The style of TV that most North Americans over 20 years old grew up with may still be hanging on, with popular shows like Lost, Glee and Modern Family doing extremely well for their respective networks. But in the last decade or so, there has definitely been a power shift. Scripted shows, with continuous stories and character development that require teams of writers and set designers, have been pushed to the back seat. Now riding shotgun are multiple-baby families, racially stereotyped pastry chefs and bug eaters.

In Pictures: 7 Millionaires By Marriage

Reality TV shows have practically dominated network and cable TV in recent years, but do these channels really benefit by airing wedding-hungry brides and toddlers in talent shows? The payoff is in the high revenue return and simple production value. Plus, it's difficult to discredit the entertainment value of an overweight, naked gay man who traipses off of a Borneo beach with $1 million, and eventually lands in prison.

The Price of Talent
Reality TV shows aren't cheap to produce. E! Online reports that a 30-minute reality show costs approximately $100,000-$500,000 per episode. This is in comparison to many scripted shows, for which the budgets can rival major movie releases.

But there are certainly differing factors to consider when comparing the production costs of reality TV shows and scripted ones. Naturally, reality TV shows require fewer writers. However, this role is not completely eliminated - how else would we be treated to such timeless moments as Hulk Hogan and his family taking a daytrip to a hair restoration clinic, while a plastic Hollywood doctor scribbles on The Hulkster's dome?

This is one of the main reasons networks prefer reality TV - the cost of non- (or aging) celebrities far undercuts that of established or current ones. Sarah Palin's proposed reality show will reportedly explore "her" Alaska, from the former Governor's own perspective. Her asking price per-episode is $1 million - that's as much as James Gandolfini was earning per episode near the end of The Sopranos run.

To put that price into perspective, the previously unknown stars of MTV's "Jersey Shore," which was the highest-rated cable series for its demographic at the time, earned a few hundred dollars per episode each. Though they will likely be making more in the upcoming season, even the reported $10,000 they had each been making per episode is dwarfed by the salaries made by actors in a scripted series. Charlie Sheen, for example, was earning $860,000 per episode on his hit show, "Two and a Half Men," in 2009. (For more on the "Two and a Half Men" star, check out Stars Behaving Badly: Disastrous Celebrity Hirings.)

Smaller Networks & Channels
This cost advantage spills over into the smaller and emerging networks - many of which wouldn't exist without the low-cost advantage of reality TV. There are even two channels dedicated solely to reality TV: Fox Reality in the U.S., and Zone Reality in the U.K. Not mentioning MTV, which had a massive resurgence in the 2000s thanks to the format, Bravo, Spike TV and TLC are all channels that owe much (if not all) of their current successes to octomoms, little people and realtors hungry for a slice of fame.

TLC was even rebranded with "Life Unscripted" as its slogan in the mid-'90s, "Live and Learn" in the mid-2000s and "Life Surprises" in the late-2000s. Since undergoing this rebranding, the channel has shaken its poor ratings and has become one of the primary sources for reality shows. Undoubtedly, the success of shows like "Jon & Kate Plus 8" contributed to the recent surge in market price for TLC's parent company, Discovery, in 2008-2009. (For more, see Financial Careers According To Hollywood.)

The Perfect Placement
As well, product placement is much easier to digest in reality television. This practice, which generates advertising revenue for both the show and the network, hasn't been as prosperous for scripted TV shows. The reigning king of reality TV ratings, American Idol, dedicates entire skits during its show to Ford Motor Company, AT&T Mobility and Apple iTunes. Survivor contestants are regularly rewarded with Snickers chocolate bars and Doritos nacho chips. This in-show placement accompanies regular commercial breaks, and increases the value of advertisement for sponsors.

Staying Power
Initially, networks were concerned with the post-season marketability of reality TV shows. Syndication revenue and retail sales of DVDs can generate more income for a TV show than its initial run, and the timely nature of these shows presented a red flag in marketing departments across the board, as it relates to post-season earnings. But when DVDs for shows like "The Simple Life," "The Amazing Race" and "America's Next Top Model" (to name just a few) outranked and outsold network dramas like "Desperate Housewives" and "The O.C." on, those fears were eased.

Reality Unscripted
At the end of the day, the biggest advantages reality TV shows have over scripted ones are financial, but that's no surprise. Also, the fact that reality shows are often used to deliver new content (and bring in ad money) while comedies and dramas are "off-season" is a major benefit. By filling the majority of a calendar year with "new" episodes of a show, networks and cable channels can capitalize on ad revenue for a longer time span - and there's little fear that a union strike will cease production in the meantime. (For more, check out From Celebrity To Working Stiff.)

Find out what else is making news this week in Water Cooler Finance: Everything Old Is News Again.

Related Articles
  1. Stock Analysis

    The Biggest Risks of Investing in Netflix Stock

    Examine the current state of Netflix Inc., and learn about three of the major fundamental risks that the company is currently facing.
  2. Retirement

    Why Some Celebs Say 'No Inheritance for My Kids'

    To some of the super rich, inherited wealth is not the ultimate gift, it's a burden. Here's how their children—as well as charities—stand to benefit.
  3. Investing

    Kevin O'Leary Biography

    Kevin O'Leary is a television personality, businessman and investor from Canada. A brash public personality with a net worth of roughly $300 million, he is considered to be the Canada’s answer ...
  4. Entrepreneurship

    7 Top-Earning Child Stars

    These seven top-earning child stars earned millions through different parts of the entertainment industry, including television, film and music.
  5. Entrepreneurship

    8 Top-Earning Country Singers

    These eight country singers have built careers singing about men and women who’ve done them wrong, and they’ve shared their heartache to the tune of millions of dollars.
  6. Investing

    Movie Vs. TV Industry: Which Is Most Profitable?

    Which entertainment sector is more profitable: movies or TV? Let’s take a look. You might be surprised by the results.
  7. Personal Finance

    5 Tips for Vintage Car Collecting

    Old autos. There’s just something about all that shiny metal that captivates our attention.
  8. Investing

    The 8 Best Business and Finance T.V. Shows

    With so many talking heads to choose from, which is the right show for your business and money matter needs? We review the best shows on now.
  9. Personal Finance

    6 Tips for Investing in Antiques

    Historically, antiques are highly appreciating assets, but be prepared for a long-term investment.
  10. Investing News

    How 'Honesty' Could Pay off for Jessica Alba

    Is it possible that Jessica Alba is one of the savviest businesswomen on the planet?
  1. How are Rupert Murdoch's holdings distributed?

    Rupert Murdoch owns a controlling share of News Corporation and over 750 different businesses. Some of the major brands he ... Read Full Answer >>
  2. How did Rupert Murdoch become a media mogul?

    Rupert Murdoch's father was a journalist and newspaper owner in Australia. Upon his death in 1952, Rupert inherited the News ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!