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January 15, 2022

THE SHAPE OF THINGS TO COME: EVOLVING BROADCAST TV NETWORK BUSINESS PLANS

In TV’s early days, the broadcast networks and most TV stations relied on advertising revenues as their primary—and often only—source of income. This worked out fine for stations affiliated with the networks, since the networks supplied them with 14-18 hours of high appeal content per day. The rest of their daily schedules were filled out with syndicated fare or locally produced newscasts at reasonably efficient costs. As a result, typical station affiliates made gross profits of about 20-25%, and the stations that were owned by the networks in larger cities did even better, in the 23-45% range.

The networks, however, functioned as loss leaders at this time; only the cheaply produced daytime and late evening programs were profitable whereas their primetime fare usually lost money. Combined, the three broadcast networks earned a 6% gross profit; but individually, CBS came in around 10-11%, NBC at about 6%, and ABC lost money—due mainly to its weakness in the daytime and late-night hours.

In the late-1970s, the broadcast TV networks scored a major coup when they acted in unison to demand—and get—huge annual CPM increases of about 25% per year for three years. This boost steadily eroded, however; faced with ever rising program costs, including huge increases in the fees demanded by sports leagues, the broadcast networks by 2000 were barely breaking even, and sometimes even losing money each year. Continuing inroads by cable, as well as the launch of independent station networks such as Fox, Paramount and Warner, also siphoned off primetime dollars and created a prognosis for the big three that was dire indeed.

One of the first major steps the broadcast networks took to counter this trend was to emulate the cable channels and demand retransmission fees from the cable systems and satellite distributors. Non-advertising revenue streams, earned through syndicator profit sharing and product placement deals, also improved the situation, to the point that the broadcast TV networks have returned to profitability levels of about 12-16%.

But once again, further changes to their business plans are needed, as the erosion of “linear TV” rating continues, along with increased streaming and heightened cord cutting. In response, they’ve entered the streaming wars, offering a variety of ad-supported and ad-free content bundles to subscribers. Their hope is that as linear TV ad dollars continue to shrink, the money will flow to advertising on their digital platforms, while at the same time generating a new revenue stream from their streaming subscribers.

This plan makes sense if executed properly. The networks, in league with their owned cable channels, station affiliates and Hollywood partners, bring huge amounts of viewable content to entice would-be subscribers. Even better, the costs of much of their content are already paid for by linear TV ad dollars. Add some highly touted original programming to hook subscribers, and the formula should yield profitable results in a few years. Plus, the networks can rerun the original productions for linear TV audiences at a later date and garner high CPM GRPs in the process.

The accompanying table shows the collective revenue patterns for ABC, CBS and NBC from 1965 to the present, as well as our projections of how things will change by 2030. By then, we expect that linear TV will represent about 33% of network incomes, but if we take all three ad revenue streams—linear, digital and AVOD—into account, this increases the proportion to 57%. We project that the network sellers will be able to use GRP scarcity, coupled with improved digital/AVOD targeting and reduced ad clutter to demand—and get—huge CPM increases.

 


Overall, we think that the major broadcast TV networks will increase their combined incomes by about 50% over the next 10 years, with the potential for even more if their streaming ventures really take off. This would ensure overall profitability for the foreseeable future. There’s always the possibility that an as-yet unknown technology—or for that matter another pandemic—will emerge that will necessitate yet another reassessment of the broadcast networks’ business plans.

However, as we all know, “TV” isn’t just about the legacy networks. Our popular research annual, TV Dimensions, will be relaunched at the end of January as Total TV Dimensions. The 2022 edition features a new approach that focuses on TV in its entirety, regardless of how it reaches its huge audience. While continuing to cover linear TV, we include coverage of digital venues, especially CTV and streaming, wherever possible, with a goal towards examining important current or future developments. For more on this rapidly-evolving medium and how it will be covered in Total TV Dimensions, visit our website where you will find a page-by-page table of contents. Total TV Dimensions will be released in late-January and can be ordered through our website at a special pre-publication discount rate.


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