The Business of Television in 2025 with Ken Basin

0:00Today, we get an insider's perspective on the television industry from Ken Basin, who literally wrote the book, The Business of Television. We discuss streaming, the impact of AI, who does or doesn't make money. If you have any interest, I have a romanticized interest in the entertainment industry. You're going to love this episode.

0:21Hi, Ken. How are you? Good to see you. I'm good. Thank you for having me. Good to see you as well. I'm really pumped up to talk about the business of television, talk about the entertainment industry. It's not something that we talk about frequently on the Builders podcast, and you're an expert here. But I'd love I'd love to start here. Do you think Americans are spending more, less or about the same on what could be called television? I put that in quotes because I'm not even sure what television is and isn't anymore. Or, I mean, I think for me personally, I cut the cord a few years ago when I could start getting the sports that I really cared about through a streaming service.

0:58And so I was thinking maybe I would be spending less money. But now that I have Paramount and Netflix and Prime Video and everything, I think I'm actually spending way more on television than I ever used to. Yeah, well, let me start by addressing your kind of scare quotes for television. That's all television. And I really believe that there's no more difference between streaming and television than there is difference between cable and broadcast. There are different ways that TV is delivered. There are different financial models. But it's fundamentally audiovisual content delivered to the viewer in their home on devices that they're choosing.

1:36And so I think that does all count as TV. The last time I saw publicly reported data on this, on average, Americans were still paying less in total for their video subscriptions than they were at the peak of the cable bundle era, when most cable packages were around$100 a month, around 100 to 110 million households in America had cable. But that's definitely not true for everybody. I think there are a lot of people, probably including you, definitely including me, who are paying more today than we were paying when we just had one big cable bundle. And I think that the proportion of people who are in that position is growing over time.

2:18There's a widespread expectation within the industry that we can't sustainably carry the number of streaming services that we have right now. It's been a kind of working guess for a lot of people for a while that there are probably going to be four long term, long running streaming services when everything is done. And most people assume that Netflix and Amazon have already claimed two seats at that table. So there's really two more to go around. And I think when we go from seven premium streaming services back down to four, it might moderate that. But also prices are going up and are going to continue to go up.

2:58So the streaming revolution has done a lot to kind of change and improve the experience of watching TV. But I don't think making things cheaper is one of the problems that it's solving or was ever really meant to solve. It's interesting. I think that I wanted to talk about one of the streaming services that's probably in the seven and may or may not be one of the ones that's in the four, which is paramount. It was probably the last of the majors that I had not subscribed to. And I'm like, I'm not, I'm not putting in, I'm not subscribing to another one. And then, um, a show was going to come out that I was really interested in.

3:34And I love the show. It's called the agency. I don't know if you saw it. And now I'm kind of like, well, kind of like captive to Paramount. I'm going to, I'm going to stick with it. And I'm starting to check out some of the other shows that are part, that are part of Paramount, you know, Landman and, and, and that, that kind of thing. I am curious, though, about the the the business of a show like The Agency. It seems expensive. It's set in it's set in London. They have, you know, battles with tanks. They have exploding helicopters. They have Richard Gere, Michael Fassbett or Jeffrey Wright, a lot of famous actors.

4:10Like who is making money on this thing? And how would you think about a show like that? So it's definitely expensive and shows have gotten much more expensive across the board in the last 10 years. Start with the actors. The actors are definitely making money. When I started working in television around 2013, it was a kind of general rule that no actor, no matter how big, how successful, how recognized, made more than$125 ,000 per episode in the first season of a show. Those numbers could get much, much higher in later seasons when a show had already proven itself and become a big moneymaker. By the end of 10 years of Friends, the cast members were all making over a million dollars each.

4:49The cast members of Big Bang Theory were making north of a million dollars each by the end. But between 2013 and today, the ceiling just disappeared. And there are a number of actors who make more than a million dollars per episode in the first season of TV. So it really shifts a lot of the risk kind of away from the actor who's now getting paid. this is a dynamic of streaming generally everyone gets paid as if everything is a hit except people say the actual hits where the biggest hits aren't sort of outsized compensated so for the stars like Richard Gere and Michael Fassbender prices have come down a little bit in the last two years after the strikes after COVID there's been a broad reduction in the number of shows being made but I would guess that those guys are making anywhere from 400 to 700 hundred thousand dollars per episode each and you know that's just before you get to any of the cost of actually producing the show um the show is produced by showtime productions and it was originally developed for showtime uh which was owned by the same corporate parent as paramount plus and they kind of substantially merged those services so you might notice that it's not just paramount plus it's paramount plus with showtime right which is a total branding mess that i don't think anybody really understands or agrees with.

