READER QUESTION: How Will the New "Jay Leno Show" Make Any Money?

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Hey, guys--

Hope you've all had a good weekend! And thank you in advance for all the emails, questions, pitch workshop submissions, etc. I promise you-- I'll get to all of them... but I wanted to answer a quick email from loyal reader Charlie, who asks a question in response to Wednesday's post about NBC moving Jay Leno to primetime. Charlie writes...

"I noticed you spent a good deal of time defending the Leno decision. My question is, based on what I understand about how networks make their money... they
put shows on air at a loss... gambling that they will recoup in syndication. Is the model with Leno that it's produced at a cheap enough margin that it makes its profit from the ad buys? And if not, are they just putting it on the air at a loss? How do they make money?"

Well, first of all, Charlie--NBC's Leno move has been the most hotly debated topic in Hollywood this past week... mostly because no one knows if it'll work. Many people think it will... although others are disappointed that it's removing five weekly hours of potential scripted programming from NBC's schedule.

As for how it'll make money, however... you're exactly right (almost). Most expensive scripted shows are "deficit financed" by the studio that produces them, then licensed to networks for less than it costs to make them. NBC, for instance, doesn't own My Name Is Earl, even though it airs it every Thursday night; that show is owned by 20th Century Fox, the studio that finances and produces it, then "rented" to NBC for less than it costs to make it. (If it costs 20th just under $2 million per episode to make it, NBC probably pays around a million per ep...) NBC then makes its profit by selling advertising during the show (last fall, My Name Is Earl averaged $151,000 per 30-second spot), and 20th makes its profit by re-licensing the show into syndication to local stations and cable networks.

(So a slight tweak to what you'd said in your question: the network itself
doesn't put shows on at a loss, the STUDIO sells its shows to a network
at a loss. The network-- ideally-- isn't really taking an intentional hit because its shows are-- hopefully-- taking in more ad revenue than the network paid for them. When a show starts taking in LESS ad revenue than the license fees the network paid to the studio, the show is probably going to get canceled.)

Late night shows, however, like The Tonight Showor Jimmy Kimmel Live!, are exponentially
cheaper to produce than a primetime scripted show. One hour of a
primetime drama may cost its studio more than $3 million (meaning the network licenses it for about $1.8 million)... and sometimes more... but
one hour of The Tonight Show costs about $400,000 (which-- just to put
that in perspective-- is less than it cost to buy a single 30-second ad spot during last season's Grey's
Anatomy
). So many late-night talk shows are owned by the network that airs them. (Also, talk shows have very little syndication value-- i.e., they can't usually be rerun-- so there's no point in a studio deficit financing them.)

Of course, The Tonight Show commands lower ad dollars than many primetime scripted shows. One 30-second spot in The Tonight Show costs $50,877... which is significantly lower than the $124,353 NBC currently gets for 30-second spots during its Monday night 10 pm time slot (when Jay moves to primetime next year, he'll be on each weeknight at 10 pm). It's also lower than the $70,239 NBC rakes in for each 30-second spot on Friday nights, one of its lowest-rated evenings.

But remember... a single episode of The Tonight Show also costs about one sixth what it costs to make a single episode of a 10 pm drama. So NBC doesn't need to set its expectations as high in order to make a profit.

In fact, NBC grosses an average $2.3 million in ad revenue during its 10 pm weeknight time slots. So let's say it's shelling out $1.8 million per episode for each of those 10 pm shows... it's making an average profit of $500,000 per episode.

The Tonight Show grosses about $926,000 in ad dollars in its current 11:30 spot each night. But if it costs $400,000 to make, that means its making NBC a nightly profit of $526,000! (This is also much more "reliable" income for NBC, because once a talk show is successful, a network can lock it in for many years, guaranteeing itself that ad revenue. In primetime, however, shows succeed and fail much more frenetically... new shows are constantly popping up, schedules are constantly being rearranged, etc. So the ad revenue of a particular primetime slot is much more tenuous than that of a successful late-night slot.) (In fact, as if to prove how reliable this income is-- and how much lower NBC can afford to set its expectations-- the network has reportedly already contractually committed to four years of Leno's new show, with a two-year option. To put that in perspective, most successful scripted shows rarely get more than a 22-week commitment... and untested new shows usually only get 6 or 13.)

Now, there are definitely more viewers watching TV during primetime than late-night. The question is: will those viewers tune in to the new primetime Jay Leno Show? And more importantly, will the viewers who tune in be NBC's coveted younger demographic? (Right now, the median age of NBC's primetime audience is 46... but the median age of its late-night Leno audience is 56, a demo that's less valuable-- and therefore gets lower ad rates-- to advertisers.)

NBC is betting they'll get the viewers. Critics aren't so sure. Obviously, only time will tell... but even if Leno doesn't get the numbers and ad dollars of a successful scripted show, his inexpensive show is much less of a gamble for the floundering NBC. And he'll probably do better than the failures NBC programmed there this year: My Own Worst Enemy and Lipstick Jungle. (NBC is also losing its successful Thursday night 10 pm show, E.R., which pulled in about $140,000 per 30-second spot last year.)

Hope that answers your question, Charlie... thanks again for reading... and for anyone else who has questions, please feel free to email me at WDScriptNotes@FWPubs.com.

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