Broadcasters' woes could spell trouble for free TV
#1
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Thread Starter
Broadcasters' woes could spell trouble for free TV
http://news.yahoo.com/s/ap/20091229/...sters_in_peril
NEW YORK – For more than 60 years, TV stations have broadcast news, sports and entertainment for free and made their money by showing commercials. That might not work much longer.
The business model is unraveling at ABC, CBS, NBC and Fox and the local stations that carry the networks' programming. Cable TV and the Web have fractured the audience for free TV and siphoned its ad dollars. The recession has squeezed advertising further, forcing broadcasters to accelerate their push for new revenue to pay for programming.
That will play out in living rooms across the country. The changes could mean higher cable or satellite TV bills, as the networks and local stations squeeze more fees from pay-TV providers such as Comcast and DirecTV for the right to show broadcast TV channels in their lineups. The networks might even ditch free broadcast signals in the next few years. Instead, they could operate as cable channels — a move that could spell the end of free TV as Americans have known it since the 1940s.
"Good programing is expensive," Rupert Murdoch, whose News Corp. owns Fox, told a shareholder meeting this fall. "It can no longer be supported solely by advertising revenues."
Fox is pursuing its strategy in public, warning that its broadcasts — including college football bowl games — could go dark Friday for subscribers of Time Warner Cable, unless the pay-TV operator gives Fox higher fees. For its part, Time Warner Cable is asking customers whether it should "roll over" or "get tough" in negotiations.
The future of free TV also could be altered as the biggest pay-TV provider, Comcast Corp., prepares to take control of NBC. Comcast has not signaled plans to end NBC's free broadcasts. But Jeff Zucker, who runs NBC and its sister cable channels such as CNBC and Bravo, told investors this month that "the cable model is just superior to the broadcast model."
The traditional broadcast model works like this: CBS, NBC, ABC and Fox distribute shows through a network of local stations. The networks own a few stations in big markets, but most are "affiliates," owned by separate companies.
Traditionally the networks paid affiliates to broadcast their shows, though those fees have dwindled to near nothing as local stations have seen their audience shrink. What hasn't changed is where the money mainly comes from: advertising.
Cable channels make most of their money by charging pay-TV providers a monthly fee per subscriber for their programing. On average, the pay-TV providers pay about 26 cents for each channel they carry, according to research firm SNL Kagan. A channel as highly rated as ESPN can get close to $4, while some, such as MTV2, go for just a few pennies.
With both advertising and fees, ESPN has seen its revenue grow to $6.3 billion this year from $1.8 billion a decade ago, according to SNL Kagan estimates. It has been able to bid for premium events that networks had traditionally aired, such as football games. Cable channels also have been able to fund high-quality shows, such as AMC's "Mad Men," rather than recycling movies and TV series.
That, plus a growing number of channels, has given cable a bigger share of the ad pie. In 1998, cable channels drew roughly $9.1 billion, or 24 percent of total TV ad spending, according to the Television Bureau of Advertising. By 2008, they were getting $21.6 billion, or 39 percent.
Having two revenue streams — advertising and fees from pay-TV providers — has insulated cable channels from the recession. In contrast, over-the-air stations have been forced to cut staff, and at least two broadcast groups sought bankruptcy protection this year.
Fox illustrates the trend: Its broadcast operations reported a 54 percent drop in operating income for the quarter that ended in September. Its cable channels, which include Fox News and FX, grew their operating income 41 percent.
Analyst Tom Love of ZenithOptimedia said he expects the big networks will end the year with a 9 percent drop in ad revenue, followed by an 8 percent drop in 2010 and zero growth in 2011.
A small chunk of the ad revenue is being recouped online, where the networks sell episodes for a few dollars each or run ads alongside shows on sites such as Hulu. Media economist Jack Myers projects online video advertising will grow into a $2 billion business by 2012, from just $350 million to $400 million this year.
But that is not significant enough to make up for the lost ad revenue on the airwaves. Advertisers spent $34 billion on broadcast commercials in 2008, down by $2.4 billion from two years earlier, according to the Television Bureau of Advertising.
