PowerPoint Presentation: Sept. 8, 2004 -- TV 2010

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TV 2010Communications Studies

197C

Sept. 6, 2004

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Communications Studies 197C Summer 2004

Consumer Good to Divisible, Editable Asset

1980’s 1990’s 2000’s 2010’s 2020’s

Ninte

ndo

hom

e vide

o ga

me

-- 19

81

Inte

rnet

Bub

ble

Block

bust

er e

xpan

sion

star

ts 1

987

Broad

band

AOL Fo

unde

d - 1

985

Pay

per v

iew s

tarts

- 19

85

????

??

Meg

aplexe

s - 1

995

Mergers

PVR’s

Wire

less

med

ia?

Consumer ProductsChannel Explosions

Digital

3


How Did We Get Here?

Changing economics of television networksRegulation and Technologies…

Cable

Satellite

PVRs

4


How Do I Receive Thee?

• Over the Air?

• Cable?

• C-Band?

• Ku-Band – DirecTV, Dish (Echostar)?

• Cable Modem or DSL?

5


New Distribution Windows

• 1889: Kinetoscope• 1895: Cinematographe (exhibition)• 1939: NBC Television (network television)• 1975: HBO (pay television)• 1976: TBS Superstation (basic cable)• 1976: Betamax (home video)• 1985: Viewer’s Choice (pay-per-view)• 2001: CinemaNow; MovieLink (internet

downloading)

6


Video Media: Time Shift from Broadcast TV to Cable &

Satellite

Source: Veronis Suhler Stevenson, MPAA

Hours Spent Per Year By Media

667

884

936

283

851

8101001

228 185

125

120

43

5413 36

175

107 84

117

13 15777

Cable & Satellite TV

Broadcast TV

Consumer Internet

Home Video,prerecorded

Box Office

Video on Demand

Radio

Recorded Music

Daily Newspapers

Consumer Magazines

1988

2002p

7


History of Cable – 1948 Birth to 1960’s Halt by FCC

• 1948 --Arkansas, Oregon and Pennsylvania -- enhance reception of over-the-air TV mountainous or remote areas

• “Community antennas” (CATV) on mountain tops or high points; homes connected to antenna towers to receive signals

• 1952 – 70 “cable” systems served 14,000 subs, mostly 100 mile radii

• 1953 – Microwave relays began• Late 1950’s – Carriage begins of “distant signals”• 1962 – Almost 800 cable systems served 850,000 subscribers

o Westinghouse, TelePrompTer and Cox investedo Entrepreneurs: Bill Daniels, Martin Malarkey, Jack Kent

Cookeo 1963 -- Carter Mountain Transmission Corp. v. FCC • 1966/68 -- FCC restricted carriage of distant signals in top

100 markets

8


1970-80’s – FCC and Satellite Effects

• 1972 -- Cable Television Report and Order -- FCC gradual deregulation; protected local stations' exclusive rights to syndicated programming

• 1972 -- Charles Dolan & Gerald Levin of Sterling Manhattan Cable launched Home Box Office (HBO).

• National satellite distribution system used a newly approved domestic satellite transmission

• TV station, owned by R.E. "Ted" Turner, was distributed by satellite to cable systems nationwide, and soon became known as the first "superstation," WTBS

9


Compulsory License – Key in the Lock

• 1976 – Law granted cable operators compulsory license to make distant broadcast signals available to its subscribers and to establish royalty rates to be paid by cable operators

• At that time, many copyright owners and broadcasters were unwilling to make their programming available to cable subscribers.

• Congress created a statutory licensing mechanism that provided an efficient way to license copyrighted material and ensured that copyright owners received payment for use of their programming

10


1980s/90s – The Cable Act(s)

• 1980 – nearly 16 million households subscribed• 1984 – 1984 Cable Act – relaxed framework,

attracted investment; 1984-1992, $15 billion was spent on wiring systems

• 1989 – nearly 53 million households subscribed; cable networks increased from 28 in 1980 to 79 by 1989

• 1992 – 1992 Cable Act – enabled competition from wireless cable and DBS, responding to price increases

• 1995 – 139 national cable networks available

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1990s -- New Money & Businesses

• 1996 – Telecommunications Act of 1996 – increased competition

o AT&T entering the business in 1998, though exiting four years later by merging with Comcast in 2001

o Paul Allen, a founder of Microsoft, began acquiring his own stable of cable properties.

o America On-Line merged with Time Warner and its cable properties

• 1998 – 171 national cable networks available• 1996-2002 -- $65 billion spent on upgrading systems with

fiber optic and coaxial cable – “broadband” networks

12


Cable Now

• 73.7 million basic subscribers as of 1Q04• Digital cable could be found in 22.9 million

homes (31%)• Subscribership to high-speed Internet access

service via cable modems had grown to 17.3 million by 1Q04 (up 35% vs 1Q03)

• 2.7 million customers were using cable for their phone connections 1Q04 (up slightly)

• By 2002, about 280 nationally-delivered cable networks were available, with that number growing steadily

13


US HH Penetration of Video Media

0

20

40

60

80

100

12019

50

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2002

US

HH

(m

illio

ns)

HH

TV HH

Cable HH

Pay Cable HH

VCR HH

Addressable HH

Digital Cable

Satellite

VOD HH

Sources: Nielsen Media Research-NTI; TVB; Census Bureau; MPAA; Kagan; NCTA, Adams Research

