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Broadcasters' woes could spell trouble for free TV

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Broadcasters' woes could spell trouble for free TV

Old 12-29-09, 07:07 AM
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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."
Old 12-29-09, 07:56 AM
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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.
Old 12-29-09, 08:19 AM
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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.
Old 12-29-09, 08:20 AM
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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.
There's hardly anything worth watching on the networks anymore, let alone worth paying for.
Old 12-29-09, 08:30 AM
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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.
Old 12-29-09, 09:00 AM
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Re: Broadcasters' woes could spell trouble for free TV

Rupert Murdoch wants everything to have a fee, paid directly to him. The man is a pox on our culture.
Old 12-29-09, 09:53 AM
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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.
Old 12-29-09, 09:55 AM
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Re: Broadcasters' woes could spell trouble for free TV

Originally Posted by Wolf359 View Post
So we are being forced to subsidize smaller channels that wouldn't survive otherwise. I say screw them.
I would say that too, except some of the channels I watch (I'm looking at you, TCM) would be long gone without this system.
Old 12-29-09, 10:01 AM
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Re: Broadcasters' woes could spell trouble for free TV

Originally Posted by wendersfan View Post
There's hardly anything worth watching on the networks anymore, let alone worth paying for.
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.
Old 12-29-09, 10:06 AM
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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."
What about TV on DVD? That's a revenue stream that didn't even exist 10 years ago. But nobody ever mentions that.

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.
Old 12-29-09, 10:18 AM
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Re: Broadcasters' woes could spell trouble for free TV

Originally Posted by Wolf359 View Post
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.
Channels like Jewelry TV make your bill lower not higher.
Old 12-29-09, 10:43 AM
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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.
Old 12-29-09, 11:10 AM
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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.
Old 12-29-09, 11:19 AM
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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.
Old 12-29-09, 11:52 AM
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Re: Broadcasters' woes could spell trouble for free TV

Originally Posted by Wolf359 View Post
The argument against a la carte is that it would put all those little niche stations out of existence...
In 2004 there was a study by Booz Allen that was funded by the cable industry that said that costs would rise 14% to 30%; the cable industry is a fierce opponent of a la carte programming. In 2005 the FCC did it’s own study which showed that costs would go down by up to 13% if true a la carte programming were implemented.

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.
Old 12-29-09, 12:44 PM
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Re: Broadcasters' woes could spell trouble for free TV

Originally Posted by JuryDuty View Post
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.
And you're missing/have missed out on The Shield, Burn Notice, Damages, Nip/Tuck, Always Sunny in Philadelphia, Mad Men, The Closer... You must watch something because I know I've seen you posting in other TV threads.

Originally Posted by Eddie W View Post
What about TV on DVD? That's a revenue stream that didn't even exist 10 years ago. But nobody ever mentions that.
It is a revenue stream for the PRODUCTION COMPANY that produces the show and not the network that airs the show (e.g. Medium was produced by CBS but was airing on NBC. CBS gets the DVD revenue).

Originally Posted by Draven View Post
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.
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.
Old 12-29-09, 01:00 PM
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Re: Broadcasters' woes could spell trouble for free TV

Originally Posted by rfduncan View Post


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.
I do agree that I was zipping through commercials when I was taping stuff on VHS, but I watch more recorded stuff since I got DVR.

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!
Old 12-29-09, 01:03 PM
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Re: Broadcasters' woes could spell trouble for free TV

Originally Posted by JuryDuty View Post
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.
I've seen you post your thoughts in the Friday Night Lights threads....That show isn't on free TV...unless your watching it through alternative sources.

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.
Old 12-29-09, 01:42 PM
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Re: Broadcasters' woes could spell trouble for free TV

Originally Posted by rfduncan View Post
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.
Simple -- the DVR is way, way, way easier than a VCR. Easy as pie to record your shows (VCRplus anyone? lol), it can record multiple shows at the same time, no tapes, perfect quality, ability to rip to your computer/DVD... even the rewinds/fast fowards, etc. are cleaner, easier, and more precise.

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.
Old 12-29-09, 01:58 PM
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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.
Old 12-29-09, 02:00 PM
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Re: Broadcasters' woes could spell trouble for free TV

Originally Posted by rfduncan View Post
It is a revenue stream for the PRODUCTION COMPANY that produces the show and not the network that airs the show (e.g. Medium was produced by CBS but was airing on NBC. CBS gets the DVD revenue).
Yes, but this still flies in the face of Murdoch's stament that revenue for quality broadcast programming comes SOLELY from advertising. I don't care who gets the money, it should have the trickle down effect of reducing the cost of producing the programming. But of course it doesn't in an industry that regularly likes to have it's cake & eat it too.

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.
I agree, these shows ARE worth it. But I'm not sure whether they're worth the $70 base package I have to carry just to get the 5 or 6 cable shows I like. Especially when they'll be on DVD or Blu-Ray (in much higher quality) eventually.
Old 12-29-09, 02:11 PM
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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.
Old 12-29-09, 02:13 PM
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Re: Broadcasters' woes could spell trouble for free TV

Originally Posted by sjrab16 View Post
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.
This is probably what most people will do. As the writers strike proved, people are more than willing to walk away from their tv sets and find something better to do. If this ends up jacking up everyone's cable bill $20, people will split.

Originally Posted by Heat View Post
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?
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?
Old 12-29-09, 02:57 PM
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Re: Broadcasters' woes could spell trouble for free TV

Originally Posted by Red Dog View Post
Yep - the DVR is a world of difference (although I find myself watching a lot more TV with a DVR)
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.
Old 12-29-09, 03:49 PM
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Re: Broadcasters' woes could spell trouble for free TV

Originally Posted by wendersfan View Post
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.
That's definitely true. For instance, I haven't been a consistent watcher of anything on MTV since I was in high school. But I ended up watching most of the episodes of The Osbournes when it was first on because I heard the buzz about it and would be flipping through the channels and just happen to see it on. There's definitely much fewer discovered favorites now.

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.

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