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Tom Silva

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The Golden Age of Cable

Posted: 08/06/2012 12:36 pm

There seems to be an inverse relationship between Hollywood and the general economy. According to the National Association of Theatre Owners during six of the past eight recessions in the U.S., box office and admissions sales increased. During the great whale of economic tumults in the 1930s, one of the only sectors of the economy that thrived was moviegoing. Between 1929 and 1933, as many as 80 million Americans went to the movies once a week or more -- that's 65% of the population. After the Al Jolson immigrant film opera, The Jazz Singer, hit the screens, sound movies further buoyed the industry's popularity. Curiously, this was the era of Busby Berkley's gilded musicals like Goldiggersof 1933 and 42nd Street -- fantasias about wealth and success to soothe the nation's penury. All was not roses though: converting to sound and buying up movie chains had tripled studio debts during the mid- and late-'20s to $410 million. By 1933 -- a time of transition between the outgoing Herbert Hoover and incoming FDR when the economy fell to its nadir -- movie attendance had fallen by forty percent. But Hollywood came back: they trimmed salaries and production costs, closed a third of the theaters; lowered admission prices, offered double bills, and lots of prizes and giveaways.

This time around though, moviegoing hasn't always traced the same arc. Movies fared quite poorly during the economically shaky year of 2011. Last year was the weakest year in terms of movie tickets since 1995, with overall revenues dropping by 4.5% compared to 2010--despite the fact that prices were at their highest ever.

So, what happened?

It could be that, just as Hollywood had to fend off television in the 1940s and 50s, Hollywood is facing a new assault -- but this time from Pay-TV. There is a serious case to be made that the center of the media constellation has shifted to Cable TV.


The Cable Juggernaut

Total pay-TV revenue in North America is expected to grow almost 25 percent from $99 billion in 2011 to $125 billion in 2017, thanks to current subscribers upgrading existing services, according to Pyramid Research's bi-annual Media Forecast. According to stock market website, Seeking Alpha, cable networks have been the best performing and most coveted assets across the entire media business landscape for two decades. "Old media" subgroups like radio, newspapers, broadcast television and cable television systems all saw their valuation multiples peak in the late 1990s amidst a flurry of M&A activity and subsequently drift into the mid-single-digits today (as measured by enterprise value to operating cash flow). Indeed, unique among legacy media assets, cable networks have continued to deliver double digit revenue and solid value gains over the last two decades, with only a slight hiccup in the teeth of the 2009 recession." They assign a value of more than $200 billion created by this industry since 1990 -- roughly what Google has created in value since its founding.

So, how does cable, with its pay wall, make that kind of money? Again, Seeking Alpha: "Today, approximately 100 million U.S. homes and businesses pay an average of $68 per month to a cable or satellite operator for about 90 channels of video programming. The pay TV providers, in turn, pay some $20 per subscriber per month to the cable networks in carriage fees that aggregates to roughly $24 billion per year. Add U.S. advertising sales of $25 billion in 2011, another billion or so for the sale of content to alternate distribution outlets and a $50 billion annual revenue industry with 40+% cash flow margins comes into focus. And that excludes the contribution from international networks that is especially significant for ESPN, CNN, MTV and the Discovery networks." In May of this year, cable reached a new level in its ascendancy over the media landscape: Hatfields and McCoys, The History Channel's three-night, six-hour miniseries, reached 27 million viewers on its first two nights, making it the first and second largest non-sport audiences ever for a basic cable show. As a point of comparison, America's Got Talent, NBC's summer juggernaut draws 10 million viewers an episode. Basic cable has trounced the networks.

And moving forward, the prospects are good: The industry's ad revenues grew a steep 11% in 2011 and are likely to meet or modestly exceed that pace in 2012. And international revenues are poised to pass domestic. The worldwide pay-TV market will generate service revenues of $236 billion by the end of next year.


The Art of Cable

But the more compelling aspect of the story is this: We are living through the golden era of cable TV because the shows have been extraordinary. It is hard to think of a time when so many programs have been poised at the juncture of art and popularity. The bellwethers may have been Six Feet Under and The Sopranos (neither of which I was a fan of) but the shows that seem to have realized the potential of the medium are The Wire, Mad Men and Breaking Bad. In the 2012 Emmys, HBO picked up a commanding 81 nominations, followed by CBS with 6. But that showing was far less dominant than 2011, when HBO more than doubled the showing of second-place CBS, 104 to 51.

