Monday Night Anomalies

October 14, 2014 at 9:09 am 18 comments

| Gabriel |

The transformations of the television industry are an endlessly fascinating subject that I spend a lot of time ruminating on but haven’t ever, you know, actually published on. We can start with a few basic technological shifts, specifically the DVR and broadband internet. Both technologies have the effect that people are watching fewer commercials. From this we can infer that advertisers will have a pronounced preference for “DVR-proof” advertising.* One form of this is product shots, which are indeed a big deal nowadays, especially in the reality competition genre. Of course product shots are inherently cumbersome and are pretty much the antithesis of the scatter advertising market insofar as they require commitments during pre-production which is even more extreme than up-fronts and which is why we long ago got past the age of Texaco Star Theatre. So basically, the 30 second spot you will always have with you. Or rather, the demand for the 30 second spot you will always have with you and the question is can we find a type of programming where people watch the ads. (Note that the recent Laureate Jean Tirole did work on this issue, as explained by Alex Tabarrok at MR).

In practice getting people to watch spot advertising means programming that has to be watched live and in practice that in turn means sports.** Thus it is entirely predictable that advertisers will pay a premium for sports. It is also predictable that the cable industry will pay a premium for sports because must-watch ephemera is a good insurance policy against cord-cutting. Moreover, as a straight-forward Ricardian rent type issue, we would predict that this increased demand would accrue to the owners of factor inputs: athletes, team owners, and (in the short-run) the owners of cable channels with contracts to carry sports content. Indeed this has basically all happened. You’ve got ESPN being the cash cow of Disney, ESPN and TNT in turn signing a $24 billion deal with the NBA, an NBA team selling for $2 billion, and Kobe Bryant making $30 million in salary. Basically, there’s a ton of money in DVR-proof sports, both from advertising and from the ever-rising carriage fees that get passed on in the form of ever rising basic cable rates. (I imagine a Johnny Cash parody, “how high’s the carriage fees mama? 6 bucks per sub and rising.”).

Here’s something else that is entirely predictable from these premises: we should have declining viewership for sports. Think about it, you have widget A and widget B. Widget A has a user experience that’s the same as it’s always been (ie, you got to watch it when it’s on and sit through the ads) but the price is rapidly increasing (it used to be you could get it over broadcast or just from a basic cable package that was relatively cheap). In contrast you have widget B which has a dramatically improved user experience (you can watch every episode ever on-demand whenever you feel like it without ads and do so on your tv, tablet, or whatever) and a rapidly declining price (if you’re willing to wait for the previous season, scripted content is practically free). If you’re the marginal viewer who ex ante finds sports and scripted equally compelling, it seems like as sports get more expensive and you keep having to watch ads, whereas scripted gets dirt cheap, ad-free, and generally more convenient, the marginal viewer would give up sports, watch last season’s episodes of Breaking Bad on Netflix, be blissfully unaware of major advertising campaigns, and pocket the $50 difference between a basic cable package and a $10 Netflix subscription. Of course you wouldn’t predict that the kinds of guys who put body paint on their naked torsos would give up on sports just because Netflix has every season of Frasier, but you would predict that at the population level interest in sports would decline slightly to moderately.

The weird thing is that this latter prediction didn’t happen. During exactly the same period over which sports got more expensive in absolute terms and there was declining direct cost and hassle for close substitutes, viewership for sports increased. From 2003 to 2013, sports viewership was up 27%. Or rather, baseball isn’t doing so great and basketball is holding its own, but holy moly, people love football. If you look at both the top events and top series on tv, it’s basically football, football, some other crap, and more football. (Also note that football doesn’t appear in the “time-shifted” lists, meaning that people do watch the ads). And it’s not just that people have always liked football or that non-football content is weakening, but football is growing in absolute popularity.

That this would happen in an era of DVRs and streaming is nuts, and kind of goes contrary to the whole notion of substitutes. I mean, I just can’t understand how when one thing gets more expensive and something else that’s similar gets a lot cheaper and lower hassle, that you see people flocking to the thing that is more money in absolute terms and more hassle in relative terms.*** Maybe we just need to keep heightening the contradictions and then eventually the system will unravel, but this doesn’t explain why we’ve seen a medium-run fairly substantial rise in sports viewership instead of just stability with a bit of noise.

I’m sure one of my commenters is smarter than me and can explain why either my premises or logic is incorrect, but at least to me this looks like an anomaly. And even if we can ultimately find some auxiliary hypothesis that explains why of course we’d predict a rise in sports viewership if we only considered that [your brilliant ex post explanation goes here],**** let’s keep in mind that this is all ex post, and adjust down our confidence about making social scientific predictive inferences accordingly. A theory like decline in total cost of widget B will lead to substitution of widget B for widget A is a pretty good theory and if its predictions don’t hold in the face of something like bigger linebackers or more exciting editing for instant replay, then you have to wonder how much any theory can get us.

*If we’re a bit more creative we could also infer that the market information regime for audience ratings will see a lot of contentious changes.

