Daunting Year Looms for Networks

It has become increasingly difficult for the network television business to maintain profitability with a steadily shrinking audience and a financial model that relies primarily on one revenue stream, advertising.According to Interpublic Group's Magna, total ad spending on the four U.S. TV networks (ABC, CBS, NBC and Fox) totalled an estimated $17.2 billion in 2008, which was an increase of some 3.5 percent over 2007.But with the recession in full swing, coupled with make good units that could total $100 million this season by some estimates, the business won't get any easier this year.Network and agency executives predict that in the face of continuing ratings erosion network TV sales will be down 7 percent or more in 2009. Magna, for example, says the decline will be 7.5 percent. CBS says the drop will be 7 percent.WPP's GroupM predicts a 5 percent decline overall for network TV and a 7-8 percent drop in prime time. Rino Scanzoni, chief investment officer at GroupM, said it's a safe bet that there would be a "significant contraction" in the amount of money spent in this year's upfront, compared to last year when advertisers ponied up $9.23 billion, just slightly ahead of the prior year.His reasoning: "People buy upfront when they believe prices will go up based on their most recent experience." Right now, there is little or no premium to buy scatter. On top of that, the ad market will lag the general market recovery, which is not likely to occur by mid-year."The network TV business model has been challenged for some time," said Scanzoni. "If the 11 to 12 percent audience decline that we've seen in the fourth quarter holds up, coupled with the 15 percent decline last year, that means over two years they'll have lost a quarter of their audience. At the same time, programming costs aren't going down."That's a pretty daunting predicament and one that led NBC at least in part to make perhaps the most intriguing network programming decision of the year when it revealed plans last month to strip Jay Leno across 10 p.m. week nights beginning next fall.CBS CEO Leslie Moonves reacted to the move by predicting that CSI: Miami (and presumably some of its other 10 p.m. shows) would beat Leno "by a lot." But even if Moonves turns out to be right, NBC could still succeed financially with the program because the cost of producing Leno's show is estimated at about $2 million a week, compared to $15 million or more to fill those hours with sitcoms and dramas, which cost $2 million or $3 million or more per episode.NBC's Leno move is a throwback to the early days of television, and is the first time in about 50 years that a network has opted to strip a series in prime time. Media executives say the decision speaks volumes about the network business model going forward."It might be a profitable move, but it admits the reality that mass media really doesn't have the potential to be as mass as it used to be," said Tim Spengler, president, Initiative U.S. "That the big number [ratings] potential is not worth trying to get with too much of your money."If Leno succeeds in prime time, it is likely that some of the other networks will adopt the formula as well. "If it works, I think you will see the networks trying to do more programs on a strip basis," said Scanzoni. "Viewers get inundated with all the options and tend to go quickly to what they know. Putting on something that people can come quickly in and out of is not necessarily a bad thing."Clearly the nets have to do something to achieve better payoff from their program development efforts, said Steve Sternberg, evp, audience analysis, IPG's Magna. Over the past five years, with the possible exception of CBS, "development has been spotty," he said, arguing that NBC hasn't had a bona fide hit, while ABC and Fox have been marginally successful during the same time.Meanwhile, cable has been producing hits and taking increasing amounts of the networks' audiences away from them, he said."TV is still largely a group activity," Sternberg said. "People are searching for programs they can watch with kids in the room. Why do you think American Idol is still so popular, and even though Survivor has declined, it's still one of the stronger shows."Going forward, said Sternberg, "CBS and Fox are in the best shape now and heading into the new season." While all the networks are down in the ratings, "CBS is down only marginally," he said, while Fox has Idol and 24 set to return in the first quarter.ABC and NBC have the bigger problems, Sternberg said. Their numbers among women 18 to 49 have dwindled considerably, while returning shows have declined and new shows have by and large missed the mark. ABC picking up Scrubs from NBC shows a stunning lack of development, he said. Ditto Leno to NBC prime time, a move, if it fails, that "will dramatically hurt NBC in the long term."Despite the problems, for many clients, national TV -- a combination of network and cable -- has been and will continue to be a sound investment, said Scanzoni. For clients that have used both in tandem, shifting dollars to cable as the audience has migrated, "there has been significant CPM disinflation over the last seven or eight years," he said.

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Daunting Year Looms for Networks

Steve Mcclellan

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