The plight of the broadcast networks is in the news, and like the newspaper industry, their fate is all about the loss of monopoly power. Newspaper monopoly power was all about the sole ability to deliver advertising to an entire local market on a daily basis. Craigslist, monster.com and other web sites do that more effectively today. Newspaper business models will have to change or they will expire.
Likewise, broadcast television networks have lost their monopoly power over the television sets of the nation. A little over a generation ago, the three commercial broadcast networks controlled over 90% of the primetime television audience. Today, the share of the 11 different commercial broadcast networks is less than 40% and falling.
But let's clear up a few misconceptions:
- The threat isn't the Internet. Yet. Traditional TV viewing is at an all time high. While online video viewing is growing, it has had little effect on TV viewing, yet.
- The threat isn't DVRs. Yet. The median broadcast primetime show still only has about 12% of its viewing via DVR, and DVRs are only in about 25% of the nation's households (projected to rise to 44% in 2014). And because of the new way advertising is priced, measurements may have been propped up a bit in the short term by DVR viewing.
In fact,
- The threat *today* is advertising supported cable networks. Today's threat to the broadcast television industry comes from a lot closer to home, its cable network rivals.Ad supported cable now commands 50% of the primetime audience and rising.
They threaten the advertising pricing premium of broadcast networks. Even with audience losses, broadcast networks had been able to increase ad pricing to largely offset them. Broadcast primetime still commands a premium for the same numbers of viewer eyeballs, but top cable networks are now pushing to equalize their pricing. A variety of things will keep that from happening instantly, but that disparity cannot exist forever. Particularly when the top cable network last week (USA) averaged nearly three times the average viewership of the CW and more than half the average viewership of NBC.
Cable network success has reduced one of the channels for syndication of broadcast network shows. With more original shows being produced for cable networks there are fewer opportunities for broadcast syndication.
The very business model for advertising supported cable, which relies partially on fees from cable MSOs threatens the wholly advertising supported business model for broadcast networks.
The major English broadcast networks aren't going away (like some newspapers are), but their business models will have to change more in the next 5 years than they have in the last 25.
There’s a lot of talk about cable killing network TV, and it’s true. But it’s a mistake to think of cable as a monolith – no cable network yet draws the average viewership of a network. As you’ve said, USA triples the CW, but it’s the top rated network and the CW is widely regarded as a failure. As is NBC at this point.
And for all the talk of quality of network TV driving people to cable, there’s much more junk on the average cable channel than the average broadcast channel. A cable network is lucky to have one or two good series – the rest of their programming is usually syndicated series or cheap productions. What hurts broadcast, essentially, is audience fragmentation. And it will eventually happen to the bigger cable networks too.
As broadcast continues to fall, though, it raises an interesting question – the bane of many, many cable channels are those syndicated series that came from network TV. What happens when broadcast no longer is producing these hits? Yes, USA has substantial hits in a couple of original series, but they make money off of their incessant reruns of the Law & Orders.
Cable networks, despite claims that they are about to take over the world, still cannot do what broadcast channels can – offer up 3 hours daily weekly of original programming in primetime, plus daytime, plus late-night. Maybe this will change for certain cable networks, but I really don’t see that happening in the short-term.
Another advantage that cable networks have over broadcasters is that they pay lower licensing fees for programming.
USA has Monk and Burn Notice which both get at least 6 million I think. That’s more than NBC shows. That’s only a couple million less than several other shows on Network TV.
I can’t see the math working out this way. The viewership of Monk and Burn Notice doesn’t really care about TV vs cable vs ‘Net. What newspapers, et al, have shown us is that the crash of obviated distribution networks is shockingly fast and very much non-linear. The pricing of individual newspaper ads isn’t crashing so much as the demand for volume. I don’t see a particular reason why cable is immune from that in the way that you imply with, “… major English broadcast networks aren’t going away….”
As long as broadcast continues to pander to the lowest common denominator of TV viewer and pump out sitcom after mindless sitcom, reality show, cop and doctor shows and are stifled by puritan-like censors, the audience share will continue to drop.
The difference between television and newspapers ads is that there isn’t a falling demand for television ad time, not yet anyway because as of right now there isn’t a viable and effective alternative to advertising on television. What the networks are finding is that they’re now no longer the only option advertisers have on television, cable has become an increasingly attractive option for many advertisers primarily because a lot of the cable channels can afford to have much more targeted and focused programming that allows them to be the network of [insert demographic here], something the broadcast networks can’t really do as The CW is finding out the hard way.
