Hello,

Welcome back to another edition of Trendline!

This week, we're venturing into new territory by featuring a guest post from another newsletter.

While our usual content revolves around Charts, Data Visualizations, and essays centered on Finance, Business, and Economics, we're taking a slight detour today.

Introducing Daniel from "Stat Significant," a weekly newsletter that offers data-driven insights into Pop Culture, covering movies, music, sports, and beyond. Over the past year, he's tackled intriguing questions such as:

• Why do people hate Nickelback so much?

• How have superhero movies changed over time?

I've been enjoying reading "Stat Significant" for a while, and am thrilled to introduce his work to you.

Below, you'll find one of my favorite picks from his newsletter. If it resonates with you, I encourage you to explore more from "Stat Significant."

We will back with our usual feature of Trendline next week.

Guest Post from Stat Significant

Intro: They Called it "Peak TV"

In 2015, FX CEO John Landgraf coined the term "Peak TV" to describe the rising number of scripted television series in the US. The entertainment industry instantly embraced this term, as "Peak" stuck for many reasons:

1. "Peak" captured the rapid proliferation of high-quality television programming.

2. "Peak" implied that this era of programming abundance was temporary and would eventually decline.

From 2013 to 2022, each week brought a new high-caliber prestige show: Succession, Severance, Fleabag, Squid Game, Stranger Things, The Crown, Ted Lasso, The Handmaid's Tale, Wednesday, Bridgerton, and this short list is merely an amuse-bouches. It was gloriously unsustainable—and wow, was it fun.

But, alas, paying $9.99 monthly for commercial-free access to a bottomless treasure trove of immaculate television content is economically untenable (to nobody's surprise). After all, hundreds of thousands of people must be compensated for making this immaculate content.

On May 2, 2023, the Writers Guild of America (WGA) went on strike demanding higher pay, a stable industry-wide compensation model, and increased residuals, among other demands. In shifting from cable to streaming, the television industry had cannibalized an economic model that previously supported millions of entertainment professionals. Peak TV had come to an end.

So today, we'll explore the rise and fall of TV's golden age. We'll investigate television's magnificent heights over the past two decades and the economic reality underlying this period of absurd content production.

The Rise of Peak TV

No two shows have influenced our modern television landscape more than House of Cards and The Sopranos.

The Sopranos, which premiered in 1999, is widely regarded as a turning point in television history for its intricate narrative structure and nuanced character development. The show blurred the line between film and television, incorporating cinematic techniques and storytelling devices that elevated TV to an art form. Other shows quickly followed suit, employing similar storytelling techniques and thus boosting the overall quality of scripted television content.

House of Cards, which debuted on Netflix in 2013, was groundbreaking for its approach to content delivery. As the first major original series produced by a streaming service, it heralded the shift from traditional television to on-demand, binge-watchable content. Waiting for weekly TV installments became a thing of the past; now, you could lose entire days to binge marathons.

Suddenly, television programming morphed from weekly activity to public utility. Consumers didn't have to settle for cable re-runs of Diners, Drive-ins, and Dives; consumers could watch something remarkable whenever they pleased. Thus began Peak TV, as numerous streaming platforms flooded the market and content production increased exponentially.

From 2009 to 2022, scripted content production nearly tripled from 210 to 599 series.

These figures only encapsulate narrative series and don't include unscripted shows, sports, news programming, children's television, or non-English-language series. When we look at IMDB's database of all US television programming since the 1950s, we can glimpse the mind-boggling absurdity of Peak TV, with content creation skyrocketing from the early 2000s onward.

Maybe you'd expect this increase in production to come with a decrease in programming quality, but the exact opposite occurred. Instead of Bones or CSI: Miami knock-offs, we got Orange is the New Black and The Bear. Not only was there a wealth of content, but it was also inventive and exceptional in quality.

Looking at IMDB episode ratings, we see a sustained rise in average series scores beginning in the early 2000s (on the heels of The Sopranos).

This era was a golden age for small talk. Instead of asking someone about the weather or traffic, you could simply ask, "What are you watching right now?" The two of you could go back and forth, listing every prestige drama in Hulu's catalog without a millisecond of awkward silence. As the conversation drew to a close, you could shrug your shoulders and remark, "There's just so much good stuff right now!"

