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industry structure

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  • 1. Networks and Local Outlets
  • 2. Some Basic Fundamentals
    • Networks = Stations
    • Broadcast = Cable
    • Very few stations are owned by the networks
  • 3.  
  • 4. Horizontal Integration
    • Owning multiple entities within different product or service types
      • A variety of cable networks
      • Combination of broadcast network and cable networks
      • A variety of TV and/or radio stations (outlets)
      • A variety of cable systems (outlets)
      • Under current FCC rules, possibly seven radio, two TV stations (outlets) in same local market
  • 5. Vertical Integration
    • Same entity controlling the production and distribution of a good or service
      • In terms of Electronic media think in terms of conglomerate whose pieces include:
        • Studio (producer of content)
        • Network
        • Outlet
  • 6. Largest Media Conglomerates Est. Annual Revenue ’05 (in Billions)
    • AOL Time Warner $41B
    • News Corp $30B
    • Disney $27B
    • Viacom (before CBS Split) $27B
    • Vivendi Universal $25B
    • Comcast $18B
    • NBC-Universal $13B
    • Cox $10B
    • Gannett $6.2B
  • 7. Media & “Telecommunications” Industries Est. Annual Revenues (’05) in Billions
    • Broadcast TV $45B
    • Radio $17B
    • Cable $57.6B
    • DBS $18B
    • Newspaper $48.6B
    • Magazines $38.6B
    • Books $26.3B
    • Motion Pictures $64B
    • Recording Ind. $13.8B
    • Wireless $81.5B
    • Local Phone(Wire) $127B
    • Long Dist. (Toll) $83.6B
    • Internet ????
    Source: U.S. Census Bureau, FCC Statistics, NCTA
  • 8. The “Business” of Electronic Media
    • Commercial Broadcasting and Cable Nets
      • Collect an Audience
        • As Large as Possible
        • Demographically Attractive
      • Sell Access to that Audience to Advertisers
      • Use Programming to Attract the Audience
    • Advertiser Driven
  • 9. The “Business” of Electronic Media
    • Cable Television Systems
      • Collect Revenue from Subscribers Seeking Signals
        • Subscriptions
        • Equipment Rental
        • Pay-per-View
      • Local Advertising
  • 10. Cable Overtakes Broadcast Networks
    • Primetime share of broadcast network programming continues to drop
    • Two years ago, big 4 networks (ABC, CBS, NBC, FOX) primetime share dropped below 50% during sweeps (historic low at 47%)
    • Collectively viewers watching more cable programming during primetime now than broadcast TV, but spread among many networks
  • 11. Who Watches What?
    • Broadcast 9/24/01—9/30/01
    • 1. Friends 19.5 million TV Households
    • 2. ER 18.3 million
    • 3. Everyone Loves Raymond 14.4 million
    • 4. CSI 14.2 million
    • 5. Inside Schwartz 14.1 million
    • Cable/Sat 9/24/01 - 9/30/01
    • 1. NFL 4.5 million
    • 2. NFL Primetime 3.03 million
    • 3. WWF 3.03 million
    • 4. WWF 2.78 million
    • 5. Dragon Ball Z 2.13 million
  • 12. Media Ad Revenues (2005)
    • Newspaper $47.33 billion
    • Broadcast TV $44.29 billion
    • Cable $23.65 billion
    • Radio $19.64 billion
    • Magazine $12.84 billion
  • 13. Broadcast Television Revenue (2006)
    • Network Ad Sales $25.43 billion
    • Local Station Ad Sales $18.67 billion
    • Syndicated (barter) $ 4.23 billion
      • Total $48.35 billion
  • 14. Cable Revenue (2006)
    • Total overall revenue $74.7 billion
      • Basic tier $33.6 billion
      • Premium $ 6.4 billion
      • Advertising $26.9 billion
        • Network $ 20.7 billion
        • Local $ 4.7 billion
        • Regional Sports $ 789 million
  • 15. MVPD Statistics (2006)
    • More than 111,600,000 television households in U.S.
    • 65.6 million cable customers in the U.S.
