An interesting analysis, but I'm not certain the writer fully understands what is going on here. She does explain that the conglomerate parents of the Big Four Networks will benefit from these shifts, along with Time Warner, which has turned it's Superstations into cable networks.
I think this has less to do with advertising parity for cable than it does the deconstruction of the broadcast networks, which are sharing a big chunk of advertising revenues with their local affiliates.
I got an e-mail newsletter this morning Media Post publications talking about the "New Fellowship of the Digital Ring." Turns out that: "National Cable Communications (NCC), the nation's largest spot cable advertising representation firm -- and owned by the country's largest cable systems operators -- has been retained by telco Verizon to handle local inventory sales for its video service FiOS. I've always thought that the telco's IPTV plans to enter the video service realm would be construed most dangerous to the local cable operator - another entity competing for "fair share" of local market TV advertising budgets. Presently, local cable operators glean only $5.5 billion of the $25 billion local TV ad expenditure even though TV viewers spend over 50% of their time watching cable programming."
In essence, the conglomerates are sharing more than $20 billion in advertising revenues with local TV broadcasters (they actually get a good chunk of this via their O&Os). IMHO the biggest threat to the continue existence of local TV broadcasters is that they are not investing much if any of this revenue in the development of content. Without content, the conglomerates could easily pull the plug on "the big four network," leaving local broadcasters grasping for something to air...
There is a reason that you see "ESPN on ABC" when watching sports on an ABC affiliate...
Regards Craig http://blogs.mediapost.com/on_media/?p=90 Cable's Future Power: Parity With Big 4 Broadcasters Posted January 30th, 2008 by Diane MermigasOne of the unintended consequences of the lingering writers' strike is rising cable network ratings and advertising prices, which are moving closer to parity with their broadcast brethren and intensifying the shift of power away from the Big 4.
Even after the strike is resolved, the broadcast networks will likely be struggling to gain traction with audiences and keep their advertising footing with strike-driven reality shows and sporadic new episodic prime-time series.
The cable networks will continue counter-programming provocative series and niche fare-the kind that appeals to users in a personalized, specialized new media realm. The gains cable makes now at the expense of the broadcast networks will be fuel for future gains. At some point, the lowest-rated broadcast network programs and the highest-rated cable programs will reach parity. On that strength, many of the specialized cable networks will tap into the pricing premiums for delivering target audiences. Niche content is a cornerstone of the new digital paradigm.
"The unintended beneficiaries of this strategy will be the basic cable network owners who will be able to draft under broadcast's pricing umbrella, while growing audience share," says Bernstein analyst Michael Nathanson.
An added irony: even as the broadcast networks suffer the negative consequences, their corporate parents will not. Many media conglomerates will see a rise in earnings as a result of gains at the cable networks they own. A 10% incremental domestic cable network advertising growth could render an 11.3% boost in Viacom's estimated 2008 earnings per share, 4% for Time Warner, 3.7% for Walt Disney Co. and 2.2% for News Corp., according to Nathanson. NBC Universal also is expected to see gains from its cable networks, although General Electric does not break out its results. However, CEO Jeff Zucker says NBCU's cable nets are contributing 54% to the company's bottom line. CBS has the most limited cable exposure to offset vulnerable broadcast operations.
Pali Research analyst Richard Greenfield Monday boosted earnings estimates for Viacom and Discovery Holdings based on the upside at their niche cable networks. He noted that advertising drives only 35% of Viacom's total revenues and 58% of its media networks, and less than 45% of Discovery's total revenues.
The big unknown is how much of cable's ratings and ad revenue gains will stick and permanently handicap the Big 4. While the broadcast networks generally stand to profit from the early months of the strike, that will change as original series become scarce and advertising makegoods mount. In the coming months, the share of ad dollars to basic cable networks will accelerate as the broadcast networks depend more on reruns and reality fare.
Advertiser demand for broadcast TV time may not drop as quickly as broadcast ratings, partly because of makegoods for missed guarantees. However, advertisers increasingly will turn to cable in a tight scatter market; the broadcast networks will continue to seek double-digit price increases in hopes of breaking even.
That lag will continue post-strike, when the broadcast networks commission scripts and produce new series. An effort to control costs by ordering fewer, better quality series on an as-needed basis will put broadcast and cable networks on a level playing field. "It is not inconceivable that broadcast loses its average 2X CPM pricing advantage versus cable in prime time," Nathanson says. In fact, last summer's gap between broadcast and cable was the closest in history.
Although all cable networks will realize some lasting gains from the strike, only Viacom, the most pure-play cable network of the media conglomerates, has guaranteed permanent upside. In December, eight of Viacom's 11 cable networks posted positive ratings growth, ranging from 3.5% at Spike to 15% at MTV2. Prime-time adult viewers ages 18 to 49 across all basic cable networks grew by 6.3% in the fourth quarter. By comparison, broadcast audiences declined down double digits in every quarter of 2007, and are down at least 12% this season.
"We believe these prime-time audience share shifts, combined with sold-out broadcast network scatter, drove strong demand (and pricing) for cable network scatter in the fourth quarter, especially for the cable networks that gained share," Nathanson said. Niche cable networks at Cablevision's Rainbow Media, crown Media's Hallmark Channel, E.W. Scripps, Discovery, Disney and Time Warner have registered double-digital gains during the strike.
Ultimately, such fundamental gains will translate into higher valuations for many themed cable networks and their popular online extensions. For instance, The Weather Channel could fetch $5 billion, which would suggest a 39-times earnings multiple and a $53-per-subscriber value. "These implied multiples represent significant premiums over previous cable network sales, so much so that a $5 billion sales price would make The Weather Channel the most expensive cable network sale since 2000," said Lehman Brothers analyst Anthony DiClemente. About $3 billion of that valuation is assigned to the cable channel and $2 billion to weather.com, demonstrating that the Internet can be "the magic dust of valuation," he said.
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