There has never been a better time to be a couch potato: an endless stream of shows, old and new, delivered online without pricey cable or satellite packages. Critics have called it TV’s golden age, but some analysts say “peak television” is coming to an end.  Money is the root of TV’s problems. In the US, where the TV economy is headquartered, TV and internet access costs two to three times what it does in the UK, and networks are in a tug-of-war with Americans, who are increasingly shredding steep cable bills in favor of Netflix and streaming services. This summer, many networks became locked in all-out legal battles with cash-strapped cable companies, with multibillion-dollar distribution deals at stake to fund those networks’ huge programming budgets.  Executives are planning for a less luxurious future, in which TV shows may be briefer, lower-budget and filled with the kind of product-placement ads that audiences hate and advertisers pay for. Worse still, the company that started much of the trouble may soon confront flaws in its own business model.  Netflix reports earnings on Monday. Its problems, and those of companies like it, are more pressing than those of traditional television. At a conference in New York this month, chief executive Reed Hastings was blunt.  “Disney, who is very good in China, had their movie service shut down,” he told an audience at the New Yorker Tech Fest. “Apple, who is very good in China, had their movie service closed down. It doesn’t look good.”  Hastings said his company was seeking to expand in other countries, India in particular. But there’s a reason media businesses seeking vast scale tend to view China as the solution to all their problems: internet penetration in India is rising from 26% according to the World Bank. In China, it’s rising from 50%.  Netflix needs the money that increased scale would provide, in part, to pay top dollar for shows such as Arrested Development and Lost. In January, it told investors it owed $10.9bn in TV show licenses alone, with $4.7bn of that due this year. After that, almost the entire balance is due before the end of 2018.  Netflix will have to keep buying reruns at what will almost certainly be increasing rates if it wants to retain its users, and the companies selling those shows are now in a tight spot too – largely thanks to the ad-free Netflix model.  At US television networks, budget struggles mean making shows more as UK networks do, except with lots of ads and product placement: shorter lifespans, fewer sets and special effects, fewer episodes per series – and then little margin for error if shows look like they’re failing early on.  Netflix cannot scale back. Its viewers pay for it outright and express their displeasure by canceling subscriptions, not by changing the channel. If anything, its executives are spending more: Baz Luhrmann’s 1970s New York period piece, The Get Down, came with a record price tag for a service that had already driven up the cost of new scripts: $120m for 12 episodes, according to Variety.  All TV companies, not just Netflix, are trying to amortize losses by hawking American wares abroad, but that has proven difficult: US TV shows sell in a lot of places, but they don’t sell everywhere. Like others, Netflix has tried to co-produce shows with local production companies, but outside the UK and Canada cultural hurdles become increasingly important. In 2014 after three years in Japan, network-owned streaming service Hulu simply gave up.  Many are skeptical: analyst firm Macquarie Capital downgraded Netflix shares to “sell” in September.  Though consumers believe it should only cost $8 a month to watch a network that airs a choice selection of history’s great TV show, on top of eye-poppingly expensive originals, all may not be lost, said Brian Wieser, formerly a head forecaster for ad agency Magna Global and now head of research at Pivotal.  “The suggestion that [TV] actually peaks implies that every network group acts with complete rationality,” Wieser said. “I think networks will heavily invest in content because it’s an arms race.”  An under-acknowledged truth in the television industry is that the only way to produce a new TV show on cable is to run an old TV show.  Networks may brag about their latest critically acclaimed sadcoms, but the bulk of ads sold on a 24/7 TV network will not be delivered in the early evening when those shows run. They’ll be shown on reruns of Law & Order, The Big Bang Theory, Family Guy and a rotating selection of action movies that fill 21 of most network’s hours, just as networks run cheap-to-produce talk shows and soap operas. Picking the right comfort-food show to snag channel-surfers is a matter of careful strategy.  Netflix likes to tell the industry that its innovation is selling TV over the internet, but it might be closer to the truth to say that it was first to see $10bn in unglamorous syndicated reruns.  And that’s the hardest truth of the streaming economy: the bulk of Netflix’s billions don’t go into expensive originals like Luke Cage and Stranger Things. They go into buying old-fashioned shows such as Star Trek: Deep Space Nine and Buffy the Vampire Slayer in bulk. The creative system capable of producing those shows required 10 Bad Judges and at least one Cop Rock apiece.  Easy access to such shows – first during the DVD boom, then on streaming – has bitten deeply into the support system that made them.  “There’s no way you can look at linear [American] TV as a growth opportunity right now,” said one senior executive at a prominent television company.  TV ads are sold by guaranteed numbers of viewers, which makes for one of the industry’s catch-22s: the fewer people who watch, the more the advertiser is asked to pay per person. At a certain point, the executive said, advertisers get fed up with the shrinking audience.  The decline also poses a problem when a programmer has to outbid Netflix, Hulu and Amazon Prime for a hot script, because there’s not as much money to go around. The growth of ad prices, the executive said, “has not paced with the cost of original content”.  Still, the executive said, there are ways to get around people who won’t pay for content – they’re just ways consumers may not be thrilled about.  “The model of the future is wherever your content premieres, you take your advertisers with it,” the executive said. “It’s taking television creatives and asking them to think commercially, too. The successful executives are going to be the ones who can do both.  “You need producers and writers who can ask, ‘What’s a natural way for my audience to bring these products in?’”
It may finally be time to pay the piper for Netflix and for traditional cable – but that’s not necessarily a bad thing, as your favorite shows could get shorter and cheaper