Indeed, Peak TV saw an abundance of television series of ever-shortening length. In the 1980s and 90s, TV series typically ran for half the year, while viewers were left to watch re-runs when the show was off-air. This time also saw shows running four to eight seasons on average, as programs typically endured a lengthy vetting process to get on the air.

Streaming services upended this paradigm, ridding the industry of long development periods and opting for shorter seasons. Gone were the days of pilots and twenty annual episodes. In their place rose a world of eight-episode mini-series.

Enjoying reading this post? Subscribe to Stat Significant below to get the next post directly in your inbox

When we look at the average number of episodes in a season and seasons in a series, we see a remarkable decrease in runtime over the past few years, down almost ~50% from network output in the 80s and 90s.

Perhaps a short-lived series (or mini-series) of eight to twelve episodes is the optimal TV programming arrangement. Maybe we desire ten series that run eight episodes per season versus four series that run twenty episodes per season. While this setup may be preferable to consumers, it also means studios are in a perpetual state of breakneck program development of ever-shorter shows.

Hollywood's new streaming model began to show initial signs of weakness in 2021 amid rising interest rates and economic uncertainty. Content production was as high as ever, but the volume of acclaimed "prestige" shows plateaued in the early 2020s.

Studios were spending boatloads of money but saw diminishing returns in their pursuit of buzz-worthy content. Streaming's economic model was formulated for a world of infinite growth—how would this new paradigm sustain itself when growth slowed?

Before you proceed, please share your inputs below

The Questionable Economics of Streaming

Cable TV feels like a Renaissance-era artifact, much like Blockbuster or Blackberry. Why did we tolerate twenty episodes of mediocre content interspersed with commercials for diabetes medication and carbonated sugar water? Well, this model endured for over sixty years because it worked fabulously.

Cable TV is no longer beloved, but it is a cash cow. Subscribers pay monthly fees to access a bundle of channels, guaranteeing consistent revenue and ensuring that niche channels receive funding. Networks make money by receiving a cut of bundle fees (called carriage fees) and through advertising, with high viewership channels commanding hundreds of thousands of dollars per spot. And Hollywood creatives can start to make serious money when cable networks syndicate their shows, selling the rights of popular programs to other networks (often overseas).

Using data from 2022, we can get a glimpse into cable's lucrative economics. In 2022, cable networks spent ~$52B on original content, $29B more than their streaming counterparts. However, this same year saw cable providers pull in an estimated $69B in subscription fees, redistributing $14.6B of this haul to networks, and over $72B in advertising revenue. These figures do not include additional costs like marketing and physical installation or the sizable earnings generated from program syndication. Overall, we can project a high return on investment for cable TV content production.

Over the past few years, content costs have leveled off for cable networks, while spending on original programming has grown exponentially for streaming services, increasing from $3B to $23B between 2019 and 2022.

Customers rewarded streaming companies for their audacious approach to content creation as worldwide subscriptions ballooned to 1.4B users. But growth—no matter how rapid—is only one indicator of performance.

Sure, streaming services were able to reach a massive scale dwarfing that of the US cable industry, but how well could they monetize this sizable base? The short answer is "not well," at least today.

In 2019, in preparation for the launch of its own streaming service, Disney began removing its content from Netflix. This move ensured Disney control over its extensive content library and led other streaming platforms to replicate this strategy. The downstream consequences were severe, as streamers lost the ability to monetize content through lucrative syndication deals in favor of growing their platforms via exclusivity. These services also emphasized ad-free subscriptions, thus diminishing two of television's primary sources of income.

Take Peacock, a streaming service launched by NBC Universal—a legacy network that has long benefitted from cable TV's profitable model. To match our estimated ROI of traditional cable TV content, Peacock needs each subscriber to generate ~$29 in average monthly revenue—almost three times the cost of its current monthly subscription—and note this scenario does not consider marketing costs (which are likely substantial).

