Wednesday, January 20, 2010

Cable Networks: Biting The Hands That Feed?

A big question facing the cable television industry: Can individual cable networks survive if they are forced to stand on their own as à-la-carte products outside cable's bundled pricing model?

These networks were initially offered to consumers along with dozens (now hundreds) of other programming options by the cable operators at a price somewhat reflective of their combined value.

This strategy, called bundling, enabled all these networks to slowly and steadily build their audience and brand recognition. And while not much has changed since Bruce Springsteen wrote "57 Channels (And Nothin' On)" in 1992, the quality was much worse when most of the networks launched in the 1980s. CNN was widely ridiculed as the chicken noodle network, E! was an endless loop of movie trailers and TNT featured mainly old movies.

Today, amidst the mostly dead wood, these cable networks do feature some of the most widely viewed sporting events and original programming on television; and many have become iconic global media brands.

Yet, it seems their future, much like their birth and life to this point, is intricately tied to the cable operators who provide more than half their total revenue in programming fees, enabling them to spend the money to pepper their line up with hits.

Which leads me to the well publicized battles here in New York between Time Warner Cable and Fox, and Cablevision and Scripps over these fees. How can two sides of an enormously successful business relationship air their grievances in such a public manner? (Millions have been spent on newspaper and TV ads.)

In The New Yorker this week, James Surowiecki eloquently describes the consumer appeal of bundling and why à-la-carte pricing could disrupt the entire cable industry.

"Successful bundling depends on the idea that what your are paying for is 'cable television,' rather than a collection of channels. Public fighting over programming costs disrupt that idea. When HGTV says it wants more money for its programming, it makes people who don't watch HGTV wonder why they should pay anything for it at all."

Will more of these battles force a public outcry for à-la-carte pricing and which networks, other than the top few would survive?

Wednesday, January 6, 2010

Ad Spending Is Completely Out Of Whack

Ad Age just published their annual ad spending issue featuring all sorts of charts, graphs and lists showing where advertising dollars are spent and who is spending them. Here is where the ad dollars fell by media category:

Media              Spending (dollars in millions)
Broadcast TV      46,385
Cable TV            19,635
Magazine            30,037
Newspaper          23,385
Internet               9,710 (20+ billion with search included) 
Radio                   9,411
Outdoor               3,729

Total                   142,291

More than half the total spending went to Broadcast TV and Magazines.  Note Internet spending, third from last, barely beating out Radio. (Would still be third from last with search included, but almost tied with newspaper.)

The following chart is from Forester and shows where people are actually spending their time:

We all know that ad spending is not properly aligned with media consumption.  But to this extent?  People spend almost as much time on the Internet as they do watching Television, yet the Internet garners only 14% of TV ad spending.

While much of the gap is a result of major brand advertisers poorly allocating their media budgets, another key factor is the dramatic price difference between the two platforms.  It's significantly cheaper to advertise online.  

Jeff Zucker's famous warning that the Internet would "trade analog dollars for digital pennies" is clearly becoming a reality.  It seems quite possible that as advertisers move more of their ad budgets online, their overall ad spend will decline significantly.