So rather than wait for the Internet to become a bigger source of income, the networks and local stations are mimicking what cable channels do: They're charging pay-TV companies a monthly fee per subscriber to carry their programming.
Since 1994, the Federal Communications Commission has let networks and their affiliates seek payments for including their programming in the pay-TV lineup. Not everyone demanded payments at first. Instead they relied on the broader audience that cable and satellite gave them to increase what they could charge advertisers.
The big networks also were content to let their broadcast stations essentially be subsidized by higher fees for the cable channels that fell under the same corporate umbrella. A pay-TV company negotiating with the Walt Disney Co., which owns ABC, is likely paying more for the ABC Family channel than it otherwise would, with the extra assumed to help Disney cover its costs for the ABC network broadcasts.
But over time — such contracts generally run about three years — more networks began demanding payments for the stations they own. And affiliates already receiving the fees have bargained for more money.
Some talks have been tense. In 2007, Sinclair Broadcast Group, which operates 32 network-affiliated stations around the country, pulled its signals for nearly a month from Mediacom Communications Corp., which provides cable TV to about 1.3 million subscribers, mainly in small cities.
The American Cable Association says its members — mainly small cable TV providers — have seen their costs for carrying local TV stations more than triple over the past three years. The group's head, Matt Polka, says those fees have gone "straight to consumers' pocketbooks" in the form of higher cable bills.
Gannett Co., for instance, which operates 23 stations, has taken in $56 million in fees from pay-TV operators this year after negotiating a new batch of agreements, up from $18 million in 2008. Dave Lougee, president of Gannett's broadcast arm, defends the fees, saying "broadcasters were late to the game in really starting to go after the fair market value of their signals."
Analysts estimate CBS managed to get as much as 50 cents per subscriber in its most recent talks with pay-TV providers that carry CBS-owned stations. CBS Corp. chief Leslie Moonves said such fees should add "hundreds of millions of dollars to revenues annually."
That could be just the beginning. CBS and Fox are also asking for a portion of the fees that their affiliates get, arguing that the networks' shows are what give local stations the leverage to ask for fees.
Over time, the networks might be able to get even more money by abandoning the affiliate structure and undoing a key element of free TV.
Here's why: Pay-TV providers are paying the networks only for the stations the networks own. That amounts to a little less than a third of the TV audience, which means local affiliates recoup two-thirds of the fees. If a network operated purely as a cable channel and cut the affiliates out, the network could get the fees for the entire pay-TV audience.
If forced to go independent, affiliates would have to air their own programming, including local news and syndicated shows.
Fitch Ratings analyst Jamie Rizzo predicts that at least one of the four broadcast networks "could explore" becoming a cable channel as early as 2011.
Any shift would take years, as the networks untangle complicated affiliate contracts. At an analyst conference last year, CBS's Moonves called the idea an "a very interesting proposition." But he added that it "would really change the universe that we're in."
NEW YORK – For more than 60 years, TV stations have broadcast news, sports and entertainment for free and made their money by showing commercials. That might not work much longer.
The business model is unraveling at ABC, CBS, NBC and Fox and the local stations that carry the networks' programming. Cable TV and the Web have fractured the audience for free TV and siphoned its ad dollars. The recession has squeezed advertising further, forcing broadcasters to accelerate their push for new revenue to pay for programming.
That will play out in living rooms across the country. The changes could mean higher cable or satellite TV bills, as the networks and local stations squeeze more fees from pay-TV providers such as Comcast and DirecTV for the right to show broadcast TV channels in their lineups. The networks might even ditch free broadcast signals in the next few years. Instead, they could operate as cable channels — a move that could spell the end of free TV as Americans have known it since the 1940s.
"Good programing is expensive," Rupert Murdoch, whose News Corp. owns Fox, told a shareholder meeting this fall. "It can no longer be supported solely by advertising revenues."
Fox is pursuing its strategy in public, warning that its broadcasts — including college football bowl games — could go dark Friday for subscribers of Time Warner Cable, unless the pay-TV operator gives Fox higher fees. For its part, Time Warner Cable is asking customers whether it should "roll over" or "get tough" in negotiations.