6:10And as an aside, prior to doing this, Paramount Global, the parent company had the opportunity to sell Showtime for$3 billion, turned it down, and then seems to have more or less destroyed the brand by merging it with Paramount Plus with the streaming service. But it sort of reflected the kind of all-in push on streaming. But it does mean that you have the same kind of corporate conglomerate as the studio that produces and owns the show and as the network that exhibits the show. That's also very common in today's industry and kind of affects how you think about the macroeconomics of everything.

6:44Prior to the early 1990s, it was actually basically illegal for a network to own the shows that it exhibited. And so through the 70s and 80s, you had this really robust, vibrant community of independent producers, Carsey Warner that did Friends, Castle Rock that did Seinfeld, Orion did a bunch of stuff in the 80s, Reischer. And in the deregulatory climate of the early 90s, those laws went away and very quickly all of the major entertainment conglomerates that own networks started their own studios and began preferentially ordering shows from their own studios. Because in the life cycle of a TV show, a big show is generally very kind of efficient and money making for the network in its early years, but not for the studio, because the network is sort of paying a lower price that was set before they knew the thing was a hit.

7:37And then it later sees it kind of shifts, the cost of the show goes up, the studio gets higher license fees, maybe audiences slowly degrade over time, and the show becomes a bigger financial driver for the studio and a little bit less of a financial winner for the network that may still be important for brand purposes. So shows like the agency and really probably most shows on the air today have the same company in both of those positions. So they can sort of smooth out that curve and make decisions about whether and how to sell the show elsewhere, exhibit it elsewhere to kind of maximize efficiency and maximize gain across both the studio and the network businesses.

8:16For many of these companies, the studios and networks don't even have their own separate P &Ls anymore. They consolidate their financials. And so they're really kind of in it together in the economics. And so they're in it together and they've just launched the agency. When do they know whether or not it was a good investment, a hit, a flop, et cetera? Does that happen right away when they look at the initial streams? Does it happen when they look at someone like me that signed up around the same time agency premiered and then they see, do I stick around? Am I still with it now? How do they think about that?

8:53Short answer, both. They know a lot in the first two weeks based on the initial numbers, but most services want six to eight weeks to really sort of collect data and evaluate performance. And to what you're saying, they're looking both for things that get a lot of viewing minutes. I mean, just pure massive minutes is very important. But all of the streamers have gotten much more sophisticated over time at trying to attribute subscription and non-cancellation decisions to certain shows. And so a show that has less total viewership, but they can see you're a new subscriber. And the first thing you did when you signed up was kind of plow your way through this show.

9:33They can detect that and sort of recognize this show gained them a subscriber. It's really kind of singularly responsible for that. They also have ways kind of in the long run to look at whether shows are likely to be more impactful in preventing people from canceling their subscriptions. One of the big factors that all the streamers are trying to manage is called churn. Churn is just the percentage of subscribers who cancel every month. And one thing that's pretty common, especially for services like Apple that doesn't have a very deep library to keep people engaged in the long term, is people will sign up, watch the show they're interested in, and when it's done, cancel their subscription, and then sign back up the next year.

10:14And these companies really want to skip that middle part and just keep you signed up all the way through. the best predictor of whether somebody is going to cancel their subscription is whether they just watch a minimum amount of content over the course of a month. And that's also why library content can be so important and so impactful. It's cheaper by the hour than making new content, but it can be every bit as impactful and more in keeping people glued to the service. And there's a lot of major success stories of the last few years, shows like Suits that was kind of a little bit under the radar after finishing several years before at USA that kind of had a revival on Netflix.

