As I read the following story from the New York Times, I thought about conversations I've had recently regarding the insiders vs. outsiders perspectives of media.
Those of us on the inside, (for me it is mostly radio and social media), have a different view of what we do compared to our customers.
Actually there are two customers, the businesses that spend their money advertising with us, and the consumers, who read, watch, listen and talk about it.
Insiders, are often too close to themselves to understand how the outsiders behave. And this is a serious problem.
Fortunately, I have worked outside of the media and was a "regular consumer" for awhile before returning to this business several years ago.
Is there any loyalty to a radio station, if they play a couple of songs that you don't like?
Not really.
Is there any loyalty to a TV Network, if they don't carry the shows I want to watch?
Not at all!
And this is one of the problems that NBC and the other broadcast network face.
An Unsteady Future for Broadcast
Oprah Winfrey is fleeing broadcast television for cable. NBC, once arguably the biggest cultural tastemaker in the United States, is being shopped to Comcast, the country’s largest cable company.
Have we finally reached a tipping point that suggests a remarkable decline in the fortunes of broadcast television in America?
In the NBC Universal deal, in which General Electric is negotiating to sell a majority stake of its media business to Comcast, it is the cable channels — USA, Bravo, SyFy, MSNBC and CNBC — that are seen as the most valuable, not the NBC broadcast network, which is mired in fourth place in the ratings among the four major networks.
Most analysts and many executives agree that the economic model of broadcast television — which relies much more heavily on advertising than cable — is severely fractured. What they are wondering now is if it is irreparably broken.
“It’s in a period of huge transformation,” said Horace Newcomb, a professor of telecommunications at the University of Georgia and the director of the Peabody Awards, which are awarded annually for excellence in radio and television broadcasting. “It’s in a state of confusion.”
The business model of the big three networks — which became four when Fox began prime-time programming in 1987 — has for decades relied on a simple formula: spend millions on original programming that will attract advertiser dollars and later live on as lucrative reruns in syndication.
But ratings are going down. In the 1952-53 television season, more than 30 percent of American households that owned televisions tuned in to NBC during prime time, according to Nielsen. In the 2007-8 season, that figure was just 5.2 percent.
The mass audience — the bread and butter of broadcast networks — has splintered into niches as viewers flock to alternative entertainment choices on the Internet, to video games and to cable channels dedicated to individual tastes, like Ms. Winfrey’s forthcoming OWN, the Oprah Winfrey Network.
And yet, programming remains expensive — a network drama costs about $3 million for one hour — and advertisers are becoming reluctant to pay ever-rising premiums for prime-time shows. All the networks have tried to adjust, putting on more reality programming, for example, that is cheaper to produce.
NBC made perhaps the biggest bet of all — moving Jay Leno to prime time each night at 10, saving the millions it would have cost to develop a scripted show in that time spot. The Leno move has been the subject of intense scrutiny by the media, because Mr. Leno’s ratings have lately fallen on several nights well below even the modest guarantees NBC made to advertisers.
Nicholas P. Heymann, an analyst at Sterne, Agee & Leach who follows G.E., said that the consistently ineffective efforts to rebuild the prime-time portion of the NBC network might have led G.E. to begin thinking it was time to exit the entertainment business. And this one particular decision may have pushed G.E. over the edge, he said.
“I think the Leno move was the last straw,” Mr. Heymann said, “the last roll of the dice for G.E.”
Mr. Heymann acknowledged that it seemed unlikely on its face that such a huge deal could hinge on one decision in one slice of an enormous company. But he said, “It’s the domino effect of the move, on the shows in front of ‘Leno’ and the late-night shows after it. I think G.E. decided, ‘We can’t go on doing this.’ ”
While networks have found it difficult to charge ever-higher advertising rates in the face of declining ratings, big cable channels — like USA, TNT and TBS — have flourished with the millions of dollars in subscription fees from cable operators that they receive, on top of advertising.
“The cable players have a robust affiliate fee stream that allows them to better finance original programming,” said Anthony DiClemente, a media analyst at Barclays Capital. “The main structural issue right now with broadcast is that the vast majority of revenues are from advertising.”
Profit margins for cable networks are also much better than broadcast networks’. Derek Baine, a senior analyst at SNL Kagan, said big cable networks earned profit margins of 40 to 60 percent, while a good year for a broadcast network is a 10 percent profit margin.
Illustrative of this is a comparison of NBC to ESPN, one of the most popular cable channels. Last year, revenue for the two networks was roughly equal. NBC, according to SNL Kagan, generated about $5.6 billion in advertising dollars; ESPN generated a total of about $6 billion in revenue — $1.6 billion from advertising and $4.4 billion in subscriber fees. But ESPN was vastly more profitable. Its cash flow was about $1.4 billion, while NBC’s was $304 million.
“The viewership continues to migrate from broadcast to cable,” Mr. Baine said. “Over time, advertisers have continued to pay premium prices for prime time, but over time the audiences continue to go down. Eventually you are going to hit an inflection point.”
Perhaps the most steadfast defender of the broadcast model is Leslie Moonves, the chief executive of CBS. He says he believes broadcasters can survive without the additional subscription fee revenue that goes to cable networks. He frequently points to the power of broadcasters both to reach mass audiences and to create assets unmatched by anything on the cable side of the business.
Though he declined to comment for this article, Mr. Moonves, in an appearance at the Paley Center for Media in Manhattan earlier this week, said he had recently closed a deal for a new CBS drama, “NCIS: Los Angeles,” to sell its repeats for the impressive price of $2.35 million an episode. The buyer? USA network, which happens to be owned by NBC.
The original “NCIS” is the most successful program on USA — in repeat episodes.
Mr. Moonves noted that the two NCIS editions taken together “are a billion-dollar property.” No show created on any cable network has been able to approach that level of revenue. “My model isn’t broken,” he said.
CBS executives have pointed out recently that the advertising market has started to show signs of revival. The so-called scatter market, where advertisers buy time on an individual commercial basis, is up about 25 percent, the CBS executives said.
But the cultural implications of the decline of broadcast television may be as profound as the business forces at play. Gone are the days when the nation gathered around television sets in the evening to watch, say “The Cosby Show” or “All in the Family” and then chat about it the next day at work.
Broadcast television was “a place, an arena, where ideas were presented in a fashion in which people could become attached to or explore,” said Mr. Newcomb, the professor.
“Issues with civil rights and the women’s movement were embedded into entertainment programs and people would see them and either accept it or reject it,” he said. “Today, you can watch TV and not have to be challenged.”
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