The future of free TV also could be altered as the biggest pay-TV provider, Comcast Corp., prepares to take control of NBC. Comcast has not signaled plans to end NBC's free broadcasts. But Jeff Zucker, who runs NBC and its sister cable channels such as CNBC and Bravo, told investors this month that "the cable model is just superior to the broadcast model."
The traditional broadcast model works like this: CBS, NBC, ABC and Fox distribute shows through a network of local stations. The networks own a few stations in big markets, but most are "affiliates," owned by separate companies.
Traditionally the networks paid affiliates to broadcast their shows, though those fees have dwindled to near nothing as local stations have seen their audience shrink. What hasn't changed is where the money mainly comes from: advertising.
Cable channels make most of their money by charging pay-TV providers a monthly fee per subscriber for their programing. On average, the pay-TV providers pay about 26 cents for each channel they carry, according to research firm SNL Kagan. A channel as highly rated as ESPN can get close to $4, while some, such as MTV2, go for just a few pennies.
With both advertising and fees, ESPN has seen its revenue grow to $6.3 billion this year from $1.8 billion a decade ago, according to SNL Kagan estimates. It has been able to bid for premium events that networks had traditionally aired, such as football games. Cable channels also have been able to fund high-quality shows, such as AMC's "Mad Men," rather than recycling movies and TV series.
That, plus a growing number of channels, has given cable a bigger share of the ad pie. In 1998, cable channels drew roughly $9.1 billion, or 24 percent of total TV ad spending, according to the Television Bureau of Advertising. By 2008, they were getting $21.6 billion, or 39 percent.
Having two revenue streams — advertising and fees from pay-TV providers — has insulated cable channels from the recession. In contrast, over-the-air stations have been forced to cut staff, and at least two broadcast groups sought bankruptcy protection this year.
Fox illustrates the trend: Its broadcast operations reported a 54 percent drop in operating income for the quarter that ended in September. Its cable channels, which include Fox News and FX, grew their operating income 41 percent.
Analyst Tom Love of ZenithOptimedia said he expects the big networks will end the year with a 9 percent drop in ad revenue, followed by an 8 percent drop in 2010 and zero growth in 2011.
A small chunk of the ad revenue is being recouped online, where the networks sell episodes for a few dollars each or run ads alongside shows on sites such as Hulu. Media economist Jack Myers projects online video advertising will grow into a $2 billion business by 2012, from just $350 million to $400 million this year.
But that is not significant enough to make up for the lost ad revenue on the airwaves. Advertisers spent $34 billion on broadcast commercials in 2008, down by $2.4 billion from two years earlier, according to the Television Bureau of Advertising.
So rather than wait for the Internet to become a bigger source of income, the networks and local stations are mimicking what cable channels do: They're charging pay-TV companies a monthly fee per subscriber to carry their programming.
Since 1994, the Federal Communications Commission has let networks and their affiliates seek payments for including their programming in the pay-TV lineup. Not everyone demanded payments at first. Instead they relied on the broader audience that cable and satellite gave them to increase what they could charge advertisers.
The big networks also were content to let their broadcast stations essentially be subsidized by higher fees for the cable channels that fell under the same corporate umbrella. A pay-TV company negotiating with the Walt Disney Co., which owns ABC, is likely paying more for the ABC Family channel than it otherwise would, with the extra assumed to help Disney cover its costs for the ABC network broadcasts.
But over time — such contracts generally run about three years — more networks began demanding payments for the stations they own. And affiliates already receiving the fees have bargained for more money.
Some talks have been tense. In 2007, Sinclair Broadcast Group, which operates 32 network-affiliated stations around the country, pulled its signals for nearly a month from Mediacom Communications Corp., which provides cable TV to about 1.3 million subscribers, mainly in small cities.
The American Cable Association says its members — mainly small cable TV providers — have seen their costs for carrying local TV stations more than triple over the past three years. The group's head, Matt Polka, says those fees have gone "straight to consumers' pocketbooks" in the form of higher cable bills.
