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 AJR  Columns :    THE ECONOMICS OF TELEVISION    

From AJR,   May 1998  issue

Hold the Obits: The Networks Are Fine   

Record ad rates reflect a very healthy business.


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

For a decade, obituary after obituary has been written anticipating the demise of network television. Yet today the network TV business is booming as advertisers line up to pay higher and higher fees.

On May 14 Jerry Seinfeld and the gang will air their final show about "nothing." NBC has demanded $2 million to hawk a 30-second ad on the last episode of the 1990s' most popular show – more than three times what it usually charges.

ýBC promises a Super Bowl-like crowd of baby boomers and Generation Xers. Mastercard and Budweiser, among others, rushed to become part of what promises to be the highlight of the May sweeps. Indeed the "Seinfeld" finale price tag shot well past NBC's demand for $1.3 million for a spot during last January's Super Bowl.

That any network could demand and get such an increase over so recent a record attests to the healthy state of broadcast television networks. I predict that NBC's total advertising take for the prime time evening of May 14 should handily top $60 million, helped by the season's final episode of "ER."

Simply put, in the age of the niche and the era of the fragmented audience, only a "Seinfeld" and an "ER" can provide the "eyeballs" that mass marketers so covet in this supercharged economy. In 1997, it helped the Big Four networks bring in more than $21 million in operating revenues, up a healthy 13 percent from 1996. Expect similar growth for this year.

All this success means that others aspire to create their own networks. For example, Barry Diller, the wunderkind who helped make Fox the force it is today, is currently repositioning the USA Networks, Inc. into a traditional network, only in this case principally delivered by wire and satellite. Diller wants to make USA a routine destination in the manner of an NBC. He wants to expand USA well past its current average rating of 2 percent of all TV households by tapping into partner Universal's TV factory.

With a base of owned stations that reach 37 percent of the country, some industry analysts forecast that this year Diller's vertically integrated empire will generate $3 billion in sales.

He also plans to transform his stations – that now air the Home Shopping Network – into local news and sports outlets. Diller's so-called City Vision format will begin next month in Miami – the first of a dozen planned transformations. One key local tie-in will be an alliance with the local newspaper, in this case the Miami Herald.

Diller will seek to overtake his former creation, the Fox network, but he has a fight on his hands. For one week in February Fox tied NBC and ABC, behind Olympics broadcaster CBS. Indeed Fox pushed ABC to fourth in the crucial sweeps period of February, marking the first time that either NBC, ABC or CBS had been overtaken.

The big loser has been ABC. When Disney acquired the network three years ago, great things were predicted. Instead ABC has been in steady decline with "Good Morning America," "World News Tonight with Peter Jennings" and prime time.

Indeed during the February sweeps CBS' "Evening News with Dan Rather" won the ratings race for the first time in four years. For the week of the 16th through the 22nd of February, the "Evening News" scored a 9.3 rating, first in total viewers. NBC's "Nightly News with Tom Brokaw" weighed in with a 9.0 rating. Through most of the 1990s Jennings had been the ratings leader.

All of this jockeying and repositioning is a result of the other networks seeking to gobble up a share of NBC's nearly half billion dollars in profit in 1997, up 25 percent from 1996. The dirty secret in all these numbers is that they are an underestimation of what NBC really makes because what isn't taken into account is the fact that NBC owned and operated stations have profit margins of 50 percent or better. Indeed in 1997 even Fox's owned and operated stations were able – for the first time – to generate $1 billion in revenues, with half that flowing directly to the bottom line.

Far behind in the new networking of America come UPN and WB, satisfied today to be niche players, hoping that their young audiences will stay with them and in the long run increase their audience shares as the population ages. Still UPN seems poised to announce an expansion to one more night of programming while WB seeks more series to match the cult favorite "Buffy, the Vampire Slayer."

Because of the competition for advertising dollars, I believe only one of these will succeed. They have too much corporate muscle behind them not to. Then – as we move into the next century – there will be six profitable and powerful TV networks (including USA) defining the top choices for American viewers. l