Reality TV changed the economics of television, and now it’s paying for it

The third season of the hit drama UnReal is now streaming – only on Stan. Join today.
Picture: ‘Behind the scenes’ with UnReal Season 3. Supplied by Stan Australia.

Television is serious business. In the US, it reaches more than 90% of the population, and the broadcasting industry generates almost $150 billion per annum.

In Australia, the film and television sector contributed $5.8 billion to the national economy in FY13 and was responsible for 46,600 jobs. While that’s a far cry from the behemoth US industry, for comparison, internet service providers in Australia only contributed $1.8 billion, according to a report from Deloitte Access Economics.

The bulk of the employment is generated by the creation of original content — a part of the industry that is growing as subscription video on demand (SVOD) services like Stan enter the market and begin commissioning their own shows.

In the 2013 financial year, SVOD services added over $900 million to the television sector’s value in real terms.

But even as television sustains a small level of growth in difficult global economic conditions, margins are tightening.

Here’s a look at how the production of reality TV – as opposed to scripted – has exploded in the last 20 years.

Scripted shows, with continuous stories and character development that require teams of writers and set designers, have been pushed to the back seat. Now riding shotgun are multiple-baby families, racially stereotyped pastry chefs and bug eaters.
– Sean Joyner, Investopedia

The mainstream success of reality competition programs like Survivor have paved the way for networks to jump on board with unscripted programming and reap the huge economic benefits.

According to E! Online, a 30-minute episode of reality TV costs approximately $100,000-$500,000 to produce. While this has been steadily moving more towards the latter costs as the industry matures, it’s still no where near the big budgets of scripted dramas.

For example, the eighth and final season of HBO drama Game of Thrones has a budget of $15 million per episode, and that is a conservative estimate.

While Game of Thrones is in a league of its own when it comes to ratings success — thanks to its cult following and established audience of book fans — big budgets don’t always translate to inflated ratings or commercial success.

The History cable network budgets $225,000 to $425,000 per episode for unscripted television, and airs some of the highest rating programs in America. At the height of its success, reality TV show Pawn Stars was regularly beating the critically acclaimed Mad Men in the ratings prime time on a Sunday night.

But it’s not just the lower production budgets that made reality TV so attractive to networks, the profit margins for successful shows are phenomenal. The biggest difference is the cost of talent – both on screen and off.

For example, in the early days, British reality series Geordie Shore reportedly paid its “stars” a few hundred dollars each per episode. While this steadily grew to tens of thousands, it’s nothing compared to the million-dollars-per-episode salaries that some key scripted drama stars now demand. Jim Parsons, one of the stars of the hit show The Big Bang Theory, reportedly earns $27.5 million per season.

In Australia, most “contestants” on reality shows aren’t technically paid, rather they are compensated for their time away from their primary jobs – albeit at a base rate per week.

The second biggest saving on labor costs is for the writers. While reality TV producers have to do a lot of narrative leg work, they aren’t recognised as writers or represented by a writers’ union.

Due to these cost benefits, reality TV profit margins can be as high as 40%, and higher on the shows that have the scale to produce huge amounts of ratings friendly content. In its hay day, American Idol was generating $US96 million in revenue at a gross profit margin of 77%.

And this is just what the shows are making through the networks in advertising revenue.

Picture: ‘Behind the scenes’ with UnReal Season 3. Supplied by Stan Australia.

Even if many reality TV series are designed as competitions to be watched in real time (is it any surprise The Bachelor creator Mike Fleiss is a former sports writer?), DVD sales for some of the bigger series rival that of scripted drama.

On reality TV, it’s also much easier to integrate other revenue streams that could jeopardise the integrity or authenticity of scripted shows.

No one bats an eyelid at product placement on Survivor, and talent shows like Idol or the Voice can generate long term income streams by reserving the right to management contracts with their contestants.

The concepts of the shows can also be licensed to foreign markets – in the way that The Bachelor and Survivor have been all over the world.

Variety and PactUS recently surveyed hundreds of the top reality producers in the US, and only 17% of respondents said that the global success of a franchise didn’t matter to it’s success in the States.

The reason global success is such an important factor is because audiences are now globally connected – it’s also another feather in the cap of reality TV production.

Social media can now also make or break a new show. There have even been instances where the strength of a show’s social media following has saved it from cancellation.

Unscripted has an advantage over scripted drama in that it’s on-screen talent is both cheaper to engage and more engaged in the process post-production – because they are still themselves.

While some scripted dramas have flirted with the idea of having their actors tweet “in character”, nothing beats a real fight between housewives playing out on Twitter.

Reality stars are the new sports stars, and they understand that the bigger their social profile, the more money they can demand for future appearances, so it’s in their best interests to promote the show they’re a part of.

Reality TV has also proven to be a boon for bloggers, journalists and social commentators – with reality TV blogs, podcasts and recaps generating as large of a following as the show itself.

This reality TV ecosystem has lead to numerous spin-off opportunities not just for the talent and networks, but the industry it was originally competing with – scripted drama.

Enter Unreal, the scripted drama based on a fictional behind the scenes look at The Bachelor.

Now in its third season on Stan, Unreal is the product of the audience’s meta-connection to television. They now follow the talent on Instagram, they see the outtakes and extras on a DVD, wedding photos are splashed across magazines – all that’s missing is a bird’s eye view of what happens when the cameras stop rolling and the editors start cutting.

While the events are exaggerated to make narrative sense, the unwritten understanding that the best bits are based on a true story has reality TV fans hooked.