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Networks and Local Outlets
Some Basic Fundamentals <ul><li>Networks   =   Stations </li></ul><ul><li>Broadcast   =  Cable </li></ul><ul><li>Very few ...
 
Horizontal Integration <ul><li>Owning multiple entities within different product or service types </li></ul><ul><ul><li>A ...
Vertical Integration <ul><li>Same entity controlling the production and distribution of a good or service </li></ul><ul><u...
Largest Media Conglomerates Est. Annual Revenue ’05 (in Billions) <ul><li>AOL Time Warner  $41B </li></ul><ul><li>News Cor...
Media & “Telecommunications” Industries Est. Annual Revenues (’05) in Billions <ul><li>Broadcast TV $45B </li></ul><ul><li...
The “Business” of Electronic Media <ul><li>Commercial Broadcasting and Cable Nets </li></ul><ul><ul><li>Collect an Audienc...
The “Business” of Electronic Media <ul><li>Cable Television Systems </li></ul><ul><ul><li>Collect Revenue from Subscribers...
Cable Overtakes Broadcast Networks <ul><li>Primetime share of broadcast network programming continues to drop </li></ul><u...
Who Watches What? <ul><li>Broadcast    9/24/01—9/30/01 </li></ul><ul><li>1. Friends  19.5 million TV Households  </li></ul...
Media Ad Revenues (2005)  <ul><li>Newspaper $47.33 billion </li></ul><ul><li>Broadcast TV $44.29 billion </li></ul><ul><li...
Broadcast Television Revenue (2006) <ul><li>Network Ad Sales $25.43 billion </li></ul><ul><li>Local Station Ad Sales   $18...
Cable Revenue (2006) <ul><li>Total overall revenue $74.7 billion   </li></ul><ul><ul><li>Basic tier $33.6 billion </li></u...
MVPD Statistics  (2006) <ul><li>More than 111,600,000 television households in U.S. </li></ul><ul><li>65.6 million cable c...
What’s It Worth? Station Sales w/in last few years <ul><li>San Francisco VHF $700 million </li></ul><ul><li>Worcester/Bost...
Revenues: GE and NBC
Revenues: GE and NBC
Broadcast Stations <ul><li>Ownership “Types” </li></ul><ul><ul><li>Single Station </li></ul></ul><ul><ul><li>Group Ownersh...
Largest TV Groups <ul><li>Company   Total Stations   National Coverage </li></ul><ul><li>Fox Television   31  41% </li></u...
Top 10 Radio Groups <ul><li>Company Number of stations   Local markets Revenue </li></ul><ul><li>Clear Channel  1202  189 ...
Broadcast Stations <ul><li>Network Affiliation </li></ul><ul><ul><li>Affiliate (ABC, CBS, NBC, FOX) </li></ul></ul><ul><ul...
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...
Broadcast Stations: Ownership Limits <ul><ul><li>FCC License </li></ul></ul><ul><ul><ul><li>8 years </li></ul></ul></ul><u...
Broadcast Stations: Ownership Limits <ul><ul><li>Personal Characteristics </li></ul></ul><ul><ul><ul><li>US Citizen </li><...
Broadcast Stations: Ownership Limits <ul><ul><ul><li>Because of court decision, FCC’s proposal to further deregulate owner...
Radio Ownership Limits <ul><ul><li>Numerical Limits </li></ul></ul><ul><ul><ul><li>Radio No National Limits </li></ul></ul...
National TV Ownership Limits <ul><ul><li>National limit based on broadcast, over-the-air signal reach of all stations owne...
Local TV Ownership Limits <ul><ul><ul><li>May own two stations in same market (DMA) if eight independently-owned stations ...
Local Cross-Ownership Limits <ul><ul><li>Owning combination of radio/TV/cable within same local market </li></ul></ul><ul>...
Cable Television
Some Basic Fundamentals <ul><li>Networks   =   Stations </li></ul><ul><li>Broadcast   =  Cable </li></ul><ul><li>Very few ...
The “Business” of Electronic Media <ul><li>Commercial Broadcasting and Cable Nets </li></ul><ul><ul><li>Collect an Audienc...
The “Business” of Electronic Media <ul><li>Cable Television Systems </li></ul><ul><ul><li>Collect Revenue from Subscribers...
Industry Structure <ul><li>Local Systems </li></ul><ul><li>Multiple System Operators (MSOs) </li></ul><ul><ul><li>Economie...
Horizontal Integration <ul><li>Owning multiple entities within different product or service types </li></ul><ul><ul><li>A ...
Top 10 Multichannel Video Program Distributors (MVPDs) * <ul><li>Comcast  24.2 (million subscribers) </li></ul><ul><li>Dir...
Industry Structure <ul><li>Program Networks Vertical Integration </li></ul><ul><ul><li>About 100 networks are owned by MSO...
Vertical Integration <ul><li>Same entity controlling the production and distribution of a good or service </li></ul><ul><u...
Vertical Integration
MVPD Statistics  (2006) <ul><li>More than 111,600,000 television households in U.S. </li></ul><ul><li>65.6 million cable c...
System Operations <ul><li>Five years ago: </li></ul><ul><li>Systems with 54+ channels: 42% </li></ul><ul><li>Systems with ...
System Operations: Revenue <ul><li>Total overall revenue $74.7 billion  (2006)   </li></ul><ul><ul><li>Basic tier $33.6 bi...
System Operations: Revenue <ul><li>Slightly more than 50% of cable subscribers also subscribe to at least one pay service ...
Cable Television Revenue
System Operations: Annual Expenses <ul><li>Programming Expenditures  </li></ul><ul><ul><li>$12.5 billion overall </li></ul...
System Operations: Expenses <ul><li>Subscriber Installation/Service </li></ul><ul><li>Marketing </li></ul><ul><li>Customer...
System Operations: Expenses <ul><li>Advertising Sales </li></ul><ul><li>Franchise Fees ($2.5 billion annual) </li></ul><ul...
Industry Structure <ul><li>Regulation </li></ul><ul><ul><li>Local Franchise Authority </li></ul></ul><ul><ul><li>Federal <...
Programming Constraints <ul><li>Franchise Requirements </li></ul><ul><li>Must-Carry/Retransmission Consent </li></ul><ul><...
Revisiting Some Basic Fundamentals <ul><li>Networks   =   Stations </li></ul><ul><li>Broadcast   =  Cable </li></ul><ul><l...
Networks
 
