Rather than air new episodes of popular TV series, [Outside Econweb] NBC and [Outside Econweb] ABC wll either show reruns or movies while [Outside Econweb] CBS broadcasts the Winter Olympics. [Outside Econweb] Fox, the newest network, will show new episodes of most of their shows. Whenever any of the major networks show a major sporting event or a major awards show, such as the Academy Awards or the Grammys, reruns typically air on the older networks (ABC, CBS, NBC). Here, we present a simple game theoretic analysis which may explain why new shows aren't shown on these networks when a special event is being broadcast by one of the other major networks. Reruns are also shown now during most major holidays, often during the week or two around major holidays, and at many other times during the period between Labor Day and Memorial Day. Decades ago, this was not standard practice.
Some of the basics of TV economics first: Revenue comes from advertising. The larger the audience believed to be watching a show, the greater the amount the network can bill for advertising time during the show. Usually, the most expensive advertising time is during the Superbowl, but this record will be broken this year when [Outside Econweb] NBC will charge even higher rates for commercials during the series final episode of [Outside Econweb] Senifeld. For many of the most popular shows, such as [Outside Econweb] Friends and [Outside Econweb] ER, the salaries paid to the stars are so high that the shows can't earn enough advertising revenue to cover production costs, postponing profitability until the series goes into sydication.
During a special event, such as the Olympics, other networks can expect fewer viewers of their regular series. Therefore, they must charge less for advertising, even though production costs for the shows are as high as ever. At the same time, a show can lose viewers permanatly if it frustrates them by showing reruns too frequently.
Consider the payoff matrix shown to the left. (If you need to review game theory, visit the Oligopoly section first.) Perhaps this is something like the game the major networks have been playing for 50 years. The strategy New means the network will show new episodes of all shows when the other network is airing a special event, such as the Olympics or an awards show. The strategy Rerun means the network will show previously broadcast episodes or older movies, when the other network(s) airs special events. The payoff amounts are simply arbitrary numbers meant to represent profit. Whatever the profits earned, the importance here is the relative size of the numbers.
As always, we check the game first to see if a dominant strategy exits. The simplest way to do this is to take the perspective of one of the networks first, say NBS.
Suppose NBS believes that FBC will air New shows, whatever is showing on NBS. As we can easily see in the payoff matrix to the right, NBS will earn a payoff of 12 if it airs New shows but a payoff of 8 if it broadcasts Reruns. Believing FBC will air New shows, NBS should show New shows.
Now, suppose NBS believes that FBC will air Reruns. NBS will earn a payoff of 22 if it shows New shows, but a payoff of 20 if it broadcasts Reruns. Once again, NBS should show New shows. Clearly, NBS has a dominant strategy; It should show new shows no matter what FBC shows. In other words, it should compete for audience share.
Since FBC faces the identical game, its dominant strategy is also to show New shows. This is like the classic Prisoners' Dilemma or Oligopolists' Dilemma covered in the section on Oligopoly. If networks play their dominant strategies, the outcome will be all new shows with each network earning a payoff of 12.
Showing new shows, whatever the other network(s) airs, is a very competitive strategy, equivalent to always charging the low price in the Oligopolists' Dilemma. Even though this is a dominant strategy when the game is played only once, it's clear from the payoff matrix that if the networks could all agree to show reruns, they would earn higher profits because the large savings in production costs would more than offset the lost advertising revenue.
Since the number of new episodes shown each season is about half of what it was in the 50s and since during the Winter Olympics other networks will be showing mostly reruns, it seems that the old networks have come to an agreement (possibly unspoken) during the last 50 years, not to compete against a network airing a special event. They have, for the most part, learned to forgo their dominant strategy and cooperate by showing reruns, and thus earning higher profits. Fox however, hasn't yet decided to cooperate. As a new network it has taken an aggressive stance in a number of ways and deciding not to adopt the cooperative strategy is in line with their overall approach. It will be interesting to see if their lack of cooperation will induce the other networks to play a more competitive game or if Fox will eventually cooperate too.
It is a bit ironic that in the 90s, with VCRs present in a large majority of US homes, that no new episodes of favorite shows will be shown this week; even though most viewers could still watch the Olympics and tape the new episodes. But, back in the 50s when home video recording equipment wasn't available, viewers had to choose between watching special events and new episodes of their favorite shows. Clearly, TV fans are the real losers as a result of this cooperative (collusive) network strategy.
Just as other types of collusive agreements tend to break down during times of instability or poor sales, if one network finds itself with sufficient profit trouble or if it is loosing too many viewers, it may well choose to forgoe the cooperative agreement and show more new episodes, like Fox. Even during the Winter Olympics, some networks will show new episodes of so-called reality based shows, which are cheap to produce, and new episodes of series that are having a hard time building an audience; But these won't be seen as violations of the collusive agreement the way new episodes of highly rated shows would be.Copyright © 1995-2003 OnLineTexts.com, Inc. - All Rights Reserved