industry structure

Networks and Local Outlets

Some Basic Fundamentals

Networks = Stations

Broadcast = Cable

Very few stations are owned by the networks

Horizontal Integration

• Owning multiple entities within different product or service types– A variety of cable networks – Combination of broadcast network and cable networks – A variety of TV and/or radio stations (outlets)– A variety of cable systems (outlets)– Under current FCC rules, possibly seven radio, two TV

stations (outlets) in same local market

Vertical Integration

• Same entity controlling the production and distribution of a good or service– In terms of Electronic media think in terms of

conglomerate whose pieces include:• Studio (producer of content)• Network• Outlet

Largest Media ConglomeratesEst. Annual Revenue ’05 (in Billions)

AOL Time Warner $41B

News Corp $30B

Disney $27B

Viacom (before CBS Split)

$27B

Vivendi Universal $25B

Comcast $18B

NBC-Universal $13B

Cox $10B

Gannett $6.2B

Media & “Telecommunications” Industries Est. Annual Revenues (’05) in Billions

• Broadcast TV $45B• Radio $17B • Cable $57.6B • DBS $18B• Newspaper $48.6B• Magazines

$38.6B • Books $26.3B

• Motion Pictures $64B

• Recording Ind. $13.8B• Wireless

$81.5B • Local Phone(Wire) $127B• Long Dist. (Toll) $83.6B • Internet ????

Source: U.S. Census Bureau, FCC Statistics, NCTA

The “Business” of Electronic Media

Commercial Broadcasting and Cable Nets

1. Collect an Audience• As Large as Possible• Demographically Attractive

2. Sell Access to that Audience to Advertisers

3. Use Programming to Attract the Audience

Advertiser Driven

The “Business” of Electronic Media

Cable Television Systems

1. Collect Revenue from Subscribers Seeking

Signals

• Subscriptions

• Equipment Rental

• Pay-per-View

2. Local Advertising

Cable Overtakes Broadcast Networks

• Primetime share of broadcast network programming continues to drop

• Two years ago, big 4 networks (ABC, CBS, NBC, FOX) primetime share dropped below 50% during sweeps (historic low at 47%)

• Collectively viewers watching more cable programming during primetime now than broadcast TV, but spread among many networks

Who Watches What?

Broadcast 9/24/01—9/30/01

1. Friends 19.5 million TV Households

2. ER 18.3 million

3. Everyone Loves Raymond 14.4 million

4. CSI 14.2 million

5. Inside Schwartz 14.1 million

Cable/Sat 9/24/01 - 9/30/01

1. NFL 4.5 million

2. NFL Primetime 3.03 million

3. WWF 3.03 million

4. WWF 2.78 million

5. Dragon Ball Z 2.13 million

Media Ad Revenues (2005)

• Newspaper $47.33 billion

• Broadcast TV $44.29 billion

• Cable $23.65 billion

• Radio $19.64 billion

• Magazine $12.84 billion

Broadcast Television Revenue (2006)

Network Ad Sales $25.43 billion

Local Station Ad Sales $18.67 billion

Syndicated (barter) $ 4.23 billion

Total $48.35 billion

Cable Revenue (2006)

• Total overall revenue $74.7 billion – Basic tier $33.6 billion– Premium $ 6.4 billion– Advertising $26.9 billion

• Network $ 20.7 billion• Local $ 4.7 billion• Regional Sports $ 789 million

MVPD Statistics (2006)

• More than 111,600,000 television households in U.S.• 65.6 million cable customers in the U.S.