These shows get attention for a few reasons. Firstly, they are edging closer to the look of feature films with budgets that are astronomical for TV -- the Boardwalk Empire pilot, for example, cost a reported $18 million, which is triple what Francis Coppola spent on the first Godfather film. The sun-drenched images and parched New Mexico landscapes of Breaking Bad, for example, composed in a wide-screen aspect ratio, might remind you of early Coen Brothers or of Gus Vant Sant's work. Secondly, Cable TV has become the realm of the writer/auteur, meaning shows are developed under a strong creative force, usually a single person like David Simon, Matthew Weiner or Vince Gilligan (unlike network shows which are often conceptualized by teams of writers, though this is changing), which gives them a maturity, tone and voice that's unique and more resistant to the concessions of commercial television (the French critics of the 1950s and 60s thought that the presence of an auteur was what made a film worthy of serious aesthetic consideration).

As a result of how high they are pitched, these shows reach the affluent, sophisticated, upscale viewers coveted by certain advertisers. Clearly, cable gets something that Hollywood doesn't: with 80 million baby boomers and another 46 million Gen Xers representing a vital part of our country, a good part of the viewing population is eager to watch older, more ripened people on screen. While Hollywood remains youth-obsessed, Breaking Bad centers around 56-yeard old actor, Bryan Cranston, and Mad Men has made 41-year old Jon Hamm the medium's biggest heartthrob.

Lastly, cable appears to have supplanted the mid-budget independent film. As Tribeca Films reports, "Indie filmmaking in the realm of $2-$15 million pictures has become a bit of a ghost town, for all the reasons of that you, dear reader, are surely aware--fewer mini-major distributors, a declining market share for movies in general, digital piracy on the rise, and so on. " Instead, critical favorites like Todd Haynes, Noah Baumbach and Lena Dunham all used their indie-film credentials to springboard into cable. "The choice to settle down with a company that will finance, produce and distribute your work to a guaranteed audience has started to seem a lot wiser, even if it means forgoing seeing that work in theaters. As evidenced by recent indie films by Spike Lee (whose Red Hook Summer could only manage distribution with tiny distributor Variance Films) and Stephen Frears (whose $20 million-budgeted Lay the Favorite seems to have been shelved by The Weinstein Company), continuing to make mid-budget indies can be a perilous risk."

But the entry of the auteur into cable may not be motivated entirely by market forces. James Wolcott writes perceptively in Vanity Fair about what television can do aesthetically that film can't. Quite simply, it's a question of time. Television has a different temporal scheme. The effect of following the same characters across time is hypnotic at its very best, because they seem to inhabit a shadow world, one that attends undulations of our own lives, shifting and changing like we do. Its closest analogue may be literature. Like the work of V.S. Naipaul, Kurt Vonnegut or Phillip Roth, shows like The Wire take an anthropological lens on different subcultures, rendering them with intoxicating detail. A great cable drama approaches the experience of reading an epic novel with its long-form assortment of vignettes, its intersecting realities, its tangents, and its soars and dips that benefit from their slow build.


Cable's Future

To return to economics, while cable's revenues will continue their ascent, its share of total pay-TV revenue in 2012 will be only 48%," said ABI's Jason Blackwell, practice director of digital home. Cable's biggest competition is no longer network TV or the movies -- it's all the new sources of streaming media with names that sound like wine-bar concepts (Roku, Boxxee, Vudu, Hulu, Zune). Apple TV is just $99 and Hulu Plus is $8 a month, which cable will never be able to beat. Still, cable will remain strong as long as it creates the probing and provocative content that these services covet. And in the emerging markets, cable TV will be a better choice for consumers because of its still relatively low pricing. In the end, cable will continue because its strategy is sound: At a time when Hollywood remains the domain of superhero franchises and network TV is still riding the reality rollercoaster, Cable TV is now one of the few places for adults. And that's Golden.

 

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