3 Ways "Breaking Bad" Shows the Future of Television

First, some numbers. When AMC Networks' (NASDAQ: AMCX  ) meth-fueled morality play Breaking Bad debuted back in 2008, the viewership was pretty modest: With fewer than 1 million people tuning in, Breaking Bad was a darling to TV buffs but hardly a big commercial success. Over the next two seasons, ratings picked up to the point where roughly 1.5 million people every week watched not-so-mild-mannered chemistry teacher Walter White slide further into a life of crime. When the drama came to a close last week, its audience had ballooned to an incredible 10.3 million. That ambitious transformation from a smart but little-known and underappreciated show to a powerful industry kingpin that rolls over everything in its path is matched only by Walter White himself. His secret was blue meth. Here are the three ways Breaking Bad rose to the top, and what they mean for the future of television.

Photo credit: AMC.

Patience can be rewarding
The most obvious lesson is that in today's media environment, it can really pay off to nurture what at first appears to be an unsuccessful series. Compared to a decade ago, it's remarkably easy for new viewers to catch up on old episodes and become fans, meaning that low initial ratings don't necessarily toll a death knell for the series. And since fans can come up to speed, television shows can demand more of their viewers, executing long and detailed plot arcs that might drive casual viewers away, but can inspire long-lived loyalty in serious fans. These demanding shows, however, need a little time to find their audience. New media systems can offer this cushion.

Breaking Bad creator Vince Gilligan credited Netflix (NASDAQ: NFLX  ) with helping the show to find its audience. When the first three seasons of Breaking Bad hit Netflix in September 2011, the show's fourth season was just about to wrap up with an audience under 2 million. By the time the fifth season premiered 10 months later, that audience had grown to 3 million, and a year later it would be 6 million. Between Netflix, TV On Demand, DVR, and good old-fashioned rerun marathons, new converts to Breaking Bad could become deeply familiar with a show in a way that just wasn't possible until quite recently.

That doesn't just improve ratings for new episodes, it boosts the long-term profitability of the entire series. Think of it this way: Of the 10 million who watched the series finale of Breaking Bad live, how many of them didn't or won't go back and watch the rest of the series, whether they stream it on Netflix or tune in for marathons on AMC? The pilot episode, with its sub-million viewers, might have seemed like a terrible investment at the time, but five years later that episode has grown its audience tenfold and will provide returns to its owners for years to come. It just needed a little time.

Make the kind of content people will pay for
Does that mean every struggling pilot episode deserves a multiyear investment? Of course not. Some shows are just bad. The trick is to put resources behind those shows that develop a fiercely loyal fan base, even if it's a small fan base. These people won't just pressure their friends to watch the show in an ever-expanding circle, they'll do something fairly novel in today's TV industry: They'll actually pay to watch the show.

Since its inception, the business of broadcast TV has been showing content to viewers for free, and delivering those viewers to advertisers for money. Eyeballs, therefore, beat artistic integrity. Cable TV challenged this model by asking viewers to pay for premium content, with Time Warner's HBO as the first and most successful example. However, even under this model, fans were being asked to subscribe to an entire channel even if they only wanted to watch one show. This is changing.

Today, "cord-cutting" is an increasingly popular alternative to cable subscriptions, particularly among young people. Netflix and other streaming services have already demonstrated they are willing to invest heavily in premium content, with Netflix putting $100 million behind its Emmy-winning House of Cards and moving quickly to acquire streaming rights to critically appreciated shows. Digital downloads from services like Apple's iTunes, Amazon's Instant Video, and Microsoft's Xbox Live are high-margin products for content creators, and the biggest-selling shows aren't high-ratings crowd-pleasers like The Big Bang Theory or Two and a Half Men, they're engaging original dramas like Downton Abbey, The Walking DeadMad Men, and, you guessed it, Breaking Bad. As it becomes progressively easier for TV fans to pay for only what they want to watch, it will pay to create what fans want to watch.

Cable still matters
Excited speculation about the future of television tends to obscure one important fact: Cable television is still enormously profitable, and will be for the foreseeable future. Breaking Bad's unprecedented ratings surge owed a lot to Netflix, video on demand, and other newer technologies, sure, but the simple fact that more than 10 million tuned in to the series finale, rather than watching it later through these services, speaks to the enduring power of the cable model. For 10 million households, the largest audience Breaking Bad has ever had, it was important to watch the episode the night it was broadcast. While people love to binge-watch old episodes of a great show in order to catch up, people still don't like to wait for the content they love.

What was the upshot for AMC? First, the success of Breaking Bad, as well as other hit shows like Mad Men and The Walking Dead, allowed AMC to raise the fees it charges distributors to carry its channels -- which account for about two-thirds of sales -- by 50% from 2007 to 2013. When it comes to advertising dollars, the cult loyalty that viewers showed to Breaking Bad allowed AMC to charge unprecedented amounts for a cable channel: AMC asked advertisers as much as $400,000 for a 30-second spot during Breaking Bad's finale, as well as a guarantee to advertise on AMC's other programming. AMC has also been able to leverage its big-budget original drama assets by airing companion programs. Talking Dead and Talking Bad are ultra-low-cost shows in which a host simply interviews guests about what happened on the preceding episode of The Walking Dead or Breaking Bad, respectively, that nonetheless have pulled in between 1 million and 5 million viewers.

Breaking Bad succeeded during the beginning of a transformative period for television, and the foundations of its success -- a patient network, a fan base that would pay for quality, and strong synergy between new forms of media and old -- will continue to shape the television industry as studios strive to duplicate Breaking Bad's success.

Who will own the future of television?
AMC had a great hit with Breaking Bad, but with streaming rights it might just be Netflix who ultimately benefits the most. And it doesn't stop with Breaking Bad. The Motley Fool's top experts have created a new free report titled "Will Netflix Own the Future of Television?" The report not only outlines where the future of television is heading, but offers top ideas for how to profit. To get your free report, just click here!


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