Business Models: Television

Most people know how the TV business model works so I'm just going to make a quick and basic explanation in order to set the grounds for future posts on my views of what I believe will be the future of Television and I call PersonalTV.

I will concentrate on the spanish free-to-air TV model.

In the (free-to-air) TV business model there are 4 main actors: TV Broadcaster, Producer/Distributor, Advertisers and us, the Audience.

• TV Broadcaster: The Broadcaster is the TV channel itself. It buys programs from the Producer with the money the Advertiser pays him and it broadcasts it for the audience to watch through the TV screen.
• Producer: The producer is the company that creates the content that you watch on TV. Sometimes it is the same TV channel that produces that content (news programs, for example) and sometimes there is also a Distributor involved, that brings the content from some other country and sells it to the local TV stations.
• Advertiser: The advertiser is the guy that is paying for everything. What does he get in exchange? He gets its advertisments or spots shown in the TV channel to the audience.
• Audience: The audience is us, the people that watch the TV. One thing we must understand is that we are not the client... we are the resource of the TV Channel. So don't expect to be treated as a client.

Summarizing: The Advertiser pays the TV channel depending on the cuantity and quality of the audience it has. The TV channel pays the Producer for its programs (movies, series, documentaries). 

How much do the Advertisers pay?

Basically advertisers pay depending on the number of people that will watch the advertisment (or TV spot). So, ideally, it there are 2 million people watching channel A and 200.000 people watching channel B right now and ads are shown in both... channel A will get, for example, 1.000€ and channel B, 100€.
However, this isn't true and small audiences are usually worth less than big audiences.
There is also a quality variable. There are channels that have better audiences than others... people with higher purchasing power (in theory), or people closer to the target audience the advertiser is looking for. These channels may charge more for the same amount of audience than a different channel.

How do Advertisers and TV Broadcasters know how many people are watching?
That is a very important issue that needs a whole post to describe (and criticise) the way it is done. In essence there are several thousand devices in several thousand homes throughout the country that know how many people are watching the TV and the channel it is being watched in that home. From the data gathered from those devices and using statistic maths, there is a company that tells everyone how many people was watching.

If it is such a simple model why have I bothered to write his post describing it?
It is a good exercise to understand it better and will help us look deeper into the reasons why the TV market is changing and, as is my belief, will make the current TV channels disappear as they are now if they don't take the appropriate measures (which they aren't doing at the moment).

Do you have any more questions you think that should be answered here? Ask them!