AJR  Columns :     THE ECONOMICS OF TELEVISION    
From AJR,   March 1995

Dinosaurs Who Refuse to Die   

Despite predictions of their demise, television networks are thriving.

By Douglas Gomery
Douglas Gomery is the author of nine books on the economics and history of the media     


During the past decade or so, pundit after pundit has declared CBS, NBC and ABC dead. These dinosaurs were about to be replaced by cable TV, VCRs or some other techno-wonder. But the networks resisted and live on, taking an ever greater share of the billions spent each year on TV advertising.

The logic of the predicted demise of the Big Three seemed so straightforward. With more choices – the average home with cable now can tune in to more than 30 channels and has at least one VCR – viewers would switch off network soaps, dramas, comedies and newv broadcasts, and turn to cable's alphabet smorgasbord or rent a movie. Economists call this the substitution effect.

But TV viewers did not bite. Despite the dire predictions, once the three networks lost audience share, they adjusted and then prospered. To best appreciate their current robust health, consider how badly others want to own one.

The list of rumored and verified suitors willing (and able) to spend $5 billion to $18 billion for a network draws from the Fortune 500. The potential purchasers include the two leading players in the cable TV business, Time Warner and TCI, Hollywood-based powerhouses Disney and MCA Universal, longtime network suitor Ted Turner, and even outside billion dollar conglomerates such as ITT and Harcourt General.

While it is fashionable to speculate about the coming of interactive TV, the real economic action still centers on the traditional networks. The bidders for an NBC, CBS or ABC are not wild-eyed, rookie entrepreneurs, but smart and successful businessmen and women. They can read balance sheets.

And the numbers are good. For July, August and September 1994 (the latest available data) we see continued increases in revenues and profits. Through the summer advertisers anted up a record $4.5 billion to be first in line to hawk their wares this TV season. ABC charged more than $1 million for a 30 second spot during the Super Bowl telecast, a healthy 26 percent above the rate for the 1994 game.

And all this good news was frankly unexpected. With baseball on strike, eliminating the millions associated with the playoffs and the World Series, and with the drain caused by preempting soaps for the O.J. Simpson proceedings, pundits expected a downturn in network earnings. But the money lost in those areas during the latter half of 1994 was more than replaced by strong advertising gains for morning and late night network programming, and a healthy increase in advertising revenues paid for slots during the network news.

The enduring prosperity of the Big Three has led to something few predicted a decade ago: a serious rival. Backed by Rupert Murdoch's billions, Fox has successfully become a true clone. It has hit prime time shows and highly rated NFL football. Fox owned-and-operated stations have successfully mounted morning shows that give "Good Morning America" and "Today" a challenge, and also air popular news broadcasts at noon and late night. Murdoch has even hinted at launching a national evening news program, but my guess is his stations (and Fox affiliates) make too much money with reruns to go up against Dan Rather, Peter Jennings and Tom Brokaw.

Final proof that Fox is for real can be seen by the interest of others in starting new networks. In January, two other media powerhouses, Viacom and Time Warner, began grafting their Hollywood studios to a set of TV stations and opened (on a limited basiý) fifth and sixth networks. Over the long haul, Viacom and Time Warner intend to compete for a share of the national audience and the billions spent by national advertisers. By 1996 Time Warner and Viacom (through subsidiary Paramount) hope TV viewers think of not a Big Four, but a Big Six.

ýime Warner's WB Network began with four new half-hour comedies on Wednesday nights. The United Paramount Network, set in motion by the highly publicized merger of Viacom and Paramount, competes on Mondays and Tuesdays, beginning with the latest spinoff from "Star Trek."

Still, both Viacom and Time Warner, true billion dollar media conglomerates, will find it daunting to follow Fox's lead. Murdoch lost nearly $100 million during his network's first year. Look for serious red ink from Warner Brothers and United Paramount.

But that's the future. For now, barring a world war or a true information superhighway breakthrough, the Big Four will remain the biggest TV businesses we have. They alone, for example, are able to tempt Diane Sawyer to sign on the dotted line for amounts – per annum – well into seven figures. They alone will be able to offer a national audience to advertisers. There will be no returning to the network-only world of the 1960s and 1970s, but viewers and national advertisers most often will continue to choose programs found on ABC, NBC, CBS and Fox. l

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