10:53Brooklyn Nine-Nine did a little bit of the same. It was an interesting model because Brooklyn Nine-Nine was owned by Universal. All eight seasons were on Peacock, but not a lot of people watched Peacock. So they put the first four seasons on Netflix. A lot more people watched Netflix and they have a much more effective recommendation algorithm. So a lot of people discovered the show on Netflix, watched the first four seasons, said they wanted to keep going and discovered that it wasn't there on Netflix. They have to go get a peacock subscription to see seasons five through eight i know this because my wife and i are among those people and that's why we ended up subscribing to peacock and now we're still subscribed to peacock as as are my children um they they went all through suits and my daughter lost her mind when when she couldn't watch the remainder of the brooklyn 99 library it's it's funny you know and it ties back to what i was thinking when you were describing why wouldn't Paramount have sold Showtime for$3 billion, whatever you said it was, is for me personally, I watched the agency.

11:50And then I was like, oh, I loved Dexter. I loved Homeland. Maybe this is a good time just to rewatch them because I have the service now. So yeah, that's really, really interesting. So you work within television. I guess before we're talking off air, you're probably recovering lawyer to your lawyer at some point. And you decided to write a book literally called The Business of Television. Why did you do that? Why were you inspired to do that? When I started out as a lawyer, I was doing entertainment work from day one, but most of my practice was focused on representing feature film talent, actors, directors, producers.

12:30And two or three years into my career as a lawyer, I had the opportunity to do my first significant TV deal. It was actually an acting deal for Tony Danza for a 30-minute comedy that was being developed by ABC Studios for ABC Network. And I received the offer from ABC, and there were several terms in the kind of offer sheet that said subject to ABC approval, subject to ABC approval. And I was completely confounded by this because I thought, I'm negotiating with ABC. How are they offering me terms that are subject to their own approval? And that's essentially how I discovered the difference between a studio and a network.

13:03And that's kind of one of those concepts that is really fundamental to the basic kind of structure and function of the industry, but pretty opaque to the general public. So to be clear, studios are the entities that actually make and in the long run own TV shows. And networks are the entities that exhibit those shows to the consumers. So studios are kind of B2B businesses. Their relationships are with creators, talent, crew, stages on the one hand, and network licensees on the other hand. networks are B2C businesses. A lot of their investment, a lot of their effort goes into marketing, branding, creating cachet with the audience.

13:43If I tell you a show is on FX and nothing else about it, you probably have some guesses about what that show is like. That shows how successful FX has been as a network and making its brand. Frequently, as I was saying, the same kind of conglomerate owns both the studio and the network behind a show. But there are plenty of times when that isn't a case, even for shows that are really, really kind of intimately connected and associated with the network's brand. So everybody thinks about House of Cards as a Netflix show, and it was on Netflix, but Netflix doesn't own it. It was produced and owned by a company called MRC, Media Rights Capital.

14:18Breaking Bad and Mad Men, two shows that define the brand of AMC as a network, were produced by Sony Pictures Television and Lionsgate Television, respectively. And you would only really know that if you would watch till the end of the credits and then saw the logos that come up on the end and see which studios logos are at the end. And even then it might be confusing because it might have the logo of a studio that's affiliated with the network that got a piece of the show and the studio that actually sort of made and primarily owned the show. But so I was kind of forced to confront this difference between studio and network.

14:51And it felt like something I should really, really know about. And so therefore I didn't want to ask anybody about it because I didn't want to reveal that I didn't know. and I bought a bunch of books hoping to kind of answer this and many other questions for myself before I was kind of next faced with the situation and found that none of them taught me what I wanted to know and so when I'd done the job long enough that I felt like I had the answers to the question that the 25-year-old version of myself would have asked, I decided to write a book sort of as a present to that 25-year-old past self, a place where he could have gone and kind of looked up the answers and then walked more confidently into conversations.

15:27That's a really cool story. And so you wrote the book, the authoritative book in the business of television. You released it in 2018. And then you recently, maybe in the last six months or so, released a second edition. So when you were thinking through that, were you thinking, A, like, yay, I get to write it? Or B, I really need to rewrite or change some of this because so much has changed. Where were you on the excitement versus wow, so much is change scale? It's interesting that you framed the question that way because that very much was kind of like my journey of the process of writing it.

15:58The book came out 15 months later than it was originally intended to. I had been pretty procrastinating towards it. When I was originally thinking about working on the second edition, I kind of viewed it as a sort of minor project, like update some numbers, change some pop culture references so they don't feel dated, to the extent that the ranges of what people pay for scripts or actors of change, make sure that those are updated and capture whatever is new and union requirements. And so I thought about it as not a major undertaking, but I couldn't make myself take it up. It just wasn't interesting to me.