      • 58.8% of TV households subscribe to cable
      • Cable passes 112,600,000 households
      • More than 7,000 local cable systems, majority owned by a handful of companies
      • 34 million Digital Cable subscribers
      • 28.9 million Cable Modem subscribers (high-speed Internet)
      • 9.5 million VoIP subscribers (Internet telephony via cable)
      • 531 National Video Programming Services/Networks
    • Approximately 30 million DBS subscribers
      • 13.6 million DishNetwork
      • More than 16 million DirecTV
  • 16. What’s It Worth? Station Sales w/in last few years
    • San Francisco VHF $700 million
    • Worcester/Boston UHF $47.5 million
    • Reno VHF $45 million
    • Asheville, NC UHF $4.5 million
    • Dallas FM $59.4 million
    • Chicago AM $29 million
    • Denver AM $4.2 million
    • WLUS AM/WDJY FM Gainesville FL $762,500
  • 17. Revenues: GE and NBC
  • 18. Revenues: GE and NBC
  • 19. Broadcast Stations
    • Ownership “Types”
      • Single Station
      • Group Ownership
        • Economy of Scale
        • Clout
      • Network Owned and Operated (O&O)
        • Stations owned by the network (e.g. ABC) and affiliated with the same network (e.g. ABC)
  • 20. Largest TV Groups
    • Company Total Stations National Coverage
    • Fox Television 31 41%
    • CBS 38 40%
    • Paxson 69 67%
    • Tribune 23 30.5%
    • NBC Universal 27 30%
    • ABC 10 24%
    • Univision 25 18.7%
    • Gannett 22 17.4%
    • Hearst-Argyle 33 16%
    • Sinclair 62 15%
  • 21. Top 10 Radio Groups
    • Company Number of stations Local markets Revenue
    • Clear Channel 1202 189 $3.5 billion
    • Infinity 183 41 $2.35 billion
    • Cox 82 18 $455 million
    • ABC Radio 55 27 $436 million
    • Entercom 95 18 $415 million
    • Citadel 206 40 $349 million
    • Radio One 63 22 $301 million
    • Emmis 23 8 $295 million
    • Hispanic 48 13 $254 million
    • Susquehanna 32 9 $235 million
  • 22. Broadcast Stations
    • Network Affiliation
      • Affiliate (ABC, CBS, NBC, FOX)
      • Independent (UHFs that carry UPN, WB (now CW) & MyNetwork)
    • Some going truly Independent ?
  • 23. TV Station Expenses (affiliate) 9.2% Engineering 27.1% Programs 3.4% Production 23.7% News 12.9% Sales 5.3% Ad/ Promo 18.4% Gen/Adm
  • 24. Broadcast Stations: Ownership Limits
      • FCC License
        • 8 years
        • Renewable
        • Can be “transferred” (sold)
  • 25. Broadcast Stations: Ownership Limits
      • Personal Characteristics
        • US Citizen
        • Character
        • Financial Qualifications
  • 26. Broadcast Stations: Ownership Limits
        • Because of court decision, FCC’s proposal to further deregulate ownership rules (June 2003) was recently reassessed by FCC in Dec. 2007
        • More info on who owns what? Visit www.openairwaves.org
        • Next several slides review what is currently in effect, after the FCC completed the reassessment in Dec. 2007
  • 27. Radio Ownership Limits
      • Numerical Limits
        • Radio No National Limits
        • Market-based Numerical Limits (local DMA)
          • If 45 stations-- can own or control 8
          • If 30-44stations--can own or control 7
          • 15-29 stations--can own or control 6
          • 14 or less--can own or control 5
  • 28. National TV Ownership Limits
      • National limit based on broadcast, over-the-air signal reach of all stations owned by one entity
      • Recent Congressional law: Combined signals can reach no more than 39% of TV Households
        • UHF signals (channels 14-69) count ½
      • Single company may not own two of the major broadcast TV networks (CBS, ABC, NBC, FOX)
  • 29. Local TV Ownership Limits
        • May own two stations in same market (DMA) if eight independently-owned stations remain post-merger
        • Top-four rule: only one of the stations may be among the top four rated (viewed) stations in the particular market at the time of acquisition
  • 30. Local Cross-Ownership Limits
      • Owning combination of radio/TV/cable within same local market
        • May own up to six radio and up to two TV stations (or 1 TV and seven radio) as long as 20 “independent voices” (separately owned stations) exist post-merger
        • May own a cable system and station in same market
        • May not own radio or TV station and newspaper in same market (some grandfathered exceptions apply)
          • In Dec. 2007, FCC ruled newspaper/broadcast station combinations allowed in TOP 20 DMA’s (urban areas)
  • 31. Cable Television
  • 32. Some Basic Fundamentals
    • Networks = Stations
    • Broadcast = Cable