– 58.8% of TV households subscribe to cable– Cable passes 112,600,000 households – More than 7,000 local cable systems, majority owned by a

handful of companies– 34 million Digital Cable subscribers– 28.9 million Cable Modem subscribers (high-speed Internet)– 9.5 million VoIP subscribers (Internet telephony via cable)– 531 National Video Programming Services/Networks

• Approximately 30 million DBS subscribers– 13.6 million DishNetwork– More than 16 million DirecTV

What’s It Worth?Station Sales w/in last few years

• San Francisco VHF $700 million

• Worcester/Boston UHF $47.5 million

• Reno VHF $45 million

• Asheville, NC UHF $4.5 million

• Dallas FM $59.4 million

• Chicago AM $29 million

• Denver AM $4.2 million

• WLUS AM/WDJY FM Gainesville FL $762,500

Revenues: GE and NBC

0

20

40

60

80

100

120

140

GE

Revenues: GE and NBC

0

20

40

60

80

100

120

140

NBC

GE

Broadcast StationsOwnership “Types”

– Single Station

– Group Ownership

• Economy of Scale

• Clout

– Network Owned and Operated (O&O)• Stations owned by the network (e.g. ABC) and

affiliated with the same network (e.g. ABC)

Largest TV GroupsCompany Total Stations National Coverage

• Fox Television 31 41%• CBS 38 40% • Paxson 69 67%• Tribune 23 30.5%• NBC Universal 27 30%• ABC 10 24%• Univision 25 18.7%• Gannett 22 17.4%• Hearst-Argyle 33 16%• Sinclair 62 15%

Top 10 Radio GroupsCompany Number of stations Local markets Revenue

• Clear Channel 1202 189 $3.5 billion• Infinity 183 41 $2.35 billion

• Cox 82 18 $455 million

• ABC Radio 55 27 $436 million

• Entercom 95 18 $415 million

• Citadel 206 40 $349 million

• Radio One 63 22 $301 million

• Emmis 23 8 $295 million

• Hispanic 48 13 $254 million

• Susquehanna 32 9 $235 million

Broadcast Stations

Network Affiliation– Affiliate (ABC, CBS, NBC, FOX)

– Independent (UHFs that carry UPN, WB (now CW) & MyNetwork)

Some going truly Independent?

TV Station Expenses (affiliate)

Engineering

Programs

Production

News

Sales

Ad/Prom

Gen/Adm

9.2% Engineering

27.1% Programs

3.4% Production

23.7% News12.9% Sales

5.3% Ad/ Promo

18.4% Gen/Adm

Broadcast Stations: Ownership Limits

– FCC License

• 8 years

• Renewable

• Can be “transferred” (sold)

Broadcast Stations: Ownership Limits

Personal Characteristics

• US Citizen

• Character

• Financial Qualifications

Broadcast Stations: Ownership Limits

• Because of court decision, FCC’s proposal to

further deregulate ownership rules (June 2003) was

recently reassessed by FCC in Dec. 2007

• More info on who owns what? Visit

www.openairwaves.org

• Next several slides review what is currently in

effect, after the FCC completed the reassessment

in Dec. 2007

Radio Ownership Limits

– Numerical Limits

• Radio No National Limits

• Market-based Numerical Limits (local DMA)

– If 45 stations-- can own or control 8

– If 30-44stations--can own or control 7

– 15-29 stations--can own or control 6

– 14 or less--can own or control 5

National TV Ownership

Limits

– National limit based on broadcast, over-the-air

signal reach of all stations owned by one entity

– Recent Congressional law: Combined signals

can reach no more than 39% of TV Households

• UHF signals (channels 14-69) count ½

– Single company may not own two of the major

broadcast TV networks (CBS, ABC, NBC, FOX)

Local TV Ownership Limits

• May own two stations in same market

(DMA) if eight independently-owned

stations remain post-merger

• Top-four rule: only one of the stations may

be among the top four rated (viewed)

stations in the particular market at the time

of acquisition

Local Cross-Ownership Limits

– Owning combination of radio/TV/cable within

same local market• May own up to six radio and up to two TV stations (or 1 TV and

seven radio) as long as 20 “independent voices” (separately

owned stations) exist post-merger

• May own a cable system and station in same market

• May not own radio or TV station and newspaper in same market

(some grandfathered exceptions apply)

– In Dec. 2007, FCC ruled newspaper/broadcast station

combinations allowed in TOP 20 DMA’s (urban areas)