Gannett Co., for instance, which operates 23 stations, has taken in $56 million in fees from pay-TV operators this year after negotiating a new batch of agreements, up from $18 million in 2008. Dave Lougee, president of Gannett's broadcast arm, defends the fees, saying "broadcasters were late to the game in really starting to go after the fair market value of their signals."
Analysts estimate CBS managed to get as much as 50 cents per subscriber in its most recent talks with pay-TV providers that carry CBS-owned stations. CBS Corp. chief Leslie Moonves said such fees should add "hundreds of millions of dollars to revenues annually."
That could be just the beginning. CBS and Fox are also asking for a portion of the fees that their affiliates get, arguing that the networks' shows are what give local stations the leverage to ask for fees.
Over time, the networks might be able to get even more money by abandoning the affiliate structure and undoing a key element of free TV.
Here's why: Pay-TV providers are paying the networks only for the stations the networks own. That amounts to a little less than a third of the TV audience, which means local affiliates recoup two-thirds of the fees. If a network operated purely as a cable channel and cut the affiliates out, the network could get the fees for the entire pay-TV audience.
If forced to go independent, affiliates would have to air their own programming, including local news and syndicated shows.
Fitch Ratings analyst Jamie Rizzo predicts that at least one of the four broadcast networks "could explore" becoming a cable channel as early as 2011.
Any shift would take years, as the networks untangle complicated affiliate contracts. At an analyst conference last year, CBS's Moonves called the idea an "a very interesting proposition." But he added that it "would really change the universe that we're in."
#2
DVD Talk Legend
Re: Broadcasters' woes could spell trouble for free TV
I wish they would just make it buffet style, where I could just pay for the few channels I actually watch.
#3
Re: Broadcasters' woes could spell trouble for free TV
I just never understood why we have so many meaningless channels? I would love an ala carte style (Sports package, Movie Package, History Package, Home and Garden Package, Kids Package, etc.)
That way you don't have to chose individual channels you could chose between 10-15 packages for your preferred lineup.
I do remember reading somewhere that cable companies won't go for ala carte style for a specific reason, but not sure what it was.
That way you don't have to chose individual channels you could chose between 10-15 packages for your preferred lineup.
I do remember reading somewhere that cable companies won't go for ala carte style for a specific reason, but not sure what it was.
#4
Moderator
Re: Broadcasters' woes could spell trouble for free TV
The changes could mean higher cable or satellite TV bills, as the networks and local stations squeeze more fees from pay-TV providers such as Comcast and DirecTV for the right to show broadcast TV channels in their lineups.
#5
DVD Talk Legend
Re: Broadcasters' woes could spell trouble for free TV
Ah yes something else they want to blame the economy for... I guess the whole, putting shit on TV nobody wants to watch has nothing to do with it.
#7
DVD Talk Gold Edition
Re: Broadcasters' woes could spell trouble for free TV
The argument against a la carte is that it would put all those little niche stations out of existence. I certainly wouldn't pay money for the Golf Channel, Jewelry TV, or AZN Channel.
So we are being forced to subsidize smaller channels that wouldn't survive otherwise. I say screw them.
So we are being forced to subsidize smaller channels that wouldn't survive otherwise. I say screw them.
#8
Moderator
Re: Broadcasters' woes could spell trouble for free TV
#9
DVD Talk Limited Edition
Re: Broadcasters' woes could spell trouble for free TV
I agree that most TV isn't that great--I only watch a handful of shows, but all of them are on free TV as I ditched cable a couple years ago and haven't regretted it for a moment. Truth is though, if I had to pay for what's free now, I'd probably skip it all together and just watch via the eventual DVDs or over the web if I could find it.
#10
DVD Talk Special Edition
Re: Broadcasters' woes could spell trouble for free TV
Originally Posted by Rupert Murdoch
"Good programing is expensive," Rupert Murdoch, whose News Corp. owns Fox, told a shareholder meeting this fall. "It can no longer be supported solely by advertising revenues."