Are people willing to pay a ~$30 monthly fee for just one (non-Netflix) platform? Probably not. Sure, the service could add more subscribers, making this ROI projection look healthier. At the same time, streaming services must seriously ramp up content spending to achieve the scale of Netflix or Hulu. Netflix currently spends a reported $17B annually on its media library. Can a company like NBC Universal stomach such levels of spending? NBC had to enter the streaming game due to the existential risk posed to its media operation, but now they have a middling platform that's burning cash. What do they do?

Ultimately, streaming services have several options to increase their profits:

1. Raise subscription fees: Netflix has raised its prices several times, but they're also the market leader and a premium provider of high-quality content. Cable consumers currently pay between $60 and $100 monthly for hundreds of channels—are consumers willing to pay the same amount (or more) for just two or three streaming services? Again, probably not.

2. Syndication: Companies can syndicate their content on other platforms but lose the value of programming exclusivity.

3. Grow their ad businesses: Over the past few years, consumers have been conditioned to expect a television viewing experience without advertisement. Well, it was fun while it lasted. After losing subscribers in early 2022, Netflix announced plans to introduce a cheaper, ad-supported subscription in early 2023. Congratulations, now we can watch Ozempic commercials interspersed throughout Stranger Things or Bridgerton.

4. Pay people less: This leads us to the crux of the WGA's complaints. To build out enormous content libraries while simultaneously "managing cost," streaming services began slowly dismantling many working standards historically enjoyed by entertainment professionals.

To grasp how streaming has disrupted TV's traditional earning model, we can compare compensation structures for two shows: Squid Game and Friends.

• Friends: Friends, a cable TV sitcom, is one of the most successful television shows of all time, netting its showrunners David Crane and Marta Kauffman over $70M in salary during the show's on-air run and $475M+ in earnings from syndication. Each showrunner has an estimated net worth of over $400M.

• Squid Game: Squid Game is Netflix's most popular show of all time, racking up ~1.65 billion hours of collective watch time in the 28 days following its premiere. The show reportedly raised Netflix's internal valuation by $900 million, yet show creator Hwang Dong-hyuk's net worth only sits at a reported $5M. Dong-hyuk was paid an upfront fee to produce the show but forfeited his right to intellectual property, residuals, or a performance-based bonus.

I graphed these numbers to underscore the absurdity of this disparity (because why not).

Streaming's current economic model leaves less money for creatives, as platforms absorb almost all the upside of hit shows. Many believe the writer's and actors' strikes will extend into next year, as there is too great a distance between the studios' willingness to pay and the demands of creatives.

Unfortunately, streaming's current business model has shrunk the economic pie and forever altered how its riches are distributed.

Final Thoughts: Did We Get MoviePass-ed?

In 2017, MoviePass, a subscription service that allowed its members to see unlimited movies in theaters for a recurring fee, drastically dropped its monthly price from $50 to $9.95. What followed was a reverse-case study in business model design.

Millions of moviegoers signed up for what seemed like an unsustainably good deal—people would go to the movies "just cause" to enjoy movies they "didn't really want to see." The beauty of MoviePass was that everyone acknowledged the concept's implausibility. It was as if someone tossed a stack of hundred-dollar bills into the air, allowing onlookers to collect cash with impunity. Sure enough, MoviePass shut down in September 2019 after burning through an estimated $300 million in just two years, and, wow, was it a fun two years (you may be noticing a trend here).

MoviePass is an absurd case of business fundamentals gone awry for the betterment of cultural consumption. But what if Peak TV was just a dressed-up version of MoviePass—except this time, we all thought it would last? Did we live through television's MoviePass era without knowing?

Silicon Valley often promotes "moving fast and breaking things," prioritizing rapid growth over immediate profits. This "growth at all costs" approach usually includes free delivery, referral codes, new customer discounts, and untenable subscription pricing. We benefit from these incentives, accepting they will be short-lived.

For streaming, "free delivery" was nine years of incredible television content, no advertisements, and cheap monthly fees. We satiated ourselves with glorious ad-free content, and it was sublime.

The entertainment industry ruined itself in pursuit of an unachievable goal, but we got Succession, Peaky Blinders, and Ted Lesso as a result—so I guess it's not all bad.