Cable Television

Some Basic Fundamentals

Networks = Stations

Broadcast = Cable

Very few stations are owned by the networks

The “Business” of Electronic Media

Commercial Broadcasting and Cable Nets

1. Collect an Audience• As Large as Possible• Demographically Attractive

2. Sell Access to that Audience to Advertisers

3. Use Programming to Attract the Audience

Advertiser Driven

The “Business” of Electronic Media

Cable Television Systems

1. Collect Revenue from Subscribers Seeking

Signals

• Subscriptions

• Equipment Rental

• Pay-per-View

2. Local Advertising

Industry Structure

Local Systems

Multiple System Operators (MSOs)– Economies of Scale & Clout

– National limit: MSOs permitted to serve 30% of all multichannel video subscribers (includes cable & DBS)

• Recently upheld by FCC in Dec. 2007

Horizontal Integration

• Owning multiple entities within different product or service types– A variety of cable networks – Combination of broadcast network and cable networks – A variety of TV and/or radio stations (outlets)– A variety of cable systems (outlets)– Under current FCC rules as of Dec. 2007, possibly six

radio, two TV stations (outlets) in same local market

Top 10 Multichannel Video Program Distributors (MVPDs)*

• Comcast 24.2 (million

subscribers)

• DirecTV* 16.0

• Echo Star* 13.6

• Time Warner 13.4

• Charter 5.4

• Cox 5.4

• Cablevision 3.2

• Bright House 2.3

• Suddenlink 1.4

• Mediacom 1.4

*DBS providers

Industry Structure

Program Networks Vertical Integration

– About 100 networks are owned by MSOs

– Comcast owns all or part of 64 networks

– Time Warner owns all or part of 34

– 40 % affiliated programming limit (struck down

by courts; under FCC review)

Vertical Integration

• Same entity controlling the production and distribution of a good or service– In terms of Electronic media think in terms of

conglomerate whose pieces include:• Studio (producer of content)• Network• Outlet

Vertical Integration

MVPD Statistics (2006)

• More than 111,600,000 television households in U.S.• 65.6 million cable customers in the U.S.

– 58.8% of TV households subscribe to cable– Cable passes 112,600,000 households – More than 7,000 local cable systems, majority owned by a

handful of companies– 34 million Digital Cable subscribers– 28.9 million Cable Modem subscribers (high-speed Internet)– 9.5 million VoIP subscribers (Internet telephony via cable)– 531 National Video Programming Services/Networks

• Approximately 30 million DBS subscribers– 13.6 million DishNetwork– More than 16 million DirecTV

System Operations

Five years ago:

Systems with 54+ channels: 42%

Systems with 30-53 channels: 46%

Systems with less than channels: 12%

Now 85 % of systems provide 750Mhz offer more than 54+ & 100s of digital

System Operations: Revenue

• Total overall revenue $74.7 billion (2006) – Basic tier $33.6 billion– Premium $ 6.4 billion– Advertising $26.9 billion

• Network $ 20.7 billion• Local $ 4.7 billion• Regional Sports $ 789 million

System Operations: Revenue

Slightly more than 50% of

cable subscribers also

subscribe to at least one pay

service

Cable Television RevenueBasic Sub

Pay Sub

Adv Svcs

PPV

Shoppin

Eq & Instal

Advert

System Operations: Annual Expenses

• Programming Expenditures

– $12.5 billion overall

• $7.5 billion in program access fees (to cable networks)

• Infrastructure (including upgrades)

– $12 billion

System Operations: Expenses

• Subscriber Installation/Service

• Marketing

• Customer Service

• Billing

System Operations: Expenses

• Advertising Sales

• Franchise Fees ($2.5 billion

annual)

• General Administration

Industry Structure

Regulation

– Local Franchise Authority

– Federal

Programming Constraints

• Franchise Requirements

• Must-Carry/Retransmission Consent– All full-power local stations must be carried if

they request– Stations may negotiate with the cable system

for retransmission permission– Public TV stations can only elect must-carry

Revisiting Some Basic Fundamentals

Networks = Stations

Broadcast = Cable

Very few stations are owned by the networks

Networks

Networks: Definitions• 2 or more outlets connected to allow

simultaneous presentation of content

• Organization which “packages” and distributes content to affiliates

Networks: Definitions• FCC definition of television network:–offers an interconnected program service on… –a regular basis for 15 or more hours per week

to…–at least 25 affiliated television licensees in 10

or more states

Types of Broadcast Networks

Occasional or “Ad Hoc”

Types of Broadcast Networks

Regional

Types of Broadcast Networks

Regional

Types of Broadcast Networks

Full Service National Networks

Why Networks?

