The broadcast networks have spent the past few years reinventing their business models and the way they distribute content, and, according to analysts, those moves will never be more important than this year.
"The broadcast networks have done a great job of recognizing that the Internet is the new window for distributing their programming," said Lee Westerfield, managing director and senior research analyst at Harris-Nesbitt. "And in 2007, the ball will move even further forward in broadband. I would speculate that for the new television season in fall 2007 we will see new shows premiering in broadband."
That projection is independently supported by CBS data from its online entertainment panel, which numbers 28,000 TV viewers. Dave Poltrack, evp, CBS Corp., said 53 percent of viewers who have watched a new show this season online did so before viewing any episode of that show on a broadcast network. "That means Internet access is providing a new means to expand the sampling of new programs," Poltrack said.
And CBS is not using the Web simply to stream its new shows—it is also offering content from shows that is not available in the broadcast versions, and using the Web to stretch 22 episodes of a serialized program across a 35-week season. CBS created a Web site for its new drama Jericho that is moving the story line forward during its hiatus that began in mid-December. Poltrack said the market for advertising surrounding online streaming of TV shows is on the upswing, with demand exceeding supply for the top-rated shows. "Analysts estimate the market to be in the $300 million to $400 million area today," he said, adding they project growth to about $2 billion–$3 billion by 2010. "If this market materializes to the extent these analysts predict, it will add a second revenue stream for broadcasters."
Video-on-demand via cable of the broadcast shows is another untapped revenue stream. After all the networks tested the benefits of a pay-per-view model versus an ad-supported model, it appears the ad-supported model is winning out. Westerfield believes viewers will accept advertising in their VOD selection if it's a show they really want to see.
Most analysts are not projecting much overall ad growth for the broadcast networks in 2007. Part of that is because there will be no Olympic Games to cover. And the merging of UPN and the WB into The CW means there are far fewer ratings points than in 2006.
Universal McCann projects ad revenue for the Big Four nets will increase 3 percent in 2007 to $17.4 billion, following a 5 percent increase in '06. ZenithOptimedia is projecting network TV ad spending to decline by 1.5 percent over this year. And Harris-Nesbitt's Westerfield projects that 2007 ad revenue will be flat over 2006.