MySpace TV Math: Will "Quarterlife" Make Money? (NWS)

Henry Blodget | September 14, 2007 3:24 PM

Myspacelogo Will MySpace's (NWS) foray into TV-like video programming make money--or is it just an ill-fated attempt to recapture some world-domination buzz?  After running the numbers, we believe it's possible that "Quarterlife" will turn a profit, but unlikely.

BusinessWeek.com reports that each 48 minute "Quarterlife" episode will cost more than $500,000.  This is cheap by TV standards but astronomical compared to most web video.  Each episode will be chopped down into six 8-minute segments that will cost more than $83,333 apiece.  Assuming a CPM of $15-$25, 2 ads per installment, and no ancillary revenue or costs, each segment would need to be viewed between 1.7  million and 2.8 million times to break even.  In total, the installments would have to be viewed between 10 million and 16.7 million for each 48-minute episode to break even.  (See this spreadsheet for details).  How achievable is this?...

First, for perspective, according to Vidmeter, the most popular video of all time is the "Evolution of Dance," which has been viewed 72 million times.  The 200th most popular video, "Football Skills," has been viewed 4.8 million times.  Using a $20 CPM (x2), each 6-installment episode of Quarterlife would break even with 12.5 million installment views--which would equal the all-time views of "How to Shower: Men vs. Women," Vidmeter's 55th most popular video. 

The second question is whether a TV show like Quarterlife will appeal to MySpace users at all.  Yesterday, we argued that the show "had a chance" because its producers were smart enough to break it down into 8-minute chunks instead of forcing users to sit for a whole hour. We would be more optimistic if the producers were actually producing 8-minute episodes (like the condensed 7-minute Sopranos recap) instead of just cutting a 48-minute TV-length show into 8-minute bites.  But the 8-minute length should gives the show a chance.

The third consideration is sustained interest.  Millions of MySpace users will no doubt view the first installment of the first Quarterlife episode merely out of curiosity.  The number that view another installment, however--let alone another episode--will depend entirely on how compelling the first installment is.  Quarterlife will mostly be competing with TV shows, not web videos, and could therefore bomb as quickly as any TV show bombs (and lots of them bomb).  Because most web video is one-off in nature, moreover, users may get bored after a few installments, no matter how good the broader episode is.  The first installment could get millions of views, but be followed by declining interest for all the others.

MySpace will no doubt get much ancillary benefit from Quarterlife (namely, press coverage, text-based advertising, etc.), and curiosity may draw new users to the site.  There will also likely be other ancillary costs, however (promotion), so these other benefits may not carry the day.  All in, we think Quarterlife is a significant financial gamble but one that is certainly worth trying.

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Dan Newit said:
Granted, if the show is an absolute piece of crap, there are few ways to monetize it. And certainly, given their per episode budgets, they are going to have quite an uphill climb to get to breakeven.

If the show derives revenues SOLELY by advertising, then it HAS to be a MAJOR hit. If the show's creators are clever about monetization strategies, the show can be a minor hit- and potentially still survive.

In one sense, this is all unprecedented- certainly, at this scale and budget level, the Internet hasn't seen something like this yet. But there are still early signs of the viability of original web-based internet series.

You note, "If a show made especially for the web starts to gain traction, the economics can be spread over a portfolio of shows- of which only one or two have to hit. Obviously a lot harder with just one."

Shows made for the web have already gained traction- some of them have actually built huge audiences and very meaningful monetization models- without even taking on advertising.

Consider the successes that online series like "Red Vs. Blue" and "Homestar Runner" have had. They have built audiences- hundreds of thousands of loyal viewers. They have sold tens of thousands of DVDs to their very niche audiences- and surely craploads of T-shirts and other merch. I don't think either one of them has ever made a cent in advertising. One assumes that means they must be making a ton of money through ancillary revenues- since one could easily calculate that the ad-revenue they are leaving on the table must be at least six-figures annually, given their audience sizes.

With as much hype and muscle as is behind Quarterlife, if they can't manage to build up a large, loyal viewership, maybe the next big Internet Television Series deal needs to be made guys like Homestar or RoosterTeeth, since they've already proven they can do it.
Steven Starr said:
The ancillary calculations should include a first-run broadcast license, which would more than offset the production costs.

Imagine a MySpace premiere, followed by a network series run, each episode three webisodes long. With minor re-edits for the medium, it's a great way for Herskovitz and Zwick to build an offline audience for the show 'that everyone's been talking about'.

Now imagine a future where an unknown online episodic creator develops a committed and sizeable audience on the net, and the networks start chasing them to license for their Fall '09, Spring '10 broadcast season.

The implications of this reversal in the supply chain are non-trivial on many levels, and the game is afoot.
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reasonable math if it was only based on video views and being executed by someone like YouTube. Myspace is really strong at building community around content and is offering advertisers custom communities and other programming that centers around the theme of the content, not to mention hundreds of millions of promotional impressions, and probably advertiser centric ads in there general network. from what i have seen, it looks like a no lose proposition even if noone watches the show.
Ryan Holiday said:
More than that, what are the chances of it being good? Can those 40 year old men still say something interesting not just to your typical twentyfive year old but a brand new kind: the Myspace Generation.

I say no, and moreover, how many times is Hollywood going to have to fail online for people to stop giving them chances?
Henry Blodget said:
If people hate the show, they won't be selling any DVDs. The point is simply to get a handle on the basic online economics: What does it take to offset $500,000 in production costs? Answer? A MAJOR hit, with or without ancillary revenue.

If shows made especially for the web actually start to gain traction, the economics can be spread over a portfolio of shows--of which only one or two have to hit. Obviously a lot harder with just one.
Dan Newit said:
Why on earth would you model this and assume no ancillary revenues? A Hollywood-style television series, even if not a stratospheric success, will surely generate some kind of merchandise sales and specifically DVD sales. Could you get 2% of the viewers to buy a $19.95 DVD set?

Will product placement provide additional revenues?

Will there be licensing opportunities for the series to be extended into the mobile world? Niche cable?

I think anyone who is willing to throw as much money as they are throwing at this is not going to assume advertising alone can make it viable. Especially if we are entering into a recession, which always hit the advertising particularly hard.

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