**It is interesting that the tv networks aggressively promote Twitter in order to promote live viewing of scripted content and news, but at this point the idea that networks will hashtag their way to a higher “C3” ratings is pretty niche/speculative.

*** The closest parallel I can think of is that it’s the easy-going mainline Protestant churches that have seen especially steep declines in attendance/membership and the more personally demanding churches that are relatively strong. I may have to rethink this point though after I fully digest the new Hout & Fischer.

**** Your ex post explanation better speak to the (extensive) marginal fan and not just the intensity of hardcore fans, since my understanding is total number of football viewers is up, and so the explanation can’t be anything like the growth in fantasy leagues leads hardcore fans to watch 20 hours a week instead of 3 hours a week.

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18 Comments

  • 1. Patrick Adler  |  October 14, 2014 at 11:34 am

    I think you are mischaracterising the fantasy fan. Fantasy fans aren’t necessarily football junkies who can’t get enough dopamine from watching the game, and resort to this as extreme football watching. Some examples of marginal football viewers who might be fantasy players.

    – Strivers at a fantasy-oriented workplace, who are indifferent to football but like advancement.
    -Football widows who are looking to reconnect with their spouses
    – College grads who have had fantasy teams for years but are only in the cable market now.

    The fantasy football boom is big enough to allow for this kind of trend. Now I will reluctantly link to Forbes.
    http://onforb.es/1w6Bmhx

    • 2. gabrielrossman  |  October 14, 2014 at 9:27 pm

      My point about fantasy players is not to disparage them or speculate about what they get out of the sport but just to say that they were probably people who already watched football ten years ago but are now watching more of it. That is, I see fantasy as something pushing the intensive margin but I’m interested in explanations that push the extensive margin. Or in statistical terms, it’s not just an issue of an increasing mean among those who watch football, but decreasing zero-inflation as non-fans are converted into fans.
      But maybe it is an explanation. If the figures from the Fantasy Sports Trade Association quoted by Jay below are remotely accurate, that is not just a small number of hardcore fans but a huge number of people, period, and it’s plausible to imagine it’s pushing the extensive margin as well as the intensive margin. And of course, network externalities from the intensive side could have extensive effects. For instance, it’s one thing to have a girls’ night out when your husband watches one game a week, but if he’s watches several games a week plus several hours on fantasy league, now your choice is get into it yourself or become a widow for sixteen weeks.

  • 3. Luke  |  October 14, 2014 at 11:38 am

    Hi Gabriel!
    I don’t have any magic bullet explanation. But your interesting discussion and the “puzzle” you offer did provoke some thoughts.

    (1) Bundled pricing of cable channels means that the relative price increase of watching sports is only partially borne by sports watchers. This doesn’t reverse your “entirely predictable” premise, but helps moderate it.
    (2) Program quality is endogenous. Perhaps the quality of widget B (non-sports programming) hasn’t stayed the same, but has declined significantly in response to lower prices. And networks/leagues may have invested in making sports more attractive to watch.
    (3) Media consumption has positive network externalities. I think this is a big one: people want to watch what’s being talked about around the water cooler. (Fantasy sports, twitter, and the rise of the “recap” accentuate this.) If time-shifting means that you can’t count on people having watched Mad Men to the same degree, marginal viewers may switch to football in order to keep up with conversation.
    (4) YouTube, streaming movies, Facebook, video games, etc. may have competed more directly with non-sports than sports. If this cut non-sports viewership, people might have added sports in order to keep up with the watercooler conversation.
    (5) Before there was widespread internet streaming, there was the DVR. This allowed time shifting by a few minutes–enough to skip the ads–such that people could still talk about Friends the next day. To the degree that football watching is traditionally social (more than baseball and basketball), football was protected from even this form of time shifting. Not quite sure how this enters into the analysis, but it could be a factor.

    Thanks for many years of interesting blogging!
    Luke

    • 4. gabrielrossman  |  October 14, 2014 at 9:32 pm

      I agree that network externalities are big but I’m not completely sure why now more than ten years ago. It could just be stochastic though, as pretty much everything involving the Matthew Effect is, and the luck of football riding a positive feedback cycle of network externalities swamps the increasing appeal of substitute forms of entertainment.
      As for declining quality of non-sports, I dunno, conventional wisdom is we’re in a golden age of tv, but of course that could be conflating critical appeal with mass appeal and it’s conceivable that mass appeal is declining (whether it be because of ad revenues or fads like avoiding the multi-camera sitcom hat plays well with the mass audience).

  • 5. Jay Livingston  |  October 14, 2014 at 11:51 am

    Just a guess, but maybe skin in the game:

    Number of Fantasy Sports Players By Year
    Year Estimated Number of Players
    1988 500,000
    1991-94 1 – 3 Million
    2003 15.2 Million
    2004 13.5 Million
    2005 12.6 Million
    2006 18 Million
    2007 19.4 Million
    2008 29.9 Million
    2009 28.4 Million
    2010 32 Million
    2011 35.9 Million
    2014 41.5 Million

  • 6. EB  |  October 14, 2014 at 1:31 pm

    I would guess for marginal fans the fear of missing out and/or desire for shared experiences drive their viewing. There’s a strong desire for people not to be left out of conversations and experiences when it seems like everyone is taking part in them, which is what I often feel like drives my casual viewing of NFL games. Like, maybe I should know what happened this Sunday because I know people coworkers, strangers, friends, etc will be talking about it.