I just recently dropped DirecTV for OTA. I was paying $70 for a basic package with an HD DVR. Of course that's a better model than broadcast, you get my subscription money and most of these channels STILL have commercials. Either charge me for the channel or force me to watch inane ads. Not both.
#11
DVD Talk Legend
Re: Broadcasters' woes could spell trouble for free TV
#12
Re: Broadcasters' woes could spell trouble for free TV
How much would it cost per household to get NBC/CBS/ABC/Fox commercial free? Then they could focus on making quality tv rather than ratings grabbers since they wouldnt charge more for commercial time.
#13
DVD Talk Hero
Re: Broadcasters' woes could spell trouble for free TV
I've brought up in many threads about the state of television that DVRs and fast-forwarding past commercials would be the death blow for free television. And also good television, because shitty reality shows and "competitions" get great ratings for dollars spent.
I'll pay about $30 a month for TV if I have to (dropped satellite last year for OTR HD and Netflix streaming and have never looked back). Or I'll just watch more movies and play more video games, which sounds fine too.
I'll pay about $30 a month for TV if I have to (dropped satellite last year for OTR HD and Netflix streaming and have never looked back). Or I'll just watch more movies and play more video games, which sounds fine too.
#14
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Re: Broadcasters' woes could spell trouble for free TV
I only watch tv now because it is convenient. If they start to charge or add more crap to help pay for it I would just drop it. Already lost interest in sports because they have slowed it way down with too many commercials and stoppage of play.
#15
DVD Talk Legend
Re: Broadcasters' woes could spell trouble for free TV
Here’s a speech by the Chairman of the FCC in 2005, Kevin Martin: http://www.parentstv.org/PTC/fcc/200...artin_1129.pdf
The push behind a la carte programming at that time was so that parents could have a channel lineup that didn’t include channels that really aren’t appropriate for young children. In order to avoid the a la carte programming push some service providers started offering reduced cost “family packages”, like Dish Network.
By the way, Senator John McCain was a big supporter of a la carte programming. I wonder what would have happened if he become president?
Last edited by Heat; 12-29-09 at 11:56 AM.
#16
DVD Talk Hall of Fame
Re: Broadcasters' woes could spell trouble for free TV
And I don't understand why the DVR is suddenly being "blamed". VCRs have been around since the 80's, and I have been zipping through commercials during shows I recorded for over two decades. Are you saying people were watching the commericals on VHS recordings they made from shows they recorded and now they don't with DVRs? That argument is just poor.
#17
Re: Broadcasters' woes could spell trouble for free TV
And I don't understand why the DVR is suddenly being "blamed". VCRs have been around since the 80's, and I have been zipping through commercials during shows I recorded for over two decades. Are you saying people were watching the commericals on VHS recordings they made from shows they recorded and now they don't with DVRs? That argument is just poor.
Other then the sports and news, EVERYTHING I watch now is from my DVR, and before I would only tape stuff when I went out that night.
So in my case, my habits did change when I got DVR, because it is so much easier to record, erase, don't have to worry about finding a blank VHS tape, etc. I know it sounds like trivial stuff, but DVR/TIVO is a great invention!
#18
DVD Talk God
Re: Broadcasters' woes could spell trouble for free TV
I agree that most TV isn't that great--I only watch a handful of shows, but all of them are on free TV as I ditched cable a couple years ago and haven't regretted it for a moment. Truth is though, if I had to pay for what's free now, I'd probably skip it all together and just watch via the eventual DVDs or over the web if I could find it.
And I disagree with your assessment on cable not being worth it. ^^ Hmmm, Friday Night Lights, Mad Men, The Closer, Leverage, Dark Blue, Burn Notice, In Plain Sight, Nip/Tuck and now Southland. And if your going to say, "I've never watched or heard of any of those shows." Then that's fine, all I'm saying is there is plenty of quality scripted shows on cable/satellite right now. If you can't afford it, then that's another thing.
And I disagree with the statement above that their is hardly anything worth watching on TV nowadays. I mean if you like or only have time for a handful of shows then great. But, don't generalize and say that "Glee" or "Mad Men" are the best shows on TV and everything else sucks. To me that's just being really narrow minded. For example, I used to hate sitcoms and never gave any new sitcoms a shot, I started watching The Office, 30 Rock a few years ago and Modern Family and Cougar Town this season and love them.
