‘American Idol’ Is the Price We Pay for a Menu of So Many Channels

'AMERICAN IDOL' IS THE PRICE WE PAY FOR A MENU OF SO MANY CHANNELS
[SOURCE: New York Times, AUTHOR: Austan Goolsbee]
How did America lose interest in scripted shows and come to embrace all manner of reality television? In his book “Switching Channels” (Harvard University Press, 2005), Richard E. Caves, the don of entertainment economics and professor emeritus at Harvard, blames (or credits, depending how old you are) cable and satellite providers and the way they have changed the broadcast networks’ incentives to invest in programming. He points out that such incentives depend on the size of the potential market. The programming is a fixed cost — networks pay for the programs even if nobody watches. If paying an extra $1 million to get a star onto a show, for example, raises every customer’s love of the show by the equivalent of $1, the investment more than pays off if there are 10 million potential viewers. But the $1 million investment would be a terrible flop if there were 10,000 potential viewers. You can see the mechanism at work in a comparison of the cable networks. The number of subscribers for a given channel (that is, the households who have that channel available on their system) gives a clear indication of a network’s maximum potential market. And the bigger the market, the more a cable network spends on programs. So the increase in reality programming is not just a matter of broadcasters wanting to save money. It’s that a shrinking potential market gives the networks less incentive to spend money. They can't recoup it with enough viewers.
http://www.nytimes.com/2007/04/26/business/26scene.html
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