industry structure
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TRANSCRIPT
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
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Revenues: GE and NBC
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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
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
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