ABC chief Paul Lee talks about TV’s changing business model

Running a TV network these days isn’t as easy as A-B-C. But ABC is coming off a strong season, with a handful of breakout TV shows.

The network, fueled by Shonda Rhimes dramas “Grey’s Anatomy,” “Scandal” and “How to Get Away With Murder,” was one of the few broadcasters that saw its ratings grow in the recently ended season — a welcome reversal in an industry that has been grappling with steep declines.

And when ABC President Paul Lee addressed reporters Tuesday at the Television Critics Assn. press tour in Beverly Hills, he touted last season’s triumphs and predicted its roster of new shows for the 2015-16 season will keep the momentum going.

“We’re obviously very pleased,” Lee said. “We really think we managed to take the ABC brand forward again ... As we look through to next year, I really think we have another great slate coming out.”

The coming season includes terrorism thriller “Quantico,” serial killer drama “Wicked City” and the anticipated mockumentary-style comedy “The Muppets.”

ABC’s regular season ratings were up 5% in the important demographic of viewers aged 18 to 49 that advertisers pay a premium to reach. The network was ranked third, behind CBS and NBC, by attracting an average of nearly 8 million viewers a night. Advertisers were also encouraged by the Walt Disney Co.-owned network’s strength, with ABC notching the biggest gains in the annual advertising sales market that unfolded last month in New York.

ABC negotiated rate increases of about 5%, according to a recent report last week from Morgan Stanley research analyst Benjamin Swinburne. At the same time, Rupert Murdoch’s Fox Broadcasting, which experienced 20% ratings declines, were forced to shave its rates by about 1%, according to the Morgan Stanley report.

Overall, the so-called upfront advertising market was down for a second straight year. Advertisers have projected lower ratings across the board, so the overall haul has declined.

Lee, a native of Great Britain, took over ABC five years ago after heading up millennial-geared ABC Family. During that time, the TV business model has been turned on its head as video-on-demand streaming services like Netflix and Hulu have gained traction.

Viewers are spending considerably more time consuming content on devices, and less watching TV the old fashion “linear” way, following the network prime-time schedule. About half of the TV homes now have digital video recorders, and ABC’s shows do particularly well when factoring in the delayed viewing.

ABC and other broadcast networks recognized several years ago that, in this increasingly fragmented landscape, they couldn’t just rely on advertising dollars to support their operations. ABC and other networks now charge pay-TV providers for the rights to carry ABC station signals.

In addition, the network has also made great strides in producing its own content rather than buying shows from an outside studio. Owning its shows allows the network to profit in success and maximize the revenue from international sales.

The abundance of delivery systems and revenue streams, in turn, has helped keep modest-performing shows in their portfolio.

“Broadcast 10 years ago was really driven by one revenue stream--and that’s advertising,” Lee told reporters. “Now we have a much more sophisticated model where we’re driven by dual or even triple streams ... it allows you an ecosystem where you can truly create a portfolio of shows. ‘American Crime’ may not have been made 10 years ago.”

And as recent months have seen some linear networks experiment with releasing an entire season at once (i.e. NBC’s “Aquarius,” and soon Starz with “Flesh and Bone” and “Da Vinci’s Demons”) in the footsteps of streaming services like Netflix, Lee said he’s not succumbing to the method, at least not yet.

But he does credit the on-demand era, which has helped ABC shows like “Scandal” find an audience, with fueling serialized storytelling with morally ambiguous characters.

“Five years ago there were all sorts of rules in broadcast that were written in stone,” Lee told reporters. “We are in a world that is a much more complex world and we’re enjoying it.”

I tweet about TV (and other things) here: @villarrealy

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