    • Very few stations are owned by the networks
  • 33. The “Business” of Electronic Media
    • Commercial Broadcasting and Cable Nets
      • Collect an Audience
        • As Large as Possible
        • Demographically Attractive
      • Sell Access to that Audience to Advertisers
      • Use Programming to Attract the Audience
    • Advertiser Driven
  • 34. The “Business” of Electronic Media
    • Cable Television Systems
      • Collect Revenue from Subscribers Seeking Signals
        • Subscriptions
        • Equipment Rental
        • Pay-per-View
      • Local Advertising
  • 35. Industry Structure
    • Local Systems
    • Multiple System Operators (MSOs)
      • Economies of Scale & Clout
      • National limit: MSOs permitted to serve 30% of all multichannel video subscribers (includes cable & DBS)
        • Recently upheld by FCC in Dec. 2007
  • 36. Horizontal Integration
    • Owning multiple entities within different product or service types
      • A variety of cable networks
      • Combination of broadcast network and cable networks
      • A variety of TV and/or radio stations (outlets)
      • A variety of cable systems (outlets)
      • Under current FCC rules as of Dec. 2007, possibly six radio, two TV stations (outlets) in same local market
  • 37. Top 10 Multichannel Video Program Distributors (MVPDs) *
    • Comcast 24.2 (million subscribers)
    • DirecTV* 16.0
    • Echo Star* 13.6
    • Time Warner 13.4
    • Charter 5.4
    • Cox 5.4
    • Cablevision 3.2
    • Bright House 2.3
    • Suddenlink 1.4
    • Mediacom 1.4
    *DBS providers
  • 38. Industry Structure
    • Program Networks Vertical Integration
      • About 100 networks are owned by MSOs
      • Comcast owns all or part of 64 networks
      • Time Warner owns all or part of 34
      • 40 % affiliated programming limit (struck down by courts; under FCC review)
  • 39. Vertical Integration
    • Same entity controlling the production and distribution of a good or service
      • In terms of Electronic media think in terms of conglomerate whose pieces include:
        • Studio (producer of content)
        • Network
        • Outlet
  • 40. Vertical Integration
  • 41. MVPD Statistics (2006)
    • More than 111,600,000 television households in U.S.
    • 65.6 million cable customers in the U.S.
      • 58.8% of TV households subscribe to cable
      • Cable passes 112,600,000 households
      • More than 7,000 local cable systems, majority owned by a handful of companies
      • 34 million Digital Cable subscribers
      • 28.9 million Cable Modem subscribers (high-speed Internet)
      • 9.5 million VoIP subscribers (Internet telephony via cable)
      • 531 National Video Programming Services/Networks
    • Approximately 30 million DBS subscribers
      • 13.6 million DishNetwork
      • More than 16 million DirecTV
  • 42. System Operations
    • Five years ago:
    • Systems with 54+ channels: 42%
    • Systems with 30-53 channels: 46%
    • Systems with less than channels: 12%
    • Now 85 % of systems provide 750Mhz offer more than 54+ & 100s of digital
  • 43. System Operations: Revenue
    • Total overall revenue $74.7 billion (2006)
      • Basic tier $33.6 billion
      • Premium $ 6.4 billion
      • Advertising $26.9 billion
        • Network $ 20.7 billion
        • Local $ 4.7 billion
        • Regional Sports $ 789 million
  • 44. System Operations: Revenue
    • Slightly more than 50% of cable subscribers also subscribe to at least one pay service
  • 45. Cable Television Revenue
  • 46. System Operations: Annual Expenses
    • Programming Expenditures
      • $12.5 billion overall
        • $7.5 billion in program access fees (to cable networks)
    • Infrastructure (including upgrades)
      • $12 billion
  • 47. System Operations: Expenses
    • Subscriber Installation/Service
    • Marketing
    • Customer Service
    • Billing
  • 48. System Operations: Expenses
    • Advertising Sales
    • Franchise Fees ($2.5 billion annual)
    • General Administration
  • 49. Industry Structure
    • Regulation
      • Local Franchise Authority
      • Federal
  • 50. Programming Constraints
    • Franchise Requirements
    • Must-Carry/Retransmission Consent
      • All full-power local stations must be carried if they request
      • Stations may negotiate with the cable system for retransmission permission
      • Public TV stations can only elect must-carry
  • 51. Revisiting Some Basic Fundamentals
    • Networks = Stations
    • Broadcast = Cable
    • Very few stations are owned by the networks
  • 52. Networks
  • 53.  
  • 54.  
  • 55.  
