One of the traditions of the day after a Mad Men season premiere is the realization after endless hype is that few people watch the show -- last night's episode drew a paltry 3.5 million viewers -- but the way the show survives as a business is a good lesson in the changing entertainment landscape.
Costs. Mad Men is not cheap to make. After the dust settled in the latest contract standoff between creator Matt Weiner and Lionsgate (the studio that produces the film) and AMC (which then buys rights to run the show from Lionsgate), Weiner signed a deal last March that Deadline called a "mega deal" worth $25 million to $30 million over three years. That same Deadline report also put the production budget for each episode at $2.5 million. Sandra Stern, Lionsgate's chief operating officer put the number somewhere around $3 million in an August 2010 interview with Ad Age. With 13 episodes per season, it costs Lionsgate between $33 million and $39 million in production costs. The studio recoups that money primarily from AMC's licensing fee, which The Hollywood Reporter pegged at $3 million per episode.
Advertising. While advertising may be the background drama of Mad Men, advertising is not integral to the business model -- no matter what you thought about all those Chrysler ads during Sunday's premiere. The most recent figures we could find for AMC's ad revenue on the show was for 2009 (the third season), when Kanta Media estimated, also according to Ad Age, that all showings on AMC produced just $1.98 million in ad buys. That was down slightly from the $2.8 million in 2008 and $2.25 million in 2007. We have no idea how much advertising AMC has sold this go around, but with the ratings still relatively small, we doubt they've increased enough to alter the economics of the show.