live with more volatility. Says Gotlieb: "You lay down your base, figure out what'll still be there, and learn to develop contingencies and juggle your schedule closer to airdate. There's more of it, but it's not new. One can only hope the next cycle [after reality] is more stable, but it may be even worse."Like everyone else in the TV business, buyers are adapting to a new environment largely shaped by the rise of reality. Some constituencies will be able to navigate these shifting rapids more adroitly than others. Buyers may find ample rating points for their clients, while producers struggle to re-invent their back ends. Some networks will manage reality as part of their portfolios, while others will ride a bucking bronco. As reality speeds the evolution of the TV biz, everyone will have to learn to play by a new set of rules. "If you look back five or 10 years, the change is incredible," says Tim Spengler, executive vp/director of national broadcast for Initiative. "We're trying to evolve with those changes. A lot of what we've learned about the business has to be thrown out." Eric Schmuckler is a contributing writer for Mediaweek who often covers network and cable television.

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Facing Reality

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Eric Schmuckler