Right now network televisions biggest strength is that it appeals to the mass audience. When you want your product to be seen by everyone then network television ultimately remains your best option. However when advertisers have a product they want to aim at a specific demographic they’re finding they can reach that audience on cable in a cheaper and more effective way. I suspect that as and when cable tries to bring their advertising rates into line with network television that will change and cable may very well become a little less appealing then again it might not.
Basically the problem is that the advertising revenue is still there, its just that more and more of it is going to cable networks rather than broadcast networks. Although it is worth pointing out that a lot of the cable channels are owned by the broadcast networks or the parent companies of the broadcast networks.
In terms of how to counter this I suspect that we’re going to start seeing more shows like Flashpoint, financed by two networks which drives down how much the show needs to make to remain profitable. Away from that its hard to see what the networks can realistically do, unless they stumble upon the magic formula to make monster hits in the next couple of years.
Unlike newspapers getting their market stolen by monster and craigslist, network and cable TV are in league with each other. USA network is part of NBC-Universal. ABC is linked to ESPN. CBS is MTV and Nick. Fox is FX and Fox News. The networks aren’t having to deal with too many outsider networks. They are in this game with more than one player. What’s disturbing is how the networks are being deprogrammed to resemble their cheaper cable sisters. Next season there won’t be much difference between MSNBC and NBC with all but 2 hours a day of the network’s programming being people sitting on sofas and desks talking directly to the home viewers.
Sorry but, can somebody explain what is happening in layman’s terms?
playe, Basically, fewer people are watching broadcast TV because more people are watching cable, not because of DVRs or the internet.
All of you seem to forget that the networks parent companies has cable networks. NBCU has USA and MSNBC, Disney has ABCF and ESPN, News Corp. has FX, CBS has NICK and MTV.
While the broadcast nets has less viewers than before, the cable nets have more viewers than before (in general).
Here are some of my prodictions the things that will happen in the next five years:
CW – There’s no way it will stay in it’s current form, there are a couple of options:
a) Becoming a basic cable net.
b) Merging with another network, probably without CBS.
c) WB buying CBS’s share and going to cable.
d) WB buying CBS’s share and transforming it to a real network. Long shot, but my dream is WB teaming-up with Sony Pictures (the only major studio without a steak in broadcast as far as I know) to make a real network.
NBCU – Regardless of Leno, NBC will probably never again will air at 10 PM. Because of USA increasing ratings, NBCU will start to give them shows originally for NBC and basically making NBC and USA to equal sister nets.
Disney – If in the next 3 years ABC will continue to fail producing suitable replacements for Lost, GA and DH they will be worse off then NBC right now. Disney will have to start thinking about Merging or selling ABC.
News Corp. – Fox is in a relative good position right now and if they can continue to make “hits” like Fringe and L2M every few years and the occasional House once in five years they will be fine. Even if they’ll fail to do so News Corp. has enough money to support Fox for years.
Could merge with or buy another network.
CBS – CBS is in the best position from all of the nets and I don’t see how that will change in the next five years.
Most of (more than 80%) the shows the studios will make would be for their sister nets (Universal to NBC, FOX 20TH for FOX…).
In five years there will be only four networks, and in ten years most likely three networks.
i agree with everythin said above!!
But… Would the CW benifit from becoming a cable network, how much would it cost for the network to change ect…
NBC will stay the same i think, just showint prometime shows 8-10, but with USA showing all there new shows from 10-11!
FoX might start to program 10-11? who knows, they have allot of shows to fit in, or they might consider moving some shows to FX, as they dont have any real hit shows anymore!
CBS i think will start to program Saturdays again, they have too many shows that have good numbers (even if they dont do well in the demo) Or they might start there own cable network like usa/FX
ABC is going to be in real trouble soon! IMO they should buy some of CBS’s cast offs and try to make some of there own cop shows (CSI/Law & Order) ABC Family is doing ok at the moment
Fox would never get the 10 PM slot back from the affiliates.
TomSD and others, I didn’t forget that the corporate parents that own the broadcast networks also own cable networks. That fact doesn’t change the situation that the broadcast networks themselves are in though.
But it does matter because as long as the corporate parents are making the same total amount of money from broadcast and cable, they won’t care how it’s split up between them.
But, Tom, they aren’t. They have one part of the business that is successful, though not nearly as successful as their broadcast nets used to be, and they have another part of the business that is in trouble and losing money.