  • 56. Networks: Definitions
    • 2 or more outlets connected to allow simultaneous presentation of content
    • Organization which “packages” and distributes content to affiliates
  • 57. Networks: Definitions
    • FCC definition of television network:
      • offers an interconnected program service on…
      • a regular basis for 15 or more hours per week to…
      • at least 25 affiliated television licensees in 10 or more states
  • 58. Types of Broadcast Networks
    • Occasional or “Ad Hoc”
                                      
  • 59. Types of Broadcast Networks
    • Regional
                                      
  • 60. Types of Broadcast Networks
    • Regional
                                      
  • 61. Types of Broadcast Networks
    • Full Service National Networks
                                      
  • 62. Why Networks?
    • Convenient Source of Programs for Outlets
    • Convenient Means for Advertisers to Reach National Audiences
  • 63.  
  • 64.  
  • 65.  
  • 66.  
  • 67.  
  • 68.  
  • 69. Broadcast Network Operation
    • Program Packaging and Distribution
    • Minimal Program Production
    • Revenue from Advertisers Reaching National Audience
  • 70. Broadcast Network-Affiliate Relationships
    • Contractual Relationship
    • Legal Restrictions Apply
    • Affiliates Provide Access to Local Audiences
  • 71. Broadcast Network-Affiliate Relationships
    • Network Compensates Affiliate for Access
      • Direct Payment
      • Adjacencies and In-program Availabilities
  • 72.  
  • 73. Broadcast Network-Affiliate Relationships
    • Network Obligations:
      • Compensate Station
      • Promote and Advertise Programs
  • 74. Broadcast Network-Affiliate Relationships
    • Network Receives:
      • Access to Audience to Sell to Advertisers
  • 75. Broadcast Network-Affiliate Relationships
    • Station Obligations:
      • Promote and Advertise Programs
      • Show Whichever Programs It Chooses
  • 76. Broadcast Network-Affiliate Relationships
    • Station Receives:
      • Network Compensation
      • Programs
      • Prestige
      • Audience to Sell to Local and Regional Advertisers
  • 77. Broadcast Network-Affiliate Relationships
      • Network/Affiliate Disputes:
        • Clearances and Pre-emptions
        • Network Encroachment on Station Time
  • 78. Broadcast Network-Affiliate Relationships
    • Networks pulling out of NAB
    • Affiliates petition to the FCC
  • 79. Changing the Network/Affiliate Relationship
    • Eliminate Compensation?
    • Reverse Compensation?
    • Recapture Commercial Availabilities
  • 80. Changing the Network/Affiliate Relationship
    • Move Programming directly to Cable/Satellites
    • Internet
    • The Digital Question
  • 81. Changing the Network/Affiliate Relationship
    • Three Possible Futures
      • San Francisco:
        • KRON (lost affiliation with NBC became true independent like WJXT in Jacksonville which lost CBS)
        • KNTV gained affiliation through reverse compensation (pays NBC $36 million a year)
      • Bristol, VA: WCYB (NBC/CW)
        • Multiple network affiliates with DTV in smaller markets
          • WCJB in Gainesville (ABC/CW)
          • WGFL in Gainesville/Ocala (CBS/MyNetwork)
      • Gannett Broadcasting
        • Attain primarily one network affiliation with group owned stations
        • 13 of 22 stations NBC affiliates
  • 82. Revisit Some Basic Fundamentals
    • Networks = Stations
    • Broadcast = Cable
    • Very few stations are owned by the networks
  • 83. Basic“Cable” Networks
    • Provided as Part of Regular Subscriber Fee
    • Carried on both Cable & DBS
  • 84. Basic“Cable” Networks
    • Two Revenue Streams
      • Advertising
        • Specialty cable networks (e.g. Food Network) attract most viewers possible from its target audience to entice advertisers looking for specific demographics
      • Cable Systems/Operators pay a fee for most services (program access fee)
  • 85. Pay Networks
    • Also known as premium networks/channels
    • Subscriber Pays Additional Monthly Fee
    • Stagnant Growth
    • One revenue stream for pay network
    • On Cable & DBS
  • 86. Pay Networks
    • Competitive Challenge: Product Differentiation
      • Exclusive Movie Contracts
      • Made-for-TV Movies
      • Original Series and Specials
      • “ Multiplexing”
  • 87. Pay-Per-View (PPV)
    • Uneven Performance
      • Current PPV revenue about $2.3 billion
      • Expected to go to @
      • $9 billion by end of decade
  • 88. Pay-Per-View (PPV)
      • Recent Study of Typical PPV system showed…
        • 1% of basic cable subs make 48% of the PPV buys
        • 50% of the PPV buys are of adult services
  • 89. Rich Media, Poor Democracy Video Segment
    • Consolidation/Synergy leads to the following:
    • Cross-promotion
    • Cross-production
    • Cross-advertising
    • Blockbuster

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