TV quality and capital reversing

ITV3's programmes this afternoon raise an interesting puzzle.
It's this. Since the 1980s finance has become more easily available and real interest rates have fallen.
Neoclassical economics says that, at the margin*, ITV should now produce more high-budget, risky, long payoff programmes, and fewer low-budget, safe, short-term payoff progammes. It should make more capital-intensive television.
But the opposite has happened. In the 80s and early 90s ITV made (some) expensive dramas with long-run pay-offs - from repeat fees, overseas sales and video/DVD sales, as ITV3's schedule shows. Today it makes low budget programmes with big-name actors to guarantee some kind of audience, but less hope of long-run revenues from repeats and overseas sales.
Can you even imagine it making an expensive drama like Brideshead Revisited today?
And yet this is exactly the sort of programme that should be more likely to be made when interest rates are low - high-budget, risky, but with potentally long revenues.
There is, therefore a paradox. ITV seems to be economizing more on capital now that it's cheaper.
What can explain this? It's not a worldwide phenomenon. In the US, easier finance has led to better programme-making: think of 24, The West Wing, The Sopranos and so on.
Nor can ITV's strategy be justified by a need to retain control over human capital. If anything, it's become more dependent upon big-name stars or format-owners like Simon Cowell than it was in the 80s.   
Nor is ITV pleasing investors or advertisers; it's share price and advertising revenue are both sagging badly.
So, what is the answer? Sheer stupidity is the obvious one. A less obvious one is that this is an example of re-switching, or capital reversing. At very low interest rates, capital-saving production methods can, perversely, become more profitable.
It's insufficiently appreciated that the history of ITV might vindicate Piero Sraffa.
* This qualifier is important; I don't want to suggest that ITV's 1980s programming was all quality.

Comments

[Phil]

Something to do with liberalisation and competition here, too. Back when there were only four TV channels, it was argued in all (apparent) seriousness that liberalisation would lead to an overall rise in standards - if there were ten or twenty channels available, one or two of them would see an economic case for pitching for the highbrow audience - which would ultimately create competitive pressure on the highbrow terrestrial channel, BBC 2 and C4. What's actually happened is that the terrestrial channels (BBC 2 and C4 very much included) have reacted to the threat of audience loss by grabbing at guaranteed ratings-winners, resulting in a race to the bottom. The sorry state of the ITV channels is one result - although this also derives in part from *lack* of competition, with the concentration of ownership of the regional ITV broadcasters.

[dearieme]

Publishing on paper does lead to successful highbrow minority-interest stuff. Why not on TV, Phil? Two guesses: (1) Highbrows don't watch TV much. (2) The poll-tax-funded BBC mucks up the markets.

[james higham]

...There is, therefore a paradox. ITV seems to be economizing more on capital now that it's cheaper. What can explain this?...

Simple greed.

[knzn]

My interpretation is that the interest rate is endogenous. The interest rate went down because capitalists (presumably including ITV) became more timid. (In neoclassical terms, this is an increase in the price of risk; in Keynesian terms, a decline in animal spirits.)

[Bob B]

Try Peter Steiner's finding in 1952: "that a monopoly radio operator in a community would be more likely to provide a variety of formats than would several competitors all looking to adopt the format that would gain the largest audience. That is, in markets where often 20 or 30 owners were competing, a smaller portion of the audience would be served because more of the owners would be trying to program to the handful of formats that attract the largest audiences." - quoting Benjamin Compaine: The Media Monopoly Myth (2005)

Peter Steiner: Program Patterns and Preferences: the Workability of Competition in Radia Broadcasting (QJE 1952)

A good general text reviewing these issues is: Bruce Owen and Steven Wildman: Video Economics (Harvard UP 1992)
But see also Joel Waldfogel: Preference Externalities:
http://www.tprc.org/abstracts00/empirical.pdf#search=%22steiner%20program%20patterns%20preferences%22

[nz conservative]

There is a wave of PC anti-elitism that is sweeping all cultural institutions today.

Rather then providing a reasonably diverse range of output to appeal to a reasonable range of tastes (the old BBC idea) modern policy is to dumb-down programmes to make them more appealing to the lowest common denominator- even when it is not necessary from a financial perspective.

This is inevitable because trying to make good programmes for every conveivable 'taste public', as leftists advocate, is impossible.

There is an unmet market need for higher quality programming that is being ignored due to political correctness.

[james C]

'Gosh Toby, stinkers have gone through the roof. Let's make some crap TV'