“CBS i think will start to program Saturdays again, they have too many shows that have good numbers (even if they dont do well in the demo) Or they might start there own cable network like usa/FX”
I believe I’m right in saying that CBS owns Showtime.
“But it does matter because as long as the corporate parents are making the same total amount of money from broadcast and cable, they won’t care how it’s split up between them.”
The parent companies aren’t making the same money.
As things stand it is currently much cheaper to advertise on cable than network television and I can’t see a situation where that’s going to change. If you take a successful cable channel like USA for example and translate their big hits (Monk, Burn Notice etc.) to network television they’re not really hits. I haven’t seen enough of the demos for anything USA has to judge with complete accuracy but I would guess the big USA hits would struggle to survive on any network outside The CW with their numbers. Five million viewers, whilst big for cable would be disappointing on network television.
So whilst cable revenue is increasing they aren’t and can’t charge on the same levels as network television so the money coming in is less. The very real problem that you’re also missing is that parent companies aren’t going to budget a network to run at a loss. With network television revenue falling the amount of money the networks get to play with each season will ultimately begin to fall as well. NBCU for example can’t justify letting NBC spend $500 million if it knows the chances of NBC making anything more than $300 million are slim to nil. So NBC goes from $500 million operating budget to $300 million. And for the record I just made those numbers up to demonstrate the point.
Alex, CBS does own Showtime, but that’s not the same sort of cable net as USA or FX. Before the Viacom split, they had several basic cable nets under their umbrella, but they do not now, and I think it would be a good move for them to move back into that realm.
Network TV isn’t dying and it’s not likely to get much worse. Cable is not really the “enemy,” here. DVR however is (for cable as well). Sure cable will continue to draw viewers away from TV Networks. However we’ve seen the largest hit already happen. It’s just going to trickle away now. There is too much competition for me to see say USA or TNT getting close to Network TV numbers. However USA does finish 2nd compared to all the networks on Friday Nights if I’m not mistaken.
DVR is growing. I don’t know about the rest of you with DVRs, but I haven’t seen a commercial in years except for sporting events (Super Bowl, NCAA football, NBA finals, etc). I hit the skip forward button, and I definitely never notice a commercial brand except for the first and last commercial at best, and I don’t see the commercials themselves.
That is the biggest “killer,” out there. That is why they think “maybe we should become cable networks too,” because then they get revenue from subscription costs.
I’ll tell you now, that CBS is the leader in the industry so far in cable revenue. They’re aggressively going out and making their locals switch from “free to subscription,” in their local cable markets. NBC is quickly trying to catch up with CBS. This is inevitably the future. Of course, it’s still free to get the station over the air. Cable companies are likely to raise your cable fees to adjust to them having to pay for stations they got for free for years.
The local affiliate of course splits the money with the Network. It still won’t match the money that say USA or TNT or MTV get.
So with that in mind, the Networks need solutions. Because DVR is going to grow and continue to whittle away at viewership. The C3 list is surprising. There are many shows that drop an average of .3 in the demos compared to just LIVE + SD viewing numbers. There are some shows that drop as much as .6 in the demos compared to LIVE + SD numbers. These people are either changing the channel or skipping past commercials with their DVR. Then you have FRINGE and DOLLHOUSE both shows in the new “Remote Free TV,” FOX experiment that GROW in their C3 numbers compared to LIVE + SD numbers.
The future is likely “Remote Free TV,” and sponsorship. TNT is leading the way with sponsored programming. LEVERAGE for instance will have its sponsorship attached to the upcoming DVD release. So buyers of the DVD will constantly be reminded of the Brand. Of course, currently TNT isn’t getting enough for it. Advertisers are cheap. They know internet adverts work better than TV adverts but do internet sites get paid more than a commercial gets? Nope.
” LEVERAGE for instance will have its sponsorship attached to the upcoming DVD release. ”
Kind of like in the episodes when they always showed the car sponsoring the show.
Nick C, Both the Internet and DVRs are definitely long term threats. To date though, they have done far less damage to broadcast networks than has cable competition. And as for “we’ve seen the largest hit already happen.”, it’s true that having lost 50% of the TV population in primetime, and holding only 40% now, broadcast networks can’t lose that much again, but I don’t think the annual ratings gains by ad supported cable show any kind of slowing trend if you examine the chart linked in the post above (and here).
Nick I do believe advertisers pay more per viewer on the internet(sites like
hulu) than television, especially once you average in per click revenue. There’s just less viewers than on TV.
I could be wrong, but that’s what I read a while ago when reading about the Hulu business model.