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Selling the new Television season

Mar 17, 2003  •  Post A Comment

As media companies, program producers and other service providers gear up to create and sell a new television season, it’s important to note how much has changed-for better and for worse.
The threat of war and a weakening economy will impact spending and creative decisions, particularly for prime time entertainment and news programming.
The ongoing trends that shape the television industry-such as cable’s competitiveness, the shifting strength among the broadcast networks, and advertisers’ spending patterns-continue unabated.
The media economy that supports these companies has quickly changed from just five years ago, when the entertainment conglomerates that own broadcast and cable networks were dependent upon average 12 percent to 14 percent increases in advertising revenues to contribute to one-half of their overall revenue growth. This year’s advertising increases, expected to be between 4 percent and 7 percent at best, will contribute only one-third to these companies’ overall revenue growth, according to Morgan Stanley analyst Richard Bilotti. With programming budgets for entertainment companies still rising between 7 percent and 10 percent annually, some major ongoing adjustments are required.
Pricing Power
Clearly, the media companies that have adopted rigorous cost-cutting practices and have learned to creatively think outside the box will excel in these times of slower growth and uncertainty.
The media companies that own ABC, CBS, NBC and FOX have been saved by an irrationally strong television advertising marketplace, which is a deceiving development in the industry’s cyclical roll of the dice. Without benefit of biennial catalysts such as Olympic Games and elections, and in the middle of what is looking more like a double-dip recession, the broadcast networks are predicting mid-to-high-single-digit increases in last year’s overall $8 billion upfront prime-time spending, and pricing gains in the mid to high teens. It’s an anomaly in these times, to be sure.
That kind of pricing power, which is increasingly key to entertainment conglomerates’ overall financial success, can no longer afford to depend on cyclical factors to bolster TV program ratings and box office receipts.
And entertainment companies’ pricing power no longer can afford to be concentrated in such a small percent of the content they spend billions of dollars to produce. Less than 10 percent of the networks’ prime-time series air long enough to make it into syndication and sure profitability.
But it’s still an imperfect system in which every little bit helps. If one hit prime-time series boosts a network’s age 18 to 49 adult viewers by a mere 0.1 ratings point (or about 130,000 viewers), and can command a $22 cost-per-thousand, it can translate into $2,700 in incremental revenue per 30-second spot, according to Mr. Bilotti. That is about $1 million more a week and $55 million annually in new revenues, of which 80 percent can be profit.
Reversals of Fortunes
That said, it’s easy to understand how the Fox network’s financial fortunes can be reversed in a season in which 20 percent of its schedule is driven by reality shows, many of which have generated above-average ratings and revenues. Super Bowl-level pricing for the season finale of American Idol and consistently high reality series ratings have swung Fox’s entertainment schedule into the black, although it still loses $270 million on sports.
But these reality hits are only a temporary fix with no enduring financial benefits. Unlike popular comedies and dramas, reality shows are not easily transformed into marketable franchises with recurring revenue streams or syndication value. They do not generate the sustainable ratings on which networks can build an entire night or prime-time schedules for the long-term.
At some point, the broadcast networks’ financially inefficient ritual of TV season construction, selling and dismantling will be declared woefully incompatible with new-world business economics to which their corporate parents must adhere to satisfy investors and shareholders.
Until then, the broadcast networks would do well to remember that as part of a bigger whole only the entertainment companies with long-term, above-average growth rates can command premium valuations in the marketplace.
That’s why permanent cost controls and more cost-efficient practices are so important.
Some modifications, modest as they are, already are evident: summertime new series premieres, the recycling of broadcast network series on cable and what has become routine advertising sales across all of a company’s media platforms. They all are small, but important steps in an imperfect, challenged media world in which even the launch date of a new season is no longer something you can bank on.