• Convenient Source of Programs for Outlets

• Convenient Means for Advertisers to Reach National Audiences

Broadcast Network Operation

• Program Packaging and Distribution

• Minimal Program Production

• Revenue from Advertisers Reaching National Audience

Broadcast Network-Affiliate Relationships

• Contractual Relationship

• Legal Restrictions Apply

• Affiliates Provide Access to Local

Audiences

Broadcast Network-Affiliate Relationships

• Network Compensates Affiliate for

Access

–Direct Payment

–Adjacencies and In-program

Availabilities

Broadcast Network-Affiliate Relationships

Network Obligations:

–Compensate Station

–Promote and Advertise

Programs

Broadcast Network-Affiliate Relationships

Network Receives:

–Access to Audience to Sell to

Advertisers

Broadcast Network-Affiliate Relationships

Station Obligations:

– Promote and Advertise Programs

– Show Whichever Programs It Chooses

Broadcast Network-Affiliate Relationships

Station Receives:

– Network Compensation

– Programs

– Prestige

– Audience to Sell to Local and Regional

Advertisers

Broadcast Network-Affiliate Relationships

– Network/Affiliate Disputes:

• Clearances and Pre-emptions

• Network Encroachment on Station Time

Broadcast Network-Affiliate Relationships

• Networks pulling out of NAB

• Affiliates petition to the FCC

Changing the Network/Affiliate Relationship

• Eliminate Compensation?

• Reverse Compensation?

• Recapture Commercial Availabilities

Changing the Network/Affiliate Relationship

• Move Programming directly to Cable/Satellites

• Internet

• The Digital Question

Changing the Network/Affiliate Relationship

• Three Possible Futures

– San Francisco: • KRON (lost affiliation with NBC became true independent like WJXT

in Jacksonville which lost CBS)• KNTV gained affiliation through reverse compensation (pays NBC

$36 million a year)

– Bristol, VA: WCYB (NBC/CW) • Multiple network affiliates with DTV in smaller markets

– WCJB in Gainesville (ABC/CW)– WGFL in Gainesville/Ocala (CBS/MyNetwork)

– Gannett Broadcasting• Attain primarily one network affiliation with group owned stations• 13 of 22 stations NBC affiliates

Revisit Some Basic Fundamentals

Networks = Stations

Broadcast = Cable

Very few stations are owned by the networks

Basic“Cable” Networks

• Provided as Part of Regular

Subscriber Fee

• Carried on both Cable & DBS

Basic“Cable” Networks

• Two Revenue Streams

– Advertising• Specialty cable networks (e.g. Food

Network) attract most viewers possible from its target audience to entice advertisers looking for specific demographics

– Cable Systems/Operators pay a fee for

most services (program access fee)

Pay Networks

• Also known as premium networks/channels

• Subscriber Pays Additional Monthly Fee

• Stagnant Growth• One revenue stream for pay

network• On Cable & DBS

Pay Networks

Competitive Challenge: Product Differentiation

– Exclusive Movie Contracts

– Made-for-TV Movies

– Original Series and Specials

– “Multiplexing”

Pay-Per-View (PPV)

• Uneven Performance–Current PPV revenue about

$2.3 billion

–Expected to go to @

$9 billion by end of decade

Pay-Per-View (PPV)

–Recent Study of Typical PPV system showed…• 1% of basic cable subs make 48% of the PPV buys

• 50% of the PPV buys are of adult services

Rich Media, Poor Democracy Video Segment

Consolidation/Synergy leads to the following:

• Cross-promotion

• Cross-production

• Cross-advertising

• Blockbuster