 
 
Networks: Definitions <ul><li>2 or more outlets connected to allow simultaneous presentation of content </li></ul><ul><li>...
Networks: Definitions <ul><li>FCC definition of  television  network: </li></ul><ul><ul><li>offers an interconnected progr...
Types of Broadcast Networks <ul><li>Occasional or “Ad Hoc” </li></ul>                                  
Types of Broadcast Networks <ul><li>Regional </li></ul>                                  
Types of Broadcast Networks <ul><li>Regional </li></ul>                                  
Types of Broadcast Networks <ul><li>Full Service National Networks </li></ul>                                  
Why Networks? <ul><li>Convenient Source of Programs for Outlets </li></ul><ul><li>Convenient Means for Advertisers to Reac...
 
 
 
 
 
 
Broadcast Network Operation <ul><li>Program Packaging and Distribution </li></ul><ul><li>Minimal Program Production </li><...
Broadcast Network-Affiliate  Relationships <ul><li>Contractual Relationship </li></ul><ul><li>Legal Restrictions Apply </l...
Broadcast Network-Affiliate  Relationships <ul><li>Network Compensates  Affiliate for Access </li></ul><ul><ul><li>Direct ...
 
Broadcast Network-Affiliate  Relationships <ul><li>Network Obligations: </li></ul><ul><ul><li>Compensate Station  </li></u...
Broadcast Network-Affiliate  Relationships <ul><li>Network Receives: </li></ul><ul><ul><li>Access to Audience to Sell to A...
Broadcast Network-Affiliate  Relationships <ul><li>Station Obligations: </li></ul><ul><ul><li>Promote and Advertise Progra...
Broadcast Network-Affiliate  Relationships <ul><li>Station Receives: </li></ul><ul><ul><li>Network Compensation </li></ul>...
Broadcast Network-Affiliate  Relationships <ul><ul><li>Network/Affiliate Disputes: </li></ul></ul><ul><ul><ul><li>Clearanc...
Broadcast Network-Affiliate  Relationships <ul><li>Networks pulling out of NAB </li></ul><ul><li>Affiliates petition to th...
Changing the Network/Affiliate Relationship <ul><li>Eliminate Compensation? </li></ul><ul><li>Reverse Compensation? </li><...
Changing the Network/Affiliate Relationship <ul><li>Move Programming directly to Cable/Satellites </li></ul><ul><li>Intern...
Changing the Network/Affiliate Relationship <ul><li>Three Possible Futures </li></ul><ul><ul><li>San Francisco:  </li></ul...
Revisit Some Basic Fundamentals <ul><li>Networks   =   Stations </li></ul><ul><li>Broadcast   =  Cable </li></ul><ul><li>V...
Basic“Cable” Networks <ul><li>Provided as Part of Regular Subscriber Fee </li></ul><ul><li>Carried on both Cable & DBS </l...
Basic“Cable” Networks <ul><li>Two Revenue Streams </li></ul><ul><ul><li>Advertising </li></ul></ul><ul><ul><ul><li>Special...
Pay Networks   <ul><li>Also known as premium networks/channels </li></ul><ul><li>Subscriber Pays Additional Monthly Fee </...
Pay Networks <ul><li>Competitive Challenge: Product Differentiation </li></ul><ul><ul><li>Exclusive Movie Contracts </li><...
Pay-Per-View (PPV) <ul><li>Uneven Performance </li></ul><ul><ul><li>Current PPV revenue about $2.3 billion </li></ul></ul>...
Pay-Per-View (PPV) <ul><ul><li>Recent Study of Typical PPV system showed… </li></ul></ul><ul><ul><ul><li>1% of basic cable...
Rich Media, Poor Democracy Video Segment <ul><li>Consolidation/Synergy leads to the following: </li></ul><ul><li>Cross-pro...
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Transcript of "industry structure"

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