Viewers may be asked to pay more for cable, satellite (1 Viewer)

yaz96

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Dec 22, 2005
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This could change everything.......especially if the free TV model goes away and networks drop affiliates. No more local negotiations.....and missed programs.


As advertisers flee network TV, viewers may be asked to pay more for cable, satellite

http://www.gazette.com/articles/pay-91478-flee-11px.html

ANDREW VANACORE
The Associated Press

NEW YORK — 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.

The business model is unraveling at ABC, CBS, NBC and Fox and the local stations that carry the networks' programming. 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.

"Good programing is expensive," Rupert Murdoch, whose News Corp. owns Fox, told a shareholder meeting this fall. "It can no longer be supported solely by advertising revenues."

Fox is pursuing its strategy in public, warning that its broadcasts — including college football bowl games — could go dark Friday for subscribers of Time Warner Cable, unless the pay-TV operator gives Fox higher fees. For its part, Time Warner Cable is asking customers whether it should "roll over" or "get tough" in negotiations.

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.

With both advertising and fees, ESPN has seen its revenue grow to $6.3 billion this year from $1.8 billion a decade ago, according to SNL Kagan estimates. It has been able to bid for premium events that networks had traditionally aired, such as football games. Cable channels also have been able to fund high-quality shows, such as AMC's "Mad Men," rather than recycling movies and TV series.

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.

Having two revenue streams — advertising and fees from pay-TV providers — has insulated cable channels from the recession. In contrast, over-the-air stations have been forced to cut staff, and at least two broadcast groups sought bankruptcy protection this year.

Fox illustrates the trend: Its broadcast operations reported a 54 percent drop in operating income for the quarter that ended in September. Its cable channels, which include Fox News and FX, grew their operating income 41 percent.

Analyst Tom Love of ZenithOptimedia said he expects the big networks will end the year with a 9 percent drop in ad revenue, followed by an 8 percent drop in 2010 and zero growth in 2011.

A small chunk of the ad revenue is being recouped online, where the networks sell episodes for a few dollars each or run ads alongside shows on sites such as Hulu. Media economist Jack Myers projects online video advertising will grow into a $2 billion business by 2012, from just $350 million to $400 million this year.

But that is not significant enough to make up for the lost ad revenue on the airwaves. Advertisers spent $34 billion on broadcast commercials in 2008, down by $2.4 billion from two years earlier, according to the Television Bureau of Advertising.

So rather than wait for the Internet to become a bigger source of income, the networks and local stations are mimicking what cable channels do: They're charging pay-TV companies a monthly fee per subscriber to carry their programming.

Since 1994, the Federal Communications Commission has let networks and their affiliates seek payments for including their programming in the pay-TV lineup. Not everyone demanded payments at first. Instead they relied on the broader audience that cable and satellite gave them to increase what they could charge advertisers.

The big networks also were content to let their broadcast stations essentially be subsidized by higher fees for the cable channels that fell under the same corporate umbrella. A pay-TV company negotiating with the Walt Disney Co., which owns ABC, is likely paying more for the ABC Family channel than it otherwise would, with the extra assumed to help Disney cover its costs for the ABC network broadcasts.

But over time — such contracts generally run about three years — more networks began demanding payments for the stations they own. And affiliates already receiving the fees have bargained for more money.

Some talks have been tense. In 2007, Sinclair Broadcast Group, which operates 32 network-affiliated stations around the country, pulled its signals for nearly a month from Mediacom Communications Corp., which provides cable TV to about 1.3 million subscribers, mainly in small cities.

The American Cable Association says its members — mainly small cable TV providers — have seen their costs for carrying local TV stations more than triple over the past three years. The group's head, Matt Polka, says those fees have gone "straight to consumers' pocketbooks" in the form of higher cable bills.

Gannett Co., for instance, which operates 23 stations, has taken in $56 million in fees from pay-TV operators this year after negotiating a new batch of agreements, up from $18 million in 2008. Dave Lougee, president of Gannett's broadcast arm, defends the fees, saying "broadcasters were late to the game in really starting to go after the fair market value of their signals."

Analysts estimate CBS managed to get as much as 50 cents per subscriber in its most recent talks with pay-TV providers that carry CBS-owned stations. CBS Corp. chief Leslie Moonves said such fees should add "hundreds of millions of dollars to revenues annually."

That could be just the beginning. CBS and Fox are also asking for a portion of the fees that their affiliates get, arguing that the networks' shows are what give local stations the leverage to ask for fees.

Over time, the networks might be able to get even more money by abandoning the affiliate structure and undoing a key element of free TV.

Here's why: Pay-TV providers are paying the networks only for the stations the networks own. That amounts to a little less than a third of the TV audience, which means local affiliates recoup two-thirds of the fees. If a network operated purely as a cable channel and cut the affiliates out, the network could get the fees for the entire pay-TV audience.

If forced to go independent, affiliates would have to air their own programming, including local news and syndicated shows.

