Change coming from all corners

Oct 29, 2001  •  Post A Comment

Executives at media companies of all shapes and sizes say they are wrestling with so many overwhelming pressures, they feel as though they are being squeezed in a vise.
In fact, they are.
What they are experiencing is a massive collision of change agents that are transforming their companies and industry sectors in ways that eventually will prove to be both good and bad.
On the one hand, there are the more recent extraordinary forces of change: terrorist assaults, U.S. retaliations and constant threats to everyday life in the United States that we never could have anticipated several months ago. These forces have hastened and exacerbated what otherwise was shaping up to be a tepid economic recession marked by reduced advertiser spending and increased cost cuts most of this year.
The unpredictable turns in this new domestic crisis have made it virtually impossible to predict when consumers, advertisers and media companies will feel confident and upbeat enough to begin spending again.
On the other hand, there is a cadre of industry-centric changes, which have been evolving for some time and already are realigning U.S. media.
These are forces such as continued deregulation that will broaden and loosen the reins of media ownership.
Other factors are:
* Interactivity that gradually is redefining consumer power to command information and transactions, and reinventing advertising and marketing.
* Industry economics being radically altered by a rapidly fragmenting, multimedia platform world in which the concentration of ad dollars and viewers will shrink in size.
* Renewed consolidation that, this time around, may see the collapse of some grass-roots broadcasters on whose backs U.S. media was built.
Meeting the challenge
The challenge for all media players is to embrace the best of these changes to strengthen themselves while surviving the rest without losing much competitive ground or profits. There is new evidence every day of how that challenge is being met-just look at what last week brought:
* USA Networks Chairman and CEO Barry Diller opted to open the books on his company’s two-year operating budget as a means of offering investors and analysts honest guidance on where his businesses are headed. Updating the budgets every quarter means that Mr. Diller no longer will comment on analysts’ forecasts for USA Networks.
The startling move may prompt other media companies to release select portions of their budgets as a way to be accountable to shareholders. But the practice is not expected to become widespread as a response to the frustrating exercise of giving Wall Street “guidance” on the financial performance of their business in the next quarter, much less the next year. The most upbeat prognosis from any media company reporting earnings last week called for flat to declining revenue growth and more aggressive cost cutting.
Bottom line: Mr. Diller’s new practice is an insightful response to an age-old problem. With Mr. Diller’s core businesses being so disparate and well defined, he probably has less to lose than others in putting his numbers on the line.
* The reshuffling of content providers continues with Warner Bros.’ paring back of creative staff and projects-a road other studios may soon follow for television and film production. The wide-ranging strategic alliance between Tribune Entertainment and FremantleMedia, one of the world’s largest program producers, provides a template for a different kind of approach.
Clearly Sony’s Columbia TriStar won’t be the only Hollywood shop rethinking how it can afford to develop series for broadcast network prime time and off-network syndication. Little wonder, with Fox and CBS each owning equity interests in 100 percent of their prime-time entertainment houses, excluding made-for-TV movies.
Sony’s claim that it isn’t making the back-end profits it once expected may come down to the same old-same old: The rare big hits are financial bonanzas, while everything else just hobbles along or loses money.
The old program production model never looked grimmer. Introducing 49 new shows, including 10 midseason replacements, usually yields no more than four new prime-time hits. Some seasons there is only one. It is a costly undertaking, considering that the license fees for series that work cover such a wide range.
For example, the license fee for each episode of “Who Wants to Be a Millionaire” is $725,000; CBS’s “Survivor” is $695,000; prime-time newsmagazine “Dateline NBC” commands $715,000; Fox’s “X-Files” gets $1.8 million; NBC’s “Friends” gets $5.85 million; and NBC’s “ER” gets $8.25 million.
Making programming pay
Still, there may not be enough industrywide incentive to change the business model for producing and distributing TV programs that everyone universally agrees needs fixing.
* Repurposing television content may be a key to constructing a new business model. USA’s “Law & Order” franchise, already worth $700 million in all its rebroadcasts and offspring-series forms, will be a $1 billion-plus enterprise when all is said and done. “It’s a remarkable beast,” Mr. Diller said during a third-quarter earnings call with analysts.
The repurposing of programs will fast become the rule rather than the exception simply because multiple telecasts allow networks to generate additional revenues and minimize the financial risk of programs they produce or help finance. It is, in fact, one of the new television content business models in the making that ensures profitability for the average producer and a windfall for anything wildly successful.
`A risk worth taking’
Fox Entertainment Group’s successful portfolio of TV productions generates an estimated $2.5 billion in syndication backlog revenue, as much as $1.8 billion of which will be operating profits realized over the next five years. While the cost of a failed series roughly exceeds a collective investment of $500 million annually by the Big 3 broadcast networks, the success of one show could mean $425 million in revenues, or what Merrill Lynch analyst Jessica Reif Cohen says still is “a risk worth taking.”
* Overcapacity is one of the true problems of a budding digital age that is sneaking up on media companies. There are so many niche outlets for content and advertising that ad dollars and viewers are becoming more and more diffuse. Critical mass is becoming less of an available commodity. The smaller the audience and ad dollars-however targeted and at a premium-the less money there will be to offset spiraling production and distribution costs. In that case, the old business models don’t work. Eventually, something has to give.
* AOL Time Warner and Viacom, at least for now, have demonstrated that multiplatform deals still live. Their new deals with Kraft Foods may be the best argument yet for what the future of advertising looks like, using nearly every media platform at many price points and making the most of consumer interface and feedback.
As advertisers rethink and redesign their marketing campaigns, messages and approaches to consumers, they are reallocating their money, time and efforts. Media concerns that offer them diverse yet integrated platforms and more cost-effective pitching-that even include interactive transactions as the ultimate follow-through-are going to write more of the business.
It may take at least a few more years of ad-spending cycles to become more evident and felt. But it is happening.#