Broadcast Networks Face Identity Crisis

As Reach Shrinks, TV Execs Rethink Programming, Local Affiliates

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NEW YORK ( -- NBC or TNT? While TV-industry suits and ad buyers will tell you a vast difference exists between the two, it's all the same to a kid channel-surfing his way up and down the cable box. Now even the biggest proponents of broadcast TV have begun to see a day when they will look more like cable networks than not.

Evidence is mounting that at least one broadcast network may have to find a new way of operating in the not-too-distant future. Already, many of the broadcasters are cutting back on the time they would otherwise have to fill with costlier fare. NBC is gambling on a new five-day-a-week Jay Leno prime-time talk show for the 2009-10 TV season; the move would cut costs and reduce scripted prime-time programming. Fox recently agreed to drop four hours of Saturday-morning kiddie content in favor of giving two hours back to affiliates and running infomercials in the other half. The CW tried, unsuccessfully, to give up programming its Sunday nights in order to focus on making better shows for Monday through Friday.

Zucker: Rethink what a network is
Actions speak louder than words, of course, but even the chatter is getting pretty direct. "We do have to continue to rethink what a broadcast network is today, and what do we want to be aspirationally. And do we want to be what we've been?" asked Jeff Zucker, CEO of NBC Universal, at an early-December investor conference. He was attempting to answer a question about whether there are true functional differences between a broadcast network such as NBC and a cable outlet such as USA in a world where pay-TV households account for the majority of modern veiwership.

"I do think NBC provides more than just prime-time entertainment and that it's our relationship with our local TV stations that is a point of differentiation," he said. At a time when broadcast viewership continues to erode and advertisers are pulling back on spending, however, everything is up for grabs. Prime-time schedules and affiliate relationships are maintained because "hey, it's been set up that way," Mr. Zucker said. "It doesn't have to be set up that way going forward."

A world without NBC or CBS in their current form? The notion would have been laughable just a decade ago. Now it seems inevitable. Even Leslie Moonves, the CBS Corp. CEO who is one of the most vocal proponents of broadcast TV, suggested change is on the way to how broadcast networks operate. Speaking at the same conference, he hinted that the traditional relationship of broadcasting content through a variety of local TV stations and affiliates may not be as strong in years to come.

Moonves: Changing the whole economic model
"Once again, down the road that's something that very well could happen. But I think it's five or 10 years away before that happens. We have a number of affiliation agreements. Obviously our local stations are important to us. We do not want to bypass the importance of local broadcasters to their communities," he said. Such a move would "change the whole economic model drastically," he added.

Drastic change, however, is already here. Viewership among adults 18 to 49, 18 to 34 and 25 to 54 has been down season to date as of the week of Nov. 30, according to research from Wachovia Capital Markets; only CBS has been able to keep most of those dips in the single-digit percentage range. Ad-skipping digital video recorders are forecast to be in 44% of U.S. TV households by the end of 2014, up from 25% at the end of the third quarter of 2008, according to Interpublic Group of Cos.' Magna; DVRs will "contribute to a 4% erosion in total viewing impressions across all dayparts," the firm said. And the number of other options consumers have to gain access to entertainment and information only looks to increase as more homes get wired for broadband and can watch video online.

Advertisers want broadcast networks around because they still help them reach the largest number of consumers in a single burst. As ratings chip away, however, and as more cable outlets produce must-see programs such as "Damages" or "Mad Men," there is a strong likelihood that a top-rated cable network could reach as many people as one of the weaker broadcast outlets. "If one [broadcast network] was not to be around, it probably would not matter very much" three or four years from now, said Michael Nathanson, a media analyst at Bernstein Research. "You probably could lose one."

Needing broadcast's big, broad reach
Should such an event take place in five to 10 years' time -- or even less -- how will advertisers get the broad reach they need to keep consumers buying hamburgers, soda and sneakers? Ad buyers would be concerned. "There is still very much a need for the reach that the broadcast networks give us," said Ed Gentner, senior VP-group director at Publicis Groupe's MediaVest. "If you take a look at the average ratings across prime time for broadcast TV vs. cable TV, there is still a very big differential, and there is still a need -- especially with some categories -- to utilize the big, broader reach [a broadcast network] is getting you."

Others seem more sanguine. Media companies already seem to be divesting themselves of local TV stations, said Rino Scanzoni, chief investment officer of WPP Group's Group M, suggesting that, eventually, a broadcast network might be very happy to become a cable outlet. It might lose some audience and the lack of local stations means it would lose some ability to promote themselves locally, he said, but cable means getting revenue from both advertisers and subscription fees. "A dual revenue stream is becoming more and more critical to survive," said Mr. Scanzoni. "I could see an NBC making that play."

Cable's flagship shows
To make up for less ability to tackle broad audiences, advertisers would likely seek out flagship programs on cable. Shows such as "The Closer" on TNT or "Mad Men" on AMC often draw more critical acclaim than what's on broadcast and typically bring in a devoted -- if significantly smaller -- audience. Should that stuff become the new breakout programming on TV, advertisers will have to make do, said MediaVest's Mr. Gentner. "It probably needs to get to a point where the ratings that are generated ... would need to be as down to a point where they are almost interchangeable with cable, and I would see reach not being as affected by making that shift from very low-rated broadcast to the higher-rated cable."

Should that come to pass, look for marketers to accelerate their interest in aligning themselves with specific entertainment properties, whether they be individual shows or even particular episodes that help burnish their themes, messages and products.

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