Last edited by DJariya; 12-29-09 at 01:17 PM.
#19
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Re: Broadcasters' woes could spell trouble for free TV
And I don't understand why the DVR is suddenly being "blamed". VCRs have been around since the 80's, and I have been zipping through commercials during shows I recorded for over two decades. Are you saying people were watching the commericals on VHS recordings they made from shows they recorded and now they don't with DVRs? That argument is just poor.
Personally, I never really recorded shows on VHS. Sure, I would if I knew I was going to miss them, but with a DVR it just records everything I watch. Even on Monday nights I start viewing late so I can FF through the commercials and just watch all the programming right through.
I am perfectly fine getting rid of broadcast networks. They can keep something like PBS or an independent station in the area to do local news. Move NBC, CBS, etc. to be cable stations and/or merge them with other cable companies. And, yes, give me a la carte cable! Sure, I may lose a channel I love, but hey, if no one was watching, it was bound to happen eventually anyway.
#20
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Re: Broadcasters' woes could spell trouble for free TV
Yep - the DVR is a world of difference (although I find myself watching a lot more TV with a DVR). I would only record maybe 1 or 2 shows with a VCR and that was only if I wasn't going to be around to watch it live or there were 2 shows that I liked on at once.
Now regardless of whether there is a conflict or if I could watch it live - I won't watch anything but sports live - I'll let it record and wait at least until 1/3 in to watch it so I can zap through the commercials.
Now regardless of whether there is a conflict or if I could watch it live - I won't watch anything but sports live - I'll let it record and wait at least until 1/3 in to watch it so I can zap through the commercials.
#21
DVD Talk Special Edition
Re: Broadcasters' woes could spell trouble for free TV
Originally Posted by DJariya
And I disagree with your assessment on cable not being worth it. ^^ Hmmm, Friday Night Lights, Mad Men, The Closer, Leverage, Dark Blue, Burn Notice, In Plain Sight, Nip/Tuck and now Southland. And if your going to say, "I've never watched or heard of any of those shows." Then that's fine, all I'm saying is there is plenty of quality scripted shows on cable/satellite right now.
#22
DVD Talk Gold Edition
Re: Broadcasters' woes could spell trouble for free TV
It depends how high the price would go up for it to matter to me. A few dollars would be OK, but I wouldn't want to pay much more.
Would that mean they would start charging for online streaming too? I'd be fine not having network TV on my cable and I'd just watch online.
Would that mean they would start charging for online streaming too? I'd be fine not having network TV on my cable and I'd just watch online.
#23
DVD Talk Godfather
Re: Broadcasters' woes could spell trouble for free TV
With two wars to wrap up and health care reform all but necessary regardless of who became the POTUS, do you really think regulating tv would be high on his priority list?
#24
Moderator
Re: Broadcasters' woes could spell trouble for free TV
When I first got a DVR I watched more TV, but now I'm back to where I was before. The difference is that what I never do anymore is sit down in front of the TV and see if there's anything on I want to watch. I just go to the list of already recorded shows and watch something from there. Usually about once a week I browse through Turner Classic's schedule and pick a few things to record. Then, by the weekend, I've got enough to keep me interested.
#25
DVD Talk Hall of Fame
Re: Broadcasters' woes could spell trouble for free TV
When I first got a DVR I watched more TV, but now I'm back to where I was before. The difference is that what I never do anymore is sit down in front of the TV and see if there's anything on I want to watch. I just go to the list of already recorded shows and watch something from there. Usually about once a week I browse through Turner Classic's schedule and pick a few things to record. Then, by the weekend, I've got enough to keep me interested.
Don't get me wrong, I wouldn't consider The Osbournes a favorite of mine, but I did discover shows like Northern Exposure, Law & Order, Homicide: Life on the Street, L.A. Law and Chicago Hope because they were syndicated in pre-DVR days and I happened upon them when channel surfing. That just doesn't happen too much anymore.