Networks and Local Outlets

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Networks and Local Outlets
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Some Basic Fundamentals

• Networks Stations
• Broadcast Cable
• Very few stations are owned by the networks

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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

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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

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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

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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
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The Business of Electronic Media

• Commercial Broadcasting and Cable Nets
• Collect an Audience
• As Large as Possible
• Demographically Attractive
• Sell Access to that Audience to Advertisers
• Use Programming to Attract the Audience
• Advertiser Driven

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The Business of Electronic Media

• Cable Television Systems
• Collect Revenue from Subscribers Seeking Signals
• Subscriptions
• Equipment Rental
• Pay-per-View
• Local Advertising

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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

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Who Watches What?

• 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

• Broadcast 9/24/019/30/01
• 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

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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

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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

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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

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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

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Whats 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

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Revenues GE and NBC
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Revenues GE and NBC
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Broadcast Stations

• Ownership Types
• Single Station
• Group Ownership
• Economy of Scale
• Clout
• Network Owned and Operated (OO)
• Stations owned by the network (e.g. ABC) and
  affiliated with the same network (e.g. ABC)

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Largest TV Groups

• Company 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

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Top 10 Radio Groups

• Company 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

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Broadcast Stations

• Network Affiliation
• Affiliate (ABC, CBS, NBC, FOX)
• Independent (UHFs that carry UPN, WB (now CW)
  MyNetwork)
• Some going truly Independent?

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TV Station Expenses (affiliate)
18.4 Gen/Adm
9.2 Engineering
5.3 Ad/ Promo
3.4 Production
23.7 News
12.9 Sales
27.1 Programs
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Broadcast Stations Ownership Limits

• FCC License
• 8 years
• Renewable
• Can be transferred (sold)

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Broadcast Stations Ownership Limits

• Personal Characteristics
• US Citizen
• Character
• Financial Qualifications

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Broadcast Stations Ownership Limits

• Because of court decision, FCCs 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

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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

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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)

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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

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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 DMAs
  (urban areas)

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Cable Television
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Some Basic Fundamentals

• Networks Stations
• Broadcast Cable
• Very few stations are owned by the networks

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The Business of Electronic Media

• Commercial Broadcasting and Cable Nets
• Collect an Audience
• As Large as Possible
• Demographically Attractive
• Sell Access to that Audience to Advertisers
• Use Programming to Attract the Audience
• Advertiser Driven

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The Business of Electronic Media

• Cable Television Systems
• Collect Revenue from Subscribers Seeking Signals
• Subscriptions
• Equipment Rental
• Pay-per-View
• Local Advertising

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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

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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

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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
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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)

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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

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Vertical Integration
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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

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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

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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

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System Operations Revenue

• Slightly more than 50 of cable subscribers also
  subscribe to at least one pay service

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Cable Television Revenue
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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

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System Operations Expenses

• Subscriber Installation/Service
• Marketing
• Customer Service
• Billing

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System Operations Expenses

• Advertising Sales
• Franchise Fees (2.5 billion annual)
• General Administration

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Industry Structure

• Regulation
• Local Franchise Authority
• Federal

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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

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Revisiting Some Basic Fundamentals

• Networks Stations
• Broadcast Cable
• Very few stations are owned by the networks

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Networks

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Networks Definitions

• 2 or more outlets connected to allow simultaneous
  presentation of content
• Organization which packages and distributes
  content to affiliates

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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

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Types of Broadcast Networks

• Occasional or Ad Hoc

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Types of Broadcast Networks

• Regional

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Types of Broadcast Networks

• Regional

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Types of Broadcast Networks

• Full Service National Networks

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Why Networks?

• Convenient Source of Programs for Outlets
• Convenient Means for Advertisers to Reach
  National Audiences

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Broadcast Network Operation

• Program Packaging and Distribution
• Minimal Program Production
• Revenue from Advertisers Reaching National
  Audience

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Broadcast Network-Affiliate Relationships

• Contractual Relationship
• Legal Restrictions Apply
• Affiliates Provide Access to Local Audiences

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Broadcast Network-Affiliate Relationships

• Network Compensates Affiliate for Access
• Direct Payment
• Adjacencies and In-program Availabilities

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Broadcast Network-Affiliate Relationships

• Network Obligations
• Compensate Station
• Promote and Advertise Programs

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Broadcast Network-Affiliate Relationships

• Network Receives
• Access to Audience to Sell to Advertisers

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Broadcast Network-Affiliate Relationships

• Station Obligations
• Promote and Advertise Programs
• Show Whichever Programs It Chooses

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Broadcast Network-Affiliate Relationships

• Station Receives
• Network Compensation
• Programs
• Prestige
• Audience to Sell to Local and Regional
  Advertisers

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Broadcast Network-Affiliate Relationships

• Network/Affiliate Disputes
• Clearances and Pre-emptions
• Network Encroachment on Station Time

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Broadcast Network-Affiliate Relationships

• Networks pulling out of NAB
• Affiliates petition to the FCC

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Changing the Network/Affiliate Relationship

• Eliminate Compensation?
• Reverse Compensation?
• Recapture Commercial Availabilities

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Changing the Network/Affiliate Relationship

• Move Programming directly to Cable/Satellites
• Internet
• The Digital Question

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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

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Revisit Some Basic Fundamentals

• Networks Stations
• Broadcast Cable
• Very few stations are owned by the networks

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BasicCable Networks

• Provided as Part of Regular Subscriber Fee
• Carried on both Cable DBS

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BasicCable 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)

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Pay Networks

• Also known as premium networks/channels
• Subscriber Pays Additional Monthly Fee
• Stagnant Growth
• One revenue stream for pay network
• On Cable DBS

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Pay Networks

• Competitive Challenge Product Differentiation
• Exclusive Movie Contracts
• Made-for-TV Movies
• Original Series and Specials
• Multiplexing

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Pay-Per-View (PPV)

• Uneven Performance
• Current PPV revenue about 2.3 billion
• Expected to go to _at_
• 9 billion by end of decade

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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

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Rich Media, Poor Democracy Video Segment

• Consolidation/Synergy leads to the following
• Cross-promotion
• Cross-production
• Cross-advertising
• Blockbuster