Fitch Ratings analyst Jamie Rizzo predicts that at least one of the four broadcast networks "could explore" becoming a cable channel as early as 2011.

Any shift would take years, as the networks untangle complicated affiliate contracts. At an analyst conference last year, CBS's Moonves called the idea an "a very interesting proposition." But he added that it "would really change the universe that we're in."
 
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jerichohol

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The Internet model is not going to be as profitable for programmers as the cable model has been, and yet they seem intent on killing that golden goose as quickly as possible.
 

lparsons21

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The internet model is going to be a tough sell I think. If you only have one TV, getting shows streamed from the internet isn't too bad, but it becomes a bit of an issue if you are trying to run more than one stream at a time for all too many.

Downloading vice streaming could be the answer, but the content providers are pretty resistant to that as evidenced on Hulu and other current streaming sites.
 

navychop

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That article seems to have struck a nerve. It is carried by many outlets, and has appeared in a few different threads here.

I wonder if using the VHF bands for cellular would be a boon for cell data, esp 3G & the coming 4G, for speed, reliability and reaching deeper into buildings?
 

jerichohol

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Streaming is one option. Downloading is another (It's only a matter of time before our DVDs are in a box in the closet next to our CD's) and the same device we're saving our movies on can also save our tv shows. Most programming doesn't have to be viewed live. The only thing missing is the technology that any dummy can pick up at wal-mart or best buy, and that's just around the corner.

I believe by 2020, over half the US will use the Internet as their primary source of programming. The industry will try to fight it, but they'll fail. And the longer they fight, well, itunes is a hassle once you've been trained to get your music free through more convenient means. The movie and TV industries should learn from that mistake.
 

Bob Haller

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PREDICTION!

Charlie sells E and uses the slingbox platform for a new distribution system.

a ala carte by channel would be a big winner
 

Jim5506

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You go to a-la-carte and per channel prices will skyrocket.

Setanta is now $12.50/ month a-la-carte, a-la-carte ESPN might be $25, how many $12-15 per channel channels would it take to exceed your current bill?

Channels would need to maintain their revenue stream and niche selections would disappear.

So for the same price you would get maybe 6-10 channels.

Just like cable 40 years ago.

It's always a smarter business model to get a little bit from a lot of people than a lot for a little bit of people, look at McDonalds.
 

retiredTech

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Nov 15, 2003
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Give subcribers both choices ala carte and packages.
As far as price per channel increase,
I would rather my money went for programing I watch then mostly for crap I not interested in.
If ala carte was implemented, I predict that the majority of subcribers would still buy packages.
I think the average subcriber would not take the time to caculate price and pick out each channel.
Sure a number would, but not the majority.
 

Juan

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You go to a-la-carte and per channel prices will skyrocket.

Setanta is now $12.50/ month a-la-carte, a-la-carte ESPN might be $25, how many $12-15 per channel channels would it take to exceed your current bill?

Channels would need to maintain their revenue stream and niche selections would disappear.

So for the same price you would get maybe 6-10 channels.

Just like cable 40 years ago.

It's always a smarter business model to get a little bit from a lot of people than a lot for a little bit of people, look at McDonalds.
no it will be alacart internet..There will be no channel delivery system to support (ie satellites) No CSR's( click and order via internet") no software upgrades.. no separate DVR's (built into computer) Internet TV will be cheap cheap cheap (and will look so too ;) )
 

ts7

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You go to a-la-carte and per channel prices will skyrocket.

Setanta is now $12.50/ month a-la-carte, a-la-carte ESPN might be $25, how many $12-15 per channel channels would it take to exceed your current bill?

Channels would need to maintain their revenue stream and niche selections would disappear.

So for the same price you would get maybe 6-10 channels.

Just like cable 40 years ago.

It's always a smarter business model to get a little bit from a lot of people than a lot for a little bit of people, look at McDonalds.

Not necessarily - they will almost certainly go up, but if true ala carte is implemented and channels must become self-supporting rather than subsidized by contractual carry agreements, the result will be the majority of channels we now see will vanish or change dramatically. While this will ultimately result in less selection, the plus side is a lot more bandwidth will be opened up.
 

dishcomm

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You go to a-la-carte and per channel prices will skyrocket.

Setanta is now $12.50/ month a-la-carte, a-la-carte ESPN might be $25, how many $12-15 per channel channels would it take to exceed your current bill?

Channels would need to maintain their revenue stream and niche selections would disappear.

So for the same price you would get maybe 6-10 channels.

Just like cable 40 years ago.

