Jan 19, 2004  •  Post A Comment

The content providers and distributors gathering this week for the annual conference of the National Association of Television Program Executives had better start thinking big and outside the box-outside of television, that is.
All of the teeth gnashing over escalating program costs in recent years has demonstrated that even the most valiant efforts to keep program production expenses in check cannot offset the marketplace supply-and-demand pricing of talent, both in front of and behind the cameras.
The answer to offsetting and surviving high programming costs lies in the flip side of the matter. In a digital multichannel universe, where videos can have as much value outside of the conventional television venues as inside, it’s all a matter of spreading content across enough fee-based and other revenue-generating distribution outlets to generate an aggregate profit, or at least break even.
The catch is it still requires producing content that people want to see badly enough to pay for it. The difference in an ever-fragmenting media world is that, theoretically, there should be more niche viewers and venues to support the increased amount of content that is produced or archived. It should be possible for niche content producers to squeeze enough fees from special-interest consumers, advertisers and others to make a living. On the other hand, those who have already tested the waters complain about too easily and quickly being marginalized.
Even as the $200 billion-plus businesses of broadcast, cable and syndicated television still represent the single-biggest chunk of user fee-based and advertising-based revenues, they too are being diminished. The critical mass the broadcast networks, TV stations and even cable networks represent is collectively a third of what television’s critical mass was little more than a decade ago. For all intents and purposes, the broadcast networks’ average reach of 100 million-plus TV households in the United States is less than that of Internet-connected homes.
That “new” interactive media is increasingly competing for consumers’ time and money, as well as advertiser dollars, with television’s own conventions: high-quality streaming video and content time slots.
The other new interactive digital devices that are redefining the television experience range from DVDs and PVRs to VOD and SVOD to wireless telephone display and satellite radio/TV. A multitude of new competitors are positioned to make their fortunes by empowering consumers with new ways to access, store, manipulate and share television and film content-for a price they appear eager to pay.
Content providers such as studios and producers have been rushing to the fray with different approaches. Cable operators whose set-top boxes make them the gatekeepers still are wrestling with initial on-demand services.
But where are the broadcasters, whose grass-roots television business is at the core? They are at a loss for ways to monetize the digital platforms they were ordered by the government to spend millions of dollars building. They face ultimate extinction clinging to a single advertising revenue stream that is itself being transformed by interactivity.
Whereas NATPE was once a great deal exchange, it must now be a platform for challenging and insightful dialogue. It must facilitate new business models and ways of thinking, or the television programs it brokers will surely come to be minimized over time in a multichannel broadband universe that has already set new standards and rules of play.
Those executives who care to be around five years from now must consider, confront and respond to the tenets of a radically changing media arena. They start here:
* The broadcast networks’ call and commitment for a continuous 52-week television season led by Fox will translate into increased demand for more product at more times of the year, some of them when talent pools have traditionally lain dormant. That will funnel more product into what’s left of the syndication marketplace, which will continue to extend its reach into cable and even onto the Internet, and into an emerging on-demand services market.
* Cable operators who have paid an average 12 percent annual increase in program costs in recent years are begging for better-priced content alternatives. They are another ready market.
* Pay-for-play television is proliferating in the form of video-on-demand, subscription VOD and specialized pay TV (such as HBO and Showtime have forged). Despite its loud objections, specialized paid tiers of programming are precisely where ESPN has been heading with its industry-high $2.50-plus-per-subscriber rates, whether it happens during the current fee fracas with cable operators or during the next go-round. Everyone’s business models need to be altered for a new media world that is being forged on consumer choice.
* Content producers and distributors who understand each new and old media outlet can cater to them individually and collectively. The content player who can devise ways for broadcasters to tap what they have locally to use their digital spectrum to generate fees, advertising or other revenues will save the day. It’s a whole new market, and there are plenty more of them to be identified if you understand that digital spectrum, wisely filled and utilized, is the new frontier.
* If the viewers who are abandoning television-in whatever numbers you want to believe-are opting for video games, e-mail, online chat rooms, electronic transactions and searches, watching downloaded content of choice, then that is what TV content providers should be embracing to create the next waves of programs and services that work.
* Understand and accept that interactive television, as it goes mainstream, will provide its own answers to television’s 30-second spot advertising, and we’re not just talking product placement. If the objective is to sell a product or service, advertisers are going to creatively and economically embrace new ways of presenting their pitches, information and even transactions for which they will gladly pay a price, especially if they were able to rationalize 15 percent price increases in last year’s upfront for a diminishing broadcast network marketplace.
* The shift in focus as the industry transitions from old to new economic models places responsibility for paying the content bill and generating profits with the consumers, sponsors, advertisers, distributors/ exhibitors and anyone else who will pay the way. But that means you have to entice them with content and services worth paying for. Time to innovate.
If you think this is a decade away, think again. Cable operators are just the first stop for head-end content access and storage to which consumers, already comfortable with the Internet and interactivity, have been quick to respond. It’s a matter of convenience and getting more of what they specifically want for the money.
A string of economic quandaries have beset media and entertainment companies. There isn’t a media company on the map whose top executives aren’t agonizing about how to make the inevitable conversion to more paid, fee-based subscription and sponsored services so that it works in their favor.
Morgan Stanley veteran analyst Richard Bilotti recently determined that The Walt Disney Co., Time Warner and General Electric’s NBC, although among the largest and best-managed media companies, are also among the most vulnerable to the looming deceleration of affiliate fees, even if they are insulated from advertising sales whims. Affiliate fees, which are unlikely to grow more than 6 percent to 8 percent during the next five years, provide the primary financial support for real-time sports and networks reliant upon syndicated TV series and movies. They are supplemented only by advertising revenues, which are not expected to grow more than 3 percent to 4 percent annually under normal circumstances.
Because affiliate fees generally make up about 10 percent of entertainment industry revenue, the deceleration in affiliate revenue growth will have a negative impact on industry earnings g
rowth unless major cable networks can restrain their own program costs.
That is reason enough to be devising new revenue-generating content and distribution models, partly based on a slew of new ways to do things: HD, on-demand, user customization.
Keeping a lid on price escalations while trying to keep your balance as the ground shifts below your feet, or hoping that you can sell just one show into a challenged over-the-air TV market, are no longer acceptable isolated strategies. It’s time to rethink what you are doing at NATPE this year.