TV Economics 101: Why you can't watch every show online for free


I get asked a lot why Syfy doesn't make our shows available online internationally, and why we don't make more shows in the U.S. available. Usually I say "rights issues" because the real answer involves a longer discussion of how the TV industry works. As part of a larger peek behind the scenes of the TV industry I'm doing for BoingBoing, I'll give you the longer version:

First you need to know that TV networks don't own shows, we license them. The license lets us air the show in our territory for a certain number of years, spells out how many times per year we're allowed to run it, and how/if we're able to use it in other media.

We license shows from TV studios that produce lots of series and hope to make money by licensing them in turn to lots of people. So, say a producer called BOING CO. makes an hour-long drama called BOING SHOW, and Syfy wants to license it. Because the U.S. has one of the bigger viewing populations out there, Syfy will probably pay a larger licensing fee than anyone else.

Let's assume BOING SHOW costs $2 million per episode to produce, and Syfy's licensing fee for the U.S. is 50% of that, or $1 million. Included in that fee is the right for us to stream the show in U.S., since we're a U.S. based network.

BOING CO. needs to make another $1 million in licensing fees just to break even, so they shop BOING SHOW to other countries. In the U.K., the BBC wants to license the show. Since they have a smaller audience than Syfy, their licensing fee is smaller, let's say $250,000. For that fee the BBC wants the rights to stream the show in the U.K., so that's part of the deal.

BOING CO. will go out and repeat this process in as many territories as it can, trying to recoup the $2 million it's spending on each episode. Two particularly interesting things usually happen in the TV business model at this point.

1) More often than not, producers DON'T MAKE ENOUGH MONEY TO COVER THEIR COSTS in this first round of sales, so they end up producing every episode of the show at a loss.

2) The show has not been sold in all territories, so there are some places you can't see it. Since one of the original questions I got about this on Twitter came from a viewer in Norway, let's say that BOING SHOW is not available in Norway right now.

If BOING SHOW doesn't catch on and gets canceled quickly, BOING CO. will never recoup its money on the series. There's also a pretty good chance that a network in Norway will never buy BOING SHOW later on, since it's not a hit.

Sadly, the fate of most TV shows is to get canceled, lose money and never be seen in Norway. BOING CO. can afford to make a few duds because when they eventually make a hit show that runs for many seasons, they'll make a lot of money from it. Enough to cover the cost of the successful shows and the duds, and make money on top of that.

Okay, now I can get back to the original question: Why can't Syfy make shows available online in other countries? In the case of BOING SHOW, Syfy only has the right to air and stream it in the U.S. Legally we CAN'T stream it in other countries. Just like we have the right to stream it in the U.S., the BBC has the right to stream it in the U.K, etc. We don't want the BBC to stream shows we license in our territory, and vice versa.

What about Norway, where no one bought the show? Surely it would be easy for Syfy to buy the online rights at a pittance and make millions (of pennies) streaming BOING SHOW there, right?

No, and no. First, BOING CO. isn't going to sell just the online rights to the series because it will hurt their chance to sell the TV rights later on. If BOING SHOW suddenly turned into a hit, found a new audience via DVD in another country, or a new TV network started up in Norway that wanted it, BOING CO. can still make a lot of money from it.

But if Norway viewers had already seen BOING SHOW online from someone who came in and paid a pittance for just the online rights, that's going to make it harder for BOING CO to sell it there at TV prices. And anyone who buys it is going to want the online rights too, and if they can't get them, that could kill the deal.

I've seen both of these things actually happen, including one massive TV deal that involved multi-year licenses and tens of millions of dollars that died because of online rights problems.

Even if Syfy could buy just the online rights in other territories, we'd have no way to make our money back, since we do that through ad sales. As you can imagine we don't have much of an ad sales force in Norway, and not many U.S. advertisers are interested in having their ads seen in Norway.

Okay, forget international, why don't we make more shows available online in the U.S.? Here you need to know that Syfy gets paid for our content by the cable operators who carry our channel. A very small part of your cable bill goes to us if you have Syfy on your lineup. Cable is a regional business, so they're paying to show our content in the areas that they serve. They don't want us giving away that content for free on the Internet in those same areas, which makes sense. We can choose not to sell our channel to them and put our content online, but (for now) there is no way to recoup our expenses with online only distribution.

The cable providers and cable networks have mutually agreed that putting SOME content online is a good idea so people can easily catch up if they miss shows, or can sample shows that they haven't tried. But not so much content that it hurts the main business of showing TV on, you know TV. Usually that means the last 5 episodes of a currently airing show. We've tried more, and we've tried less, and I'm sure we'll try more variations in the future. As with any untested model, we try things, and if they work well we do more of them, and if they work not so well we do less of them.

Someone will probably find a way to make real money streaming online soon, and then the business model will shift (again) and you'll see more episodes of TV online. Until that happens, this is why you don't see more shows online.

If you've got questions for me about Syfy or the TV industry, come ask me on Twitter using @Syfy