16:32And the more I thought about it, the more I realized I had a certain amount of guilt that people had paid a decent chunk of change for my book and I wanted them to buy it a second time. And I wanted to make sure I was giving them something that was worthy of plunking down $40 or$50 again. and that kind of really incremental change didn't feel like it was doing it. And when I finally sort of gave myself permission to open it up and be much more ambitious, then it started pouring out of me. And I added, you know, much more detailed chapters about streaming kind of the history of it as a business from the consumer perspective, but also from the kind of behind the scenes financial perspective.

17:08The book has a little bit more sort of like narrative quality, like where did we start and how did we get here kind of tales in certain parts of it. There's a whole new chapter about negotiation that really kind of like reflects my personal philosophy as a negotiator and how I train and teach the people who have worked for me in negotiating jobs and what I think would make the industry a kind of kinder, gentler, happier place to work if people took this advice. And I also gave myself a lot more permission to describe things not just as they were, but as I thought maybe they should be. always very transparently about that, really trying to be diligent about not blending observation with projection.

17:53But one of the things that was a real privilege for the second edition was the first edition found its audience. I definitely wouldn't recommend writing a niche for the trade business book for the money. If I made minimum wage on the endeavor, I'll be pleasantly surprised. But it had really been embraced by lawyers, agents, managers, executives. I knew there was an audience there. And so I thought I had an opportunity now that I had built a little bit of credibility to, you know, make a few more suggestions than I did the first time. And so ultimately, I wrote the book in a very condensed period of time, right after the strikes ended at the end of 2023.

18:30But my wife was expecting our first child at the time, and I needed to give birth to the book before she gave birth to the baby or we were all going to be in a lot of trouble. and so I wrote the entirety of the second edition in about three months and discovered at the end that it was literally twice as long as the first edition and that the material from the first edition was 50 % rewritten so I had written one and a half of my old book in a three-month period which was one of the most stressful three-month periods of my life and rewarding and sleep-deprived well congratulations on that and for folks listening will or watching we'll put the put Put the book in the show notes.

19:09I kind of want to talk about breaking into the business and if it's even possible. In this podcast, we talk a lot about business startups, how you bootstrap a business, how you seek funding. Is there that same notion of a startup in the world of television? We all think, or those that have creative bones, we might say, we're going to write the next great American novel, or we're going to, I've got an idea for a script. I've got a dream. All I've got to do is find the right person. I can get my thing funded. It might be romanticized in, you know, like there's a Sopranos storyline about that, but, but can it work or does it just, does it just not work that way?

19:54There are elements of that. And it's something that's changing partially, I think because of generational expectations and partially because the promise that the industry used to hold of like you go in you started as an assistant in the mailroom you keep your head down and your work you wait at the top is not a promise that people believe in anymore and that isn't really consistently delivered upon you know when bob evans became president of production at paramount in the 1970s i think he was 34 years old you're 34 years old today you're still probably at a not far above entry level position because the guys at the top are all still there in their 70s, having been there for 25 years.

20:28Up to about a year and a half ago, there was a kind of unprecedented level of interest in Hollywood from Silicon Valley. A lot of money pouring in and a lot of businesses that were being spun up with kind of tech company mentalities. I mean, this also reflected the arrival and the influence of Apple and Amazon and Netflix, which I've always thought is fundamentally just a media company, but has long presented itself as a technology company, in part because technology companies get much more favorable valuation multiples, unlike, you know, P.E. ratios and better access to capital and more patience from investors who let you chase growth and not profit for very long periods of time.

21:10And a lot of that thinking started seeping into other areas. But it was less investment in kind of like young guy with a dream. It wasn't sort of the Mark Zuckerberg, you know, figures of the world of the Sean Parkers. It was a lot of money going to celebrity driven companies. So a lot of money poured into Reese Witherspoon's Hello Sunshine, into LeBron James's Spring Hill. And I think with the passage of a few years, there's a lot more skepticism about the quality of those investments. I think a lot of valuations didn't reflect kind of real basic business fundamentals, partially because the logic of startups and the logic of startup investing is kind of, you know, it's embodied in the VC model of most things will fail, but a small number of things will just be outside successful and grow in huge multiples year over year.

