Networks facing a most uncertain fate

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Two things come to mind about the future of network TV: its past and its present.

Following that progression, the future of network TV seems dim, at best.

Over the past quarter century, the networks have seen their share of the national commercial TV audience dwindle from 100% to about 50% in prime time and about 39% on a total day basis (after adjusting for the inclusion of Fox, but not UPN and WB). The network share of advertising budgets, meanwhile, has fallen from 100% to about 59 cents for every national TV dollar placed by an advertiser.

That the networks have managed to maintain an advertising share advantage over TV options like cable and syndication in the face of higher rates of audience erosion is a testament to their sales and marketing skills. However, even that gap appears to be closing at an accelerated rate.

BETTER DATA

Access to better TV audience data and the development of sophisticated, computerized audience-reach systems have demystified the advertising impact of network TV. These developments have taught advertisers and agencies they can more freely substitute more efficient options for sacrosanct network TV impressions. At their current rate of erosion, the networks will grow increasingly less viable as an option.

Under conservative estimates released recently by investment banker Veronis, Suhler & Associates, the networks' share of consumer time spent with TV will fall from 39% this year to about 34% in 2003.

That forecast, of course, assumes that the TV universe will continue to be defined as it is today-in neat little piles of over-the-air broadcast and wired and satellite-fed multichannel TV.

But as witnessed by the rise of multichannel TV, traditional definitions can change rapidly. And rapid is a good word to describe what currently is happening to changes in the way TV gets distributed.

The broadcast industry's shift to digital broadcasting, coupled with the cable industry's deployment of digital set-top receivers, will greatly expand the pipeline into TV homes. That alone would suggest a new wave of channel proliferation that would make the fragmentation of the 1980s and 1990s look stagnant by comparison.

BROADBAND LOOMS

But equally accelerated developments in the distribution of digital media promise to explode that factor into infinite proportions, especially the rise of broadband wired and wireless technologies.

Cable modems and digital subscriber lines are expected to penetrate close to half of U.S. homes by the end of 2010.

The wireless industry is near developments that would make broadband untethered, which would give rise to unwired networks that might be viewed in a car or on a portable hand-held device. What this will do to network TV shares can only be imagined, but it clearly will be something of a magnitude far greater than what Veronis, Suhler envisions.

But network TV owners appear to have seen the light and recognize their future lies more in the unlimited digital distribution of TV brands.

But don't take my word for this.

Consider NBC President-CEO Bob Wright's remarks during a recent National Press Club address.

"No longer is it enough for a broadcaster to reach viewers through exclusively traditional means. In fact, the whole concept of a traditional media company is a thing of the past," Mr. Wright told the scribes.

VIEWERS TURNED BUYERS

He alluded to the real play for the networks in digital media when he spoke of transforming viewers into "buyers." While networks have taken modest steps toward direct selling of their branded products to viewers, digital TV will accelerate the opportunity via interactive and, conversely, transactional TV opportunities. The prospects for that, ultimately, may come to overshadow networks' traditional business.

Currently, networks take in about $17 billion in ad sales, which is their primary source of revenues.

But forecasters speaking at a recent "Myers Forum for Interactive Television Development" projected that "T-commerce," or TV commerce, could reach as much as $300 billion over the next decade.

At a minimum, these new transactional revenues will begin to rival, if not surpass, conventional TV advertising, meaning the networks do indeed have a greater upside in digital media fragmentation than they do with their old analog model.

Interestingly, the networks already are significant retailers. In fact, if you think about it, they are the original electronic retailers. It's just that the primary product they had been selling up until now has been their own wares, with other marketers' messages tucked into them.

According to Veronis, Suhler, the current retail value of TV broadcasting is $42.6 billion. Combine that with an estimated $68.1 billion in "retail" cable revenues, and the T-commerce industry already is generating $100 billion in sales, without significantly tapping the potential for direct-to-consumer transactions.

In the final analysis, media historians may come to write that the networks were not really program producers or distributors, but some of the most successful retail marketers.

Mr. Mandese is editor of Myers Report.

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