  • 7. Why is Football More Popular than Ever?  |  October 15, 2014 at 4:19 am

    […] Tivo and Netflix ought to have been made other entertainment more popular and football less popular as a form of entertainment but instead more people are watching football than ever before. Gabriel Rossman asks why? […]

  • 8. Joshua Gans  |  October 15, 2014 at 6:39 am

    I agree with this. You might be interested in my paper “Television Wants to be Shared.” https://reutersinstitute.politics.ox.ac.uk/sites/default/files/Is%20There%20Still%20a%20Place%20for%20Public%20Service%20Television.pdf

  • 9. Jay Livingston  |  October 17, 2014 at 9:01 am

    “If you’re the marginal viewer who ex ante finds sports and scripted equally compelling . . .” Do we know how many such viewers there are? If their number is small, is the increase in sports viewing still a paradox? For football watchers, what is a “close substitute” for the NFL? [It now occurs to me that a few years ago I did have a blog post my resume about what football watchers might be doing when there’s no game on TV or even when the home team is not on TV.]

    • 10. gabrielrossman  |  October 17, 2014 at 9:15 am

      I see a lot more USC merch around town than I did during my childhood, when there was a ton of Raiders merch, so it looks like NCAA football is a close substitute for NFL football.

      But of course the spirit of my post is that sitcom reruns are a substitute for NFL and it is indeed hard to say how many people sit on the indifference margin between these two. Presumably not many, but since NFL fandom has been growing we can also presume many people passed over this margin in the course of developing taste for this particular addiction good.

  • 11. Jay Livingston  |  October 17, 2014 at 9:38 am

    In your childhood, the Raiders were a fairly good team. They won the Superbowl in 1983. That was then — 2002 was their last winning season. IN 2003-2013, their cumulative record is 53-123, not the kind of numbers that inspire fan loyalty. Whose jersey would they buy?

    • 12. gabrielrossman  |  October 17, 2014 at 9:43 am

      What I had in mind is they left LA in 1994.

  • 13. No One Knows You're a Dawg  |  October 17, 2014 at 1:09 pm

    For the average viewer, the viewing experience for televised sports, especially football, is much better now than it was 10 years ago. So much better in fact, that it has begun to affect attendence at sporting events.

    Alternate theory: Sports viewership growth is mostly coming from the growing demo of older Americans who don’t want to deal with setting up streaming service to their TVs and aren’t interested anyway in the sort of shows Netflix subscribers enjoy watching.

  • 14. name99  |  October 17, 2014 at 4:13 pm

    Gabriel, have you read:
    http://www.meltingasphalt.com/ads-dont-work-that-way/
    ?
    It provides a very different theory of the point of ads, one which strikes me as substantially closer to “the truth” than the usual “force a false consciousness on the idiots” model, and which suggests that they may be reasons why advertisers like sports which have little to do with the ease or otherwise of skipping ads.

    • 15. gabrielrossman  |  October 17, 2014 at 4:19 pm

      No, I’ve not, but I wasn’t assuming anything about the nature of advertising other than that advertisers like to reach consumers but consumers like to avoid advertising.

      • 16. name99  |  October 19, 2014 at 9:53 am

        But that’s kinda the point. The (short blog essay) I reference describes a model for what ads “do” that is NOT based on “consumers like to avoid advertising”, at least not always and under all conditions.

  • 17. Nick Bloom  |  October 18, 2014 at 4:15 pm

    A few ideas (as I wait for my football game to start):

    For GROWTH:

    1. Women. Most of the growth (in the NFL anyway) is women (http://www.businessweek.com/articles/2014-09-26/the-nfl-is-growing-only-because-of-female-fans). These are individuals who likely were watching *nothing* before, and are now watching football (in contrast to “cord-cutters” who, even in name, are replacing cable with streaming).

    2. More sports. The Nielsen report lists a 232% increase in sports programming. For example, since 2003, Sunday (NBC) AND Thursday (NFL Network) Night Football now exist. People are watching sports (and football specifically), at times where they couldn’t before. There HAVE to be more games, on more nights, than ever before. Is your show boring? An unexpected rerun? Out of Netflix to watch? Flip to NFL.

    for RETENTION:

    Habitual payment. A lot of people pay for ESPN (who really has most of the content outside of networks) as part of a cable TV/internet/phone/etc./etc. package. The money just comes out every month, and you don’t even think about it, since you’re not giving up internet. It’s one charge. I think once things get really esoteric (e.g. Fox Sports 1, Big Ten Network, etc.) things may decline slightly, since you’ll have to ADD those packages, but what’s $19 when your “Triple Play” is $180/month?

  • […] between 2003 and 2013. This has been matched with a surprise response from some. One of those is Gabriel Rossman’s, whose logically thought process is the introduction of streaming forms of visual entertainment […]


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