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NATPE’s a time to find new model

Jan 21, 2002  •  Post A Comment

If rituals such as NATPE and the upfront advertising market seem dysfunctional, it is because some of the most important underpinnings of the television industry are changing but have not yet translated into new ways of doing business.
Media executives are struggling to devise new business models for programming and advertising deals while industry metrics and dynamics shift beneath their feet. But those new models are not materializing swiftly or effectively enough.
Central to much of the confusion is the stubbornly held notion that critical mass can be broadly promised, delivered and priced for any single place on television. Quite simply, critical mass is not what it used to be.
The ability to deliver a critical mass of viewers-in order to economically support the high price of programming with high-priced advertising-was for decades the exclusive domain of the broadcast networks.
Today, the notion of the broadcast networks’ ability to deliver a large enough slice of the mass market to advertisers at any given time-outside of extraordinary events such as the Super Bowl-is a fallacy. The broadcast networks, which still have access to 30 percent more of the U.S. TV universe than cable, deliver the largest slice of audience they can muster. Although that generally is a bigger chunk of viewers than anyone else in television can deliver, it still is only half of what it once was, or about 50 percent of the available TV universe.
Even with only 70 percent U.S. TV household penetration, cable’s niche programs and networks have begun closing the ratings and audience share gap, partly because broadcast network performances have suffered such steep declines. Some of the best-rated cable programs and networks overlap the growing ranks of worst-rated broadcast networks and programs.
These new developments have become well enough entrenched that they have redefined what constitutes television’s critical mass, which these days generally is achieved through a cumulative buy of advertising time on all of the major broadcast networks or on a combination of broadcast and cable networks. Increasingly, those cumulative buys reflect advertisers’ clearly defined demographic targets, best captured by some cable networks and a handful of broadcast network shows.
But none of this has been fully reflected in the pricing of advertising and programming. Broadcast networks still command pricing premiums with advertisers-and still enjoy a hefty pricing disparity with cable networks. On the flip side, broadcast networks continue to be hit with program licensing fees that assume they still have bottomless coffers and a viewer stranglehold. In fact, NBC and CBS are the only two broadcast networks expected to make money this year, not even coming close to ESPN’s more than $600 million in earnings.
Not surprisingly, the only media companies winning the new war of television economics have hedged their bets by owning both broadcast and cable networks, or are both content producers and distributors. Companies such as News Corp., The Walt Disney Co., Viacom and AOL Time Warner saw the paradigm shift and bought up broadcast and cable networks as well as TV stations and even print media or cable systems, so they are not completely reliant on any single industry sector.
Major network-affiliated TV station groups that are pure broadcasters-many with print but almost no cable interests-have nowhere else to run for shelter when things get tough, as they are now, in their core businesses. Those companies-such as Hearst-Argyle Television, Tribune Broadcasting, Belo and Post-Newsweek Stations-are left with two survival options.
They can band together in a bid for scale by creating mega TV station platforms that can stand up to powerful local cable and satellite competition. Or they can merge with larger, more diversified media players that can make the most of expanded station reach and big-market duopolies. Deregulation will set all of that in motion.
“It’s a bifurcated industry where things are getting lonely at the bottom,” UBS Warburg analyst Christopher Dixon recently told me. “The worst programs and broadcasters used to make money. Now, even some of the best can’t.”
The 2002 upfront advertising market may well prove a watershed for testing new pricing models in response to some of these changing fundamentals. The lingering recession and the broadcast networks’ general lackluster ratings performance means advertisers will hardly be in the mood to accept pricing and packaging shenanigans. After all, the advertisers are the same companies reporting weak earnings and a new round of cost cuts. That said, they will buy television airtime their way-and take a harder look than usual at what they are getting for their money. With cross-platform advertising buys becoming more status quo, pricing and strategy adjustments are more likely to occur.
A former major broadcast network official recently confided to me, “We’ve been wondering to ourselves for years just how long it would be before enough advertisers re-evaluated what they are getting for what they are paying to force a massive repricing and restructuring of TV advertising, which will spill over into a restructuring of programming. It’s been masked by so many other things-Olympics, mergers, recessions.”
In recent years, executives from every corner of the television industry have acknowledged the dramatic shifts in audience share, advertiser sentiment and content supply. They have ranted about collapsing industry economics. Generally speaking, they have responded ineptly, without resolve or resolution.
The exhibition hall, backrooms and hospitality suites of NATPE are places where brainstorming can occur. What’s required is honesty about the need for immediate change. What’s required is a commitment to constructively shape that change. It might just be time to skip a few of this week’s parties and go for broke.