When Comcast, the largest cable television company in the U.S., bought a controlling stake in NBC Universal in December, the industry was set abuzz by speculation that the cable giant would eventually move to replace the traditional free network model with a paid model used by cable channels.
Such a move would essentially put an end to free television, which has been the only non-paid programming available to consumers since cable and satellite companies began operating over the airwaves.
Comcast CEO Brian Roberts has spent a great deal of time since the deal was announced assuring industry groups and analysts that his company has no intention of doing away with the free network model.
This is not the first time the notion of free television going the way of the VCR has surfaced.
“This has been circulating around for years and years, and I think it was heightened when Comcast bid for NBC Universal,” said Dan Modisett, vice president and general manager of NBC affiliate WLBT in Jackson.
Modisett cited reams of studies conducted by networks — NBC, CBS, ABC and Fox — that revealed only about 10 percent of their audience viewed them via over-the-air broadcast and not through a cable of satellite provider. “That 10 percent loss would theoretically be offset by going to cable and being paid by the cable and satellite companies.”
Therein lies the disadvantage networks have in competing with cable channels. Retransmission fees, fees cable and satellite providers pay network and cable channels to broadcast their shows, are heavily tilted in favor of cable channels.
For example, the average price subscriber ESPN gets from cable and satellite providers is $4. Networks get around 10 percent of that figure.
“We’re all getting paid. Now we’re not getting paid near the value (we should),” Modisett said. “The amount of viewers who watch broadcast stations on cable and satellite is huge compared to some of these cable networks that are getting paid as much as 10 times what we’re getting.”
To make up that difference, networks have had to diversify because relying solely on ad revenue to compete with the cable behemoths would be folly. NBC has cable channels USA, CNBC, MSNBC and Bravo! to go with Internet companies and movie studios. Fox has cable channel FoxNews and its parent company, News Corp., bought the Wall Street Journal last year.
ABC owns ESPN and the Disney entertainment conglomerate. Modisett said NBC only makes up about 5 percent of NBC Universal. “The NBC brand itself is huge.”
That diversification has not completely closed the financial gap between networks and cable channels. NBC Universal President and CEO Jeff Zucker admitted on CNBC in December that “the cable model is just superior to the broadcast model.”
Where networks have a clear advantage over cable channels is viewership. Numbers from the Television Advertising Bureau show that of the 200 shows watched most by the 18- to 49-year-old demographic, which is the most coveted by advertisers, 80 percent of them are shown by networks.
“I’ll tell you right now, there’s more people watching WLBT (in its viewing area) than are watching ESPN,” Modisett said.
Carrying the water for the networks is the local news.
“My local news has higher ratings than anything in prime time on any network,” Modisett said. “That’s valuable so the networks want that. If they lose that, they lose a lot of local viewers. When people think of WLBT, they may think of NBC but they also think about our local people — Howard, Maggie, Barbie, Rob Jay and Bert. That’s an amenity. If you lose all that, you’re just a cable channel. That’s the problem with local channels that don’t have news. They don’t have an identity. Local news is the most important thing we do.”
That dynamic holds across the state, said Bobby Berry, general manager of CBS affiliate WCBI in Columbus. His stations’s morning, noon and evening local news is the only way folks in the Golden Triangle can keep track of what’s happening with the area. Cable channels just can’t compete with that, he said, because CNN isn’t sending a reporter to Lowndes County to talk with the farmer who grew a 1,000-pound watermelon or ask local officials why the streets flood every time it rains. Local network affiliates fill a void no other media outlet can fill. If the free network model was replaced by a paid cable model, Berry and Modisett agreed local news would remain because it’s so valuable to their parent networks.
“A television station is only as good as its local news and the number of hours that they produce and the amount of time they spend in the community,” Berry said.
Berry and Modisett agree the appeal local network affiliates have makes it unlikely the free network model will disappear any time soon.
“I don’t think there’s any rush to go and be a subscription-only model,” Modisett said. “Not to say it can’t happen, but at this point, big events like the Super Bowl, the World Series, the NBA Championship, all the major sporting events are still on broadcast television so no one is denied the opportunity to watch it. That’s balanced out by the fact that most of the networks lose money on the major sports franchises. For example, NBC is projected to lose around $200 million on the Winter Olympics. There’s always this battle between public interest – keeping it on broadcast networks – and the greed of the sports businesses to squeeze every last nickel out of the rights market, but you can’t blame them. I don’t see anything happening with the four major networks. I see those staying the same. Some of the minor networks may have to go to another model. The networks aren’t losing money. They’re just not making as much money as they were. I think over a period of time, this is going to balance out.
Said Berry: “The number one channel (viewers are) watching is still their local affiliate with their local news.”
What is more likely to change, Berry said, is cable’s practice of bundling channels together. For example, ESPN bundles its flagship station with ESPN2, ESPN Classic and ESPNEWS. Before NFL Network reached an agreement with Comcast to include the channel on Comcast’s basic tier, it was bundled as part of a sports package. The “a la carte” method of dispensing cable channels one-by-one instead of packages of five or six is the next step in the evolution of television, and will most likely happen long before the free network model fades to black, Berry said.
“Cable channels certainly don’t want that,” Berry said.
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