Would a Network Accept a Loss?

Categories: TV Business

Written By

August 6th, 2008

Reader Chris Merrill left a comment regarding some of the continued discussion of Mad Men and its ratings.

Wrote Mr. Merill:

As for the critically acclaimed argument, most shows that I think about staying around for that reason have shorter runs compared to hits. Arrested Development was loved by critics and was around for all of 3 seasons. In the end, the viewers need to be there. It all comes down to profit. Maybe the feel good effect means the executives will accept less profit, but they will not tolerate a loss

If I look at things only in one dimension - from the dimension of annual profit and loss for the network, in this case AMC - I agree with Mr. Merill completely. It's not that simple however. Some of this will seem counterintuitive but if you're interested read on, and sit with it a while and hopefully it will begin to make some sense.

There is more than one dimension. I would compare it to some sports leagues and franchises. For example, my pal Ted Leonsis owns the Washington Capitals NHL franchise (he also owns the Washington Mystics of the WNBA and has a minority interest in the Washington Wizards NBA franchise). I'm pretty sure if you looked at the annual income statement for the Washington Capitals for any given year while Ted has owned it, there have mostly been losses.

Why would Ted want any part of that? Well, it's not just his naturally competitive spirit and desire to bring a Stanley Cup to my birthplace, Washington, D.C. If that was all there was to it, I don't think Ted would take the hit. But there's another dimension. It's supply and demand. There aren't that many franchises available for purchase. In fact, there seemingly are many more people around with money to spend on sports franchises than there are sports franchises available to purchase. That's speculation on my part - but what isn't speculation is this: if he were motivated, Ted could sell the franchise for much, much more than he paid for it 10 or so years ago and recover whatever he's put into it and more for himself and his partners.

The counterintuitive part of this is that it's hard to fathom something that regularly loses money on an annual basis increasing in value. But it certainly happens, and we're not talking merely about adjusting for inflation when it comes to the amount of the increases. I think this applies to the networks too, at least cable networks, and especially the smaller ones. There just aren't that many media properties available for purchase. However small AMC's viewership is, it's bigger than the Sundance Channel's - and Cablevision (who also owns AMC) recently purchased the Sundance Channel via its Rainbow Media arm reportedly ponying up nearly half a billion dollars for it ($496 million).

And so while it's counterintuitive on one hand, Mad Men, even if it bleeds red ink, could be part of something that especially by way of all the attention it's bringing AMC is jacking up the value of the network. So I can imagine that AMC would tolerate some losses, as counterintuitive as that may seem.

 
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