Chuck: An interesting business case to study

Introduction

The purpose of this post is not to discuss the creative or artistic aspects of the NBC television show Chuck, but rather the business around it and in particular, why the show continues to survive.

Chuck is a NBC television show that began airing in September 2007 and continues into its fourth season this year, September 20, 2010.  Why is this so surprising?  In order to understand this, it is important to understand the ratings history of Chuck.

Ratings

Many thanks to snickrz and rafael12104 for providing the data in these charts for our easy viewing:

http://farm5.static.flickr.com/4144/4840360190_7c0a8dfd82_b.jpg

First off, these ratings show a consistent downwards trend.  Additionally, these numbers are consistently the lowest on Monday nights at the 8pm EST time slot when compared against all the other major US broadcasters.  Therefore, Chuck is the least watched show amongst all the major networks on Monday nights at 8pm, and NBC has consistently been the least watched network on Monday nights at 8pm EST as a result.

The ratings are focused on because they are the only hard quantitative data publicly available that demonstrate Chuck’s effectiveness in producing advertising revenue for NBC.  There are other sources of revenue generated, such as licensing fees from downloads (eg iTunes and Amazon), as well as season DVD/BluRay sales.  However, the revenue and sales numbers from these other revenue sources are not publicly available, and it is unclear how much goes to NBC, how much goes to Warner Brothers, etc.  Also, these media are typically produced after the season has aired, and after NBC has made its decision on whether to cancel or renew Chuck, so it is unclear how effective they are in influencing NBC’s decision.  Another source of television viewing comes from viewers who typically record Chuck to their video recording device, be it cassette based or digital.  This source was excluded because viewers who watch Chuck after it has aired have the opportunity to skip commercials, which are the primary source of revenue for NBC; hence the ratings typically exclude these numbers.

Finally, ratings in the range of which Chuck consistently scores have shown historically that the show is unlikely to become a hit.  There is a brief explanation of this here:  (http://www2.macleans.ca/2010/05/04/developing-a-hit-impossible/)

So based on these consistently mediocre Nielsen ratings, why has Chuck been continually renewed by NBC?  At least one person believes this show should be cancelled: (http://www.remotepatrolled.com/2010/05/chuck-it-out/)

History of Chuck’s renewals

At the end of season 2, Chuck was widely considered as a bubble show with a good prospect for cancellation.  This launched a fan campaign that made its way into many major news networks, including CNN.  Fans went and purchased submarine sandwiches from their local Subway franchises as a show of support for the show.  In the end, Chuck was renewed for a third season, but not without a reduction in production costs on the Warner Brothers side to reduce its licensing costs to NBC.  The only publicly known significant management strategy change from season 2 to season 3 was a major plot change, which involved Chuck gaining a multitude of espionage related abilities, including Matrix-style Kung Fu, but it is impossible to measure the financial impact of storylines on revenues so it will not be mentioned in this article.

At the end of season 3, the final episode had a rating demo of 1.8, which is very bad by most accounts.  This is considerably lower than the previous season finale’s demo of 2.4.  Also of interest is that there was no fan renewal campaign whatsoever at the end of season 3.  Yet Chuck was renewed for a season 4.  Again, management did make a major storyline change in that the 2 main characters, Chuck Bartowski and Sarah Walker, entered into an official romantic relationship.  However, as with the gaining of spy abilities at the end of season 2, there is no way to tie this storyline development with revenue impact, so it will not be investigated in detail.

Why is this interesting?

Given the only facts available, the Nielsen ratings, there is strong evidence that Chuck is a mediocre revenue generating franchise at best.  Additionally, its production costs are higher than most of the other shows sharing its timeslots, as they are mostly reality shows, which generally have smaller budgets and therefore lower licensing costs.  Reality shows, with their lower costs generate a higher return with equivalent sponsor revenue, are a great business model and it is not hard to see why they are so popular with networks.  The only other scripted show at the same time as Chuck on a major network is House, but that show generates a large amount of viewers and is broadcast by Fox networks, which has much deeper pockets than Chuck.

So why does NBC renew Chuck?  What drives their decision making?  This would make an interesting study as business wise it doesn’t seem NBC is making a whole lot of money off of Chuck.  Perhaps the production budget reductions were significant enough to increase NBC’s margin with Chuck?  Perhaps the fan renewal campaign convinced Subway to invest a significant amount of money on Chuck?  If quantifiable data were available regarding Chuck’s costs and revenue, it would help gain more visibility in NBC’s decision making process.  For example, how much does NBC get from the in-show product placements?

If the costs of Chuck are low enough that NBC still makes money on the show, it is easier to see why NBC continually renews it.  NBC is a business and a show that turns a profit is still better than no profit at all.  Whether NBC can find a show that will turn a bigger profit depends on time and how much money NBC has to throw away on risky ventures.  Of course, in order to fully appreciate Chuck’s value to NBC, more quantitative data is required.

Although Chuck is the worst performer against other shows in its timeslot, it certainly is one of NBC’s top performers, and that makes it hard for NBC to get rid of it.  (http://tvbythenumbers.com/2010/09/17/outru…-tv-shows/63946).  Could it be that NBC continually renews Chuck because the rest of its programming is far worse in terms of generating revenue?  Again, this would be interesting to know but more quantitative data is required to fully understand this.

The lack of quantifiable data makes Chuck a great business case to investigate and understand.  If data could be provided in terms of the advertising revenue NBC makes in Chuck’s timeslot, as well as Chuck’s production costs per episode from season to season, it would be an invaluable example for prospective producers and executives to explore.

Also of interest, but off topic as this is a non-quantifiable aspect of the business risks associated with the Chuck show, is that it is widely believed that putting the 2 main characters of a series together into a romantic relationship ultimately spells its doom.  This is why many believe the series Moonlighting was cancelled: (http://en.wikipedia.org/wiki/Moonlighting_(TV_series)#Ratings_and_decline).  However, since this theory is impossible to quantify this article will not explore it any further.

Regardless, for the benefit of future producers and entertainment executives, as well as for posterity, it would be invaluable for a detailed analysis of the business of Chuck to be published and made available for study.

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