Broadcast Television and the Network System

1
Broadcast Television and the Network System

• The Business Model

2
The Value of Network TV

• Why does network TV continue to be so valuable?
• (1) Scarcity of airwaves
• (2) High corporate demand, prompted by easing of
  ownership and market share restrictions.
• (3) Gives advertisers access to national
  audiences
• (4) Network services most watched on cable,
  although by 2003 this was beginning to turn
• (5) Cable offers re-runs of network programs
• (6) Limited competition

3
Top TV Sources (revenues)

• 1. NBC (4.1 bn)
• 2. QVC (3.8 bn)
• 3. CBS (3.6 bn)
• 4. ABC (2.9 bn)
• 5. ESPN (2.1bn)
• 6. Fox (2.1 bn)
• 7. HBO (2.0 bn)

4
Network Ownership / Studio

• ABC (Disney) (Disney, Touchstone, Buena Vista,
  Miramex)
• CBS and UPN (Viacom) (Paramount)
• Fox (News Corp) (Twentieth Century)
• NBC (General Electric) (Universal)
• Pax TV (Paxson Communications NBC)
• WB (AOL-TW) (Warner Brothers)

5
Networks Links to Cable

• Viacom / CBS BET, MTV, VH1, Nickelodeon,
  Showtime, TNN, CMT, TV Land
• NBC MSNBC, Bravo, Telemundo
• Fox Fx channel, Fox News
• ABC ABC Family

6
The Basic Business Model (1)

• Immateriality of value ideas underlying content
  and audience attention
• Novelty each new value requires a new product
• Nonrival program is not destroyed by
  consumption
• Non-excludable no audience member can be
  (entirely) excluded

7
The Basic Business Model (2)

• Near-zero marginal cost an additional customer
  costs next to nothing
• Instantaneous reproduction the larger the scale
  of operation, the better
• Rapid product innovation necessary to preempt
  boredom
• Short shelf-life

8
Benefits of networks

• One network schedule for approx 200 affiliates.
• Reduces transaction costs.
• Advertisers deal just with one network.
• Network programs benefit from being scheduled
  adjacent to one another.
• Lower transmission costs when same program is
  scheduled simultaneously.

9
Categories and statistics

• (A) Types (1) network owned and operated
• (2) affiliates
• (3) affiliated with limited networks
• (4) no network affiliation
• (B) Big 4 networks have approx. 890 affiliates
• Approx. 1,500 TV stations altogether, of which
  1,100 are commercial, across 211 markets
• Plus approx 1,500 low-power TV stations
• 98 of homes have a TV
• Most homes watch 7 hours a day.

10
Network Revenues

• 90 from advertising
• 10 from compensation paid by networks to
  affiliates for advertising revenue foregone
  (this component is periodically under threat)

11
Prices

• Prices of advertising based on either (a)
  audience size or (b) ratings points
• Stations try to achieve 85 sell-rate
• Advertisers increase share of money spent on TV
  in recession, relative to other media

12
Costs

• Upward pressure on program costs because of
  competition for audiences and quality
• Need to provide lower-cost programming for
  smaller, off-peak audiences, for advertisers who
  can only afford modest rates (i.e. price
  discrimination strategies).

13
Reducing Uncertainty

• Controlling supply of programming (e.g.
  staggering releases)
• Controlling advertising time and purchase options
  (e.g. spots and sponsorship).
• Controlling demand for programming
• Order 6 episodes, with option to renew, up to 24
  per year.
• Each episode contracted for two showings.
• Success predicted on basis of concepts,
  producers, and actors.
• Half-hour pilots (1-3m.)

14
Advertising revenue

• 35 billion in 1998 (15 of total advertising
  sales)

15
Advantages of Networks

• Economies of scale (e.g. full-time utilization of
  studios)
• Economies of scope (e.g. control of both
  production and distribution, expansion into
  cable)
• Commission expensive programs
• (18 bn. a year)

16
Threats to Networks (1)

• 1. Loss of twenty-somethings
• 12 drop in 18-to-34 group, Fall 2003
• of 18-to-34 year olds watching primetime down
  from 38 (1991) to 32 (2003)
• 2. Age of primetime viewers e.g.
• Av.age 46 (NBC),44 (ABC),54 (CBS), while MTV
  (cable) is 21.5, and 50 of movie-goers are
  12-to-29. 18-to-34 year olds do only 25 of
  their viewing in 8-11 pm , primetime, a decline
  of 10 in 4 yrs.

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Threats to Networks (2)

• 3. Shifting of primetime Networks define
  primetime as 8-11 pm, but younger people watching
  TV later, and spending more time on video games.
  Nightowl viewership increased 35 for 18-to-34
  year olds 1999-2003.
• 4. At 10.00 Fox, WB and UPN show local news, with
  dramas and newsmags on ABC, NBC, CBS. Meanwhile,
  cable (e.g.MTV, Comedy Central,Bravo,VH1), rolls
  out competitive cable primetime (10-12 pm) and
  repeats 12-2 am.

18
Threats to Networks (3)

• 5. Death of live viewing?
• DVR, Digital recording (e.g. TiVo) enhances
  time-shifting from primetime, and removes
  commercials, hitting lifeblood of network
  earnings. Digital recording leads to 14 loss of
  audiences for commercials in DVR households.
• 6. Overall reduced viewing of networks because of
  cable (network share of primetime audiences fell
  below 50 in 2002, while audience share of
  advertiser supported cable grew by 8)
  videogames

19
Threats to Networks

• 7. Loss of niche markets to cable news to CNN,
  Fox News, MSNBC music to MTY kids to
  Nickelodeon.

20
Network Responses

• 1. Parent conglomerate ownership of studies,
  cable networks, cable channels, and network sales
  of programming to cable
• 2. Continuing leverage of network advertising
  advantage cost (to advertisers) per thousand
  viewers has risen an average 7 a year 1970-2001,
  and primetime rates hiked 15 2003-2004

21
Network Responses

• 3. Provide video-on-demand versions of network
  shows
• 4. Increase production of reality shows (popular
  with younger audiences) and charging advertisers
  as much for them as for high rated scripted shows
• 5. Concentrate more on concept, less on
  celebrity. Concepts offer low maintenance, easy
  manufacture, urgent word of mouth.

22
Network Responses

• Cover big events (e.g. Super Bowl)