22:04And so you just get a few of those and it makes the whole portfolio work. And by the way, for a long time, that's kind of how Holly worked as well, not from the perspective of a portfolio of companies, but a portfolio of movies. Any given studio would release, you know, eight to 25 movies a year. And they would expect that most of those would lose money. But the few that made money would make so much that it would pay for the losers, pay for the overhead and pay for the private islands. And in the content space, that cross-collateralization model is, if not dead, certainly very struggling. The deal making has changed.

22:37So it's very hard to actually be given an opportunity to take meaningful risk. And it's very hard to have meaningful upside in the risk. One thing you hear a lot is there are no home runs in content anymore, but there's not a lot of strikeouts either. It's all singles and doubles and increasingly mostly singles. On the company side, though. I don't think there's any entertainment company that is truly with the possible exception of Netflix, which has this kind of hybrid identity and came about at a very specific time with very loose capital markets and a strong first mover advantage. But I struggle to name any company other than Netflix whose kind of growth curve from employee size, revenue size, subscriber size looks like that of a tech company.

23:19The dirty little secret of Hollywood has been that it's never been that great of a business. It's, you know, I think if you sort of aggregate the performance of one of the major studios over a 50 year period, you'd probably find that after overhead, it averages an 8 to 10 percent margin a year. That would not satisfy a private equity or a venture capital investor. These companies were sort of passed around as the playthings of Seagram's, the gin company, and General Electric, the appliance company. They were owned by Standard Oil, Paramount was, in the 1970s. So these were kind of like fun plaything subsidiaries of larger enterprises that weren't really on the radar of Silicon Valley, even once it became a thing, weren't really on the radar of Wall Street.

24:00And the joke that I always made is we are all just a hair's breadth away from it making sense to fire all of us and invest all the money in an S &P index fund. So the appeal of the industry has never been about the opportunity for outsized returns, though there are those individual stories of such great successes that kind of put stars in people's eyes. It's really much more about the opportunity to impact the culture. you know there are people who are very romantic about storytelling even to this day and that informs some of the conflicts that exist among constituencies within the industry and frankly you know one of the jokes in Hollywood is how do you make a small fortune in Hollywood you start with a large fortune and you know it's a place where people who've made their fortunes in other places go to squander a portion of it so they can go to sexy parties and it's only really in the last decade decade and a half that wall street and silicon valley have started really scrutinizing these companies strictly kind of as businesses how much are you spending how much are you making we don't want to hear about magic we don't want to hear story we don't want to hear about culture like what is this business and they're discovering it's actually not that great and but again that's never been the point um you know paramount is about to be owned by David Ellison, backed by his father, depending on the day, fifth to sixth richest man in the world, Mary Ellison.

25:17To a large extent, I kind of think that's what the studios need, is they need sort of billionaire patrons who, you know, have a romanticism about it and want to be moguls, and who, because they're doing this for not strictly conventionally financial reasons, may be more resistant to kind of, I think what is the pernicious influence of like meeting quarterly expectations, you know, hitting your bonus targets every year and making some longer term choices because they just want to kind of have this thing, not necessarily grow exponentially, but just like survive and hum along and thrive for a long time and sit at the top of it.

25:58I think we'd all enjoy having a professional sports team in a studio and I can definitely understand that. You know, because you brought up tech and a lot of the investments and interest in Silicon Valley, I want to ask about AI. And I'm a lot more familiar with written content. There's been so much attention on AI replacing, improving written content through generative AI. Is AI impacting television? And could you imagine in three or four years hearing about a movie or a TV show where the script was entirely written by AI? Or is that just like a wild thing to think about? I don't think it's a wild thing to think about, but I don't think it's likely to emerge from the existing established entertainment industry.

26:47When it comes to the role of AI in entertainment, people have wildly varying opinions and wildly varying levels of fear. And even my opinion might change depending on how well I slept last night and how optimistic or pessimistic I was feeling this morning. We're definitely seeing the impact of AI on the margins in places where it's both a very sort of easy application and also where it's less threatening to the artistic community. Because one of the things that's really sort of a check on the deployment of AI in the industry is it freaks out the actors, the writers, the directors. It freaks out the crew.