For more than 60 years, TV stations have broadcast news, sports and entertainment for free and made their money by showing commercials. That might not work much longer, says the Associated Press.
The business model is unraveling at ABC, CBS, NBC and Fox and the local stations that carry the networks’ programming, says the AP. Cable TV and the Web have fractured the audience for free TV and siphoned its ad dollars. The recession has squeezed advertising further, forcing broadcasters to accelerate their push for new revenue to pay for programming.
That will play out in living rooms across the country. The changes could mean higher cable or satellite TV bills, as the networks and local stations squeeze more fees from pay-TV providers such as Comcast and DirecTV for the right to show broadcast TV channels in their lineups.
The networks might even ditch free broadcast signals in the next few years. Instead, they could operate as cable channels — a move that could spell the end of free TV as Americans have known it since the 1940s. Local broadcasters get their spectrum free from the United States government. It was once thought local radio and television broadcasters provided a service to the public, and were once required to deliver “public service” programming in exchange for their free channel space. Group owners later bought and sold these broadcast licenses.
The future of free TV also could be altered as the biggest pay-TV provider, Comcast Corp., prepares to take control of NBC. Comcast has not signaled plans to end NBC’s free broadcasts. But 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.”
The traditional broadcast model works like this: CBS, NBC, ABC and Fox distribute shows through a network of local stations. The networks own a few stations in big markets, but most are “affiliates,” owned by separate companies.
Traditionally the networks paid affiliates to broadcast their shows, though those fees have dwindled to near nothing as local stations have seen their audience shrink. What hasn’t changed is where the money mainly comes from: advertising.
Cable channels make most of their money by charging pay-TV providers a monthly fee per subscriber for their programing. On average, the pay-TV providers pay about 26 cents for each channel they carry, according to research firm SNL Kagan. A channel as highly rated as ESPN can get close to $4, while some, such as MTV2, go for just a few pennies.
According to Broadcasting and Cable, broadcast television is fighting for its life. The carriage agreements between broadcasters and cable networks expires Dec. 31. Fox, the top-rated network, and Time Warner Cable, the second-largest cable operator, two of the biggest players in the industry, are going head-to-head.
The executives working on those agreements—otherwise known as retransmission deals—are expected to remain at the negotiating table into the wee hours of the holiday season.
Having two revenue streams — advertising and fees from pay-TV providers — has insulated cable channels from the recession. By contrast, over-the-air stations have been forced to cut staff, and at least two broadcast groups sought bankruptcy protection in 2009.
With both advertising and fees, ESPN has seen its revenue grow to $6.3 billion in 2009 from $1.8 billion a decade ago, according to SNL Kagan estimates. That, plus a growing number of channels, has given cable a bigger share of the ad pie.
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.
Printing and distribution account for “almost half of expenses” at many newspapers, but “few — if any — publishers have a game plan or timeline for transitioning a majority of their print readers to online delivery,” says a new study (pdf) by two leading analysts of media economics…”Even though several recent surveys of media usage indicate that readers are re-organizing their lives around the new technology — and leaving print behind.”
