[opendtv] Retransmission battles signal trouble for free TV (too pessimistic?)
- From: Tom Barry <trbarry@xxxxxxxxxxx>
- To: opendtv <opendtv@xxxxxxxxxxxxx>
- Date: Tue, 05 Jan 2010 09:56:16 -0500
The following article is from Broadcast Engineering and I agree with
much of it in principle. It is nothing we have not discussed here
repeatedly. But I think I take issue with the shorter term forecasts of
problems with TV advertising revenue since I do believe the economy has
already turned.
Forecasters tend to just predict recent trends and the article has a
prediction of 8% drop in TV ad revenue for 1010 and zero growth in
2011. However the performance of the stock market tends to predict and
lead that of the economy by maybe six months or so. Meanwhile the stock
market appeared to bottom last March and I thus predicted the bottom of
the recession would be somewhere around September. I still think that
will prove to have been true.
Then, based upon this, in September I started predicting pleasant
surprises for Xmas retail sales. I think I even posted that here once.
At the time, IIRC, the consensus forecast was for another year over year
drop in Xmas retail sales of about 3% or so but it looks like instead
they were up 3-4%. All this leads me to believe the recession has
indeed bottomed and ad revenues will improve in 2010, not decline a
horrible 8%.
If I am right then this should help broadcasters in the short run and
some of the more dire predictions may take a lot longer to play out then
this article suggests.
I'm not trying to set myself up as a market guru here and no longer
spend all my time trading index options and tracking financial news.
But I think the pessimism has been overdone and we should start
expecting a (slow) turnaround.
- Tom
------------------------------------
<http://broadcastengineering.com/news/retransmissions-battles-signal-trouble-0104/>
Retransmission battles signal trouble for free TV
Jan 4, 2010 11:50 AM, By Michael Grotticelli
After doing business as usual for almost 60 years, the economic model
governing American television stations is under tremendous strain and
may no longer work.
At ABC, CBS, NBC, Fox and the local stations that carry the networks'
programming, nearly everyone agrees the business model is unraveling.
Cable TV and the Internet have fractured the audience for free TV and
taken away its advertising dollars. Broadcasters have accelerated their
push for new revenue to pay for programming.
For pay television customers, this almost certainly means that
subscription costs will continue to climb. The networks are considering
ditching free broadcast signals altogether and operating as cable
channels — a move that could spell the end of free TV as Americans have
known it since the 1940s.
Rupert Murdoch, whose News Corp. owns the Fox network, told a
shareholder meeting this fall that broadcast stations can no longer be
supported solely by advertising revenues.
The future of free TV also could be altered as the biggest pay-TV
provider, Comcast, seeks to take control of NBC. Comcast has not
signaled plans to end NBC's free broadcasts. However, Jeff Zucker, who
runs NBC and its sister cable channels such as CNBC and Bravo, told
investors this month that "the cable model is just superior to the
broadcast model."
On average, the pay-TV providers pay about 26 cents for each channel
they carry. A channel as highly rated as ESPN can get close to $4, while
some, such as MTV2, go for just a few pennies. With both advertising and
fees, ESPN has seen its revenue grow to $6.3 billion this year from $1.8
billion a decade ago.
In addition to a growing number of channels, cable is also now drawing
more advertising dollars. In 1998, cable channels drew roughly $9.1
billion, or 24 percent of total TV ad spending, according to the
Television Bureau of Advertising. By 2008, they were getting $21.6
billion — or 39 percent.
Having two revenue streams — advertising and fees from pay-TV providers
— has insulated cable channels from the recession. Over-the-air
stations, on the other hand, have been forced to cut staff due to loss
of ad sales during the past year.
The major networks will end the year with a 9 percent drop in ad
revenue, followed by an 8 percent drop in 2010 and zero growth in 2011,
according to ZenithOptimedia. And although the networks are making some
income from the Internet, it’s not significant enough to make up for the
loss of advertising revenue. Advertisers spent $34 billion on broadcast
commercials in 2008, down by $2.4 billion from two years earlier.
So rather than wait for the Internet to become a bigger source of
income, the networks and local stations are mimicking what cable
channels do. They are seeking to charge pay television companies a
monthly fee per subscriber to carry their programming.
Over time, however, the networks may be able to get even more money by
abandoning the affiliate structure and undoing a key element of free TV.
The reason is cable and satellite providers are paying the networks only
for the stations the networks own. That amounts to a little less than a
third of the TV audience, which means local affiliates recoup two-thirds
of the fees. If a network operated purely as a cable channel and cut the
affiliates out, the network could get the fees for the entire pay
television audience.
Fitch Ratings analyst Jamie Rizzo predicts that at least one of the four
broadcast networks could explore becoming a cable channel as early as 2011.
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