It's always a smarter business model to get a little bit from a lot of people than a lot for a little bit of people, look at McDonalds.
Yours is one view.
A la carte does not mean a la carte.
Example.
If one is a Dish subscriber and let's say they have the AT 200 HD pack.
Let's say that sub watchesd no more than 50 of those channels on a regular basis.
Let's suppose for a moment that sub could buy packs of chanels the same way the cable or satcos but them
For example, the ESPN's, Nets, RSN's and NBC universal stuff.
So this sub is buying ESPN and RSN's because he likes sports. He is willing to take all the NBC U channels ( TWC, CNBC, MSNBC, et al) because he wants his financial news and info. Maybe he's a science buff and wants all the discovery channels.
We're looking at about 80 bucks a month or so. The sub pays what he pays and in his mind's eye he is not having to pay for a whole bunch of shot he never watches. He knows he is getting stuff he rarely watches but it' s better than the old ( now current) system.
IMO there will never be a la carte in it's purest form. Too much politics.
I have no problem seeing these niche channels dry up and bloiw away in the wind. The way we are charged to subsidize services maybe 10,000 people per week watch is tantamount to tv producer welfare.
I believe terrestrial tv is on it's way to huge changes. PPV for sports. Broadcast tv disappearing form OTA and going cable/sat only. Internet delivery in major metro areas where fiber is prevalent.
The old ways of funding tv are fading fats. Advertisers are not stupid. They know we don't watch commericals. Heck, I hit the mute button every time a commercial is shown. I have met people who don't watch ANYTHING live. They DVR it and watch it later, blowing thru commercials.
 

ts7

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The old ways of funding tv are fading fats. Advertisers are not stupid. They know we don't watch commericals. Heck, I hit the mute button every time a commercial is shown. I have met people who don't watch ANYTHING live. They DVR it and watch it later, blowing thru commercials.

Yep, a lot of advertisers are taking notice and are realizing they are not getting the bang for the buck that once was there. Pepsi's absence from the Super Bowl this year is indicative of what is happening across the industry. Advertiser supported TV will not go away - look for more bugs and crawls on the screen, more paid product placement in programs, etc. Also I would expect to see more "program/content related" ads or partnerships like History Channel and Discovery Channel (and others) have been running for the past year or so.

One thing I think everyone can agree on is that the models we know now will look a LOT different in the not-too-distant future. Unfortunately, that will probably not be a good think for the average consumer. :(
 

Jim5506

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Hey, everybody watches the Super Bowl commercials, sometimes that's the best part.

Pepsi is making a mistake.

Programmers are incorporating more products visably in their programming, integrating advertising with the actual program bypasses part of the FFW problem.

Advertising agencies will not go down without a fight.
 

Bob Haller

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OTA stations could do 2 very different things.

multicast SD content combining many local stations into one SD feed, and a decent cable like pay package on the now unused bandwidth.


or go pay only OTA
 

MikeD-C05

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Looks like the networks want both the affiliate ota model and want the cable and satellite companies to pay them for their content just like the national cable channels do today. They want their cake and eat it too .
 

davidpo

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I find it funny that the networks,seem to be unable to figure out why their revenue is going down.It's really very simple stop showing crap on tv.For years they have let their so called experts tell them what people wanted to watch.Instead of listening to the viewers every year shows that were very popular gets killed,and replaced by junk namely reality shows.
 

DishSubLA

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What the article fails to cite is that the current broadcast network model still gets far higher ratings and gets far more money for commercials than any of the "cable" networks who don't even come close. While the broadcasters have seen the numbers decrease, they aren't going out of business; they are just too fat. The cable channels, almost all are owned in whole or in part by the same companies who own the broadcast networks, look pretty good by comparison because the cable channels are operated with far smaller budgets and costs, and the series they produce are often limited to a low number such as 6 or a few more episodes, while the broadcast nets produce over twice the number of episodes per season, and they make a horde of money on every one of the many episodes they produce. Broadcast Nets and OTA's still make lots of money and aren't going anywhere any time soon. They have taken their most recent reduction in ad revenues that are due to the recession, and have put out propaganda using their mouthpiece columnists to justify the coming demands from broadcast and local OTA's for more money from pay-TV services.

Part of the continued success of broadcast networks is not only the quality of the programming, meaning hordes are still tuning in for CSI and Desperate Housewives, is that they have to reach a broad audience. That means higher ratings. When we consider the most popular cable channels we have USA at the top etc. USA programming is just like the broadcast networks': broad audience appeal and even playing a lot of the same series that aired on broadcast networks years ago. Hmm. Apparently people who pay for pay-TV want the same crap they can get for free on OTA.

Finally, I have yet to see any of the broadcast nets ready to give-up their licenses for any of the OTA's they own. Why? Because they still make mountains of money. Just, perhaps, not as much as they used to make. Congress won't go along with the "no more free TV" implementation as just about every American would SCREAM that they don't want their free TV to go away, and isn't it bad for the poor, and isn't it racist, etc., etc., etc. The broadcast networks' pile of money used to reach the moon, now it may only rise as high as the stratosphere. Boo-hoo. Poor devils. To have broadcasters' paper currency stack only to the stratosphere makes my heart bleed for them. Broadcast nets will just have to become leaner while cable channels may get a little girth, but in the end, everybody will still be here making all the money just the same. Frankly, that article was a bunch of hooey.
 
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