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Cable Numbers You Should Know

• U.S. HH -- 110.4 million (Jan. 2004)• U.S. TV HH – 108.4 million (Jan. 2004) (98% of HH)

• 1 rating point = 1% of TV HH• Basic cable HH – 73.9 million (Jan. 2004)(68% of TVHH)• VCR/DVD Homes – 98.4 million (91% of TVHH)• Digital cable HH – 20.6 million (est. as of June 2003)• Satellite (DSS) – 20.35 million (est. as of March 2003)

• Includes 11.4 million DirecTV subs and 8.4 million Dish Network subs

• DVR penetration = 2% of TVHH (as of Aug. 2003, Yankee Group)

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Cable Systems: Different Economics than TV Stations

• Monthly Fees by Tier• Basic Tier(s)• Pay Services

• Multiplexing• Pay per View, VOD, Other Services

• Advertising• By Network• “Interconnect” by Local Systems

• Fractured Ownership by Market• Installation• Late Fees

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Avg. Basic Cable Network: 50/50 Split

Gross Ad Revenue 53%Net Ad Revenue 45%License Fees 52%Other Revenue 3% Total 100%SG&A 21%Programming 46%"Cash Flow" 33%

Source: Kagan Research; 2003

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A Large Ad Pie to be Fighting Over

2003 U.S. Advertising, $ million

Source: Universal McCann/TVB

15,030

9,948

13,520

3,434

13,954

4,860 Network TV

Spot (nat'l)

Spot (local)

Syndication

Cable Network

Cable (non-net)

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Cable Advertising – Growth

TV/Cable Ad Revenue

0

2,000

4,000

6,000

8,000

10,00012,000

14,000

16,000

18,000

20,000

1997 1998 1999 2000 2001 2002 2003

$ m

illio

n

Network

Spot (nat'l)

Spot (local)

Syndication

Cable Total

Cable Network

Cable (non-net)

Source: TVB

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Cable Advertising – Long-Term Growth

Source: TVB/Universal McCann

TV/Cable Ad Revenue

02,0004,0006,0008,000

10,00012,00014,00016,00018,00020,000

$ m

illio

n

Network

Spot (nat'l)

Spot (local)

Syndication

Cable Total

Cable Network

Cable (non-net)

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Dominant Cable Operators (MSOs)

Rank MSO Subscribers

1 Comcast Cable Communications (info)

21,468,000

2 Time Warner Cable 10,919,000

3 Charter Communications 6,431,300

4 Cox Communications 6,338,300

5 Adelphia Communications 5,469,800

6 Cablevision Systems Corporation

2,944,000

7 Bright House Networks 2,167,000

8 Mediacom Communications Corporations

1,543,000

9 Insight Communications 1,293,600

10 CableOne 720,800

59,294,800Source: Kagan Research, LLC

Top 10: 49% of HUT; 81% of Cable

HH

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Concentration of U.S. Distribution Pipes

MSO’s (Multiple System Operator) In millions

Comcast (ATT)

Time Warner

Charter Cox Adelphia Cablevision

Echostar Dish

DirecTV

21.4 11 6.5 6.3 5.2 3

“Voom”

8.8 11.5

= 54 million

= 80 % of the cable subscriber universe

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Top Cable Networks by RatingsCable Network Primetime

RatingTVHH

TNT 1.7 1,984,000

USA 1.7 1,828,000

Nick/NAN 1.6 1,742,000

Disney 1.3 1,391,000

TBS 1.2 1,319,000

Lifetime 1.2 1,247,000

Toon Disney 1.1 1,243,000

ESPN 0.9 1,018,000

Fox News 0.9 1,010,000

Discovery 0.9 986,000

Source: Kagan Research, LLC

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Top Cable Networks by Revenue

Cable Network 2002 Revenue 2003 Revenue

ESPN $2,449.1 MM $2,871.6 MM

TNT $1,320.8 MM $1,502.1 MM

Nickelodeon $1,088.0 MM $1,244.1 MM

Fox Sports $1,022.4 MM $1,189.5 MM

MTV $860.2 MM $998.5 MM

USA $883.2 MM $933.1 MM

CNN $798.3 MM $858.2 MM

Lifetime $744.8 MM $790.0 MM

TBS $763.1 MM $776.2 MM

Disney Channel $735.6 MM $762.7 MM


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Important Facts: Cable Financial Model

• Cable financial model depends on popularity of net

• New nets typically have to pay per sub fee to get carriage

• Popular nets (ESPN) get per sub fee from MSO•ESPN rates at around $2/subscriber (or

more)•Comcast’s total programming costs per sub

per month (as of 1/13/2003) were $14.87

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Satellite – Late to the Party

• 1988 – Congress enacted the Satellite Home Viewer Act (“SHVA”) to ensure that subscribers to satellite services would have access to broadcast signals.

• At that time, satellite TV service consisted of the large C-Band dishes that were primarily in rural areas.

• C-Band peaked at 2.4 million subscribers in 1995, but has dropped to below 500,000

• In 1994, the Direct Broadcast Satellite (DBS) service became available to consumers – has grown to over 21 million subscribers

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Reaching the US TV Consumer

Cume Penetration of US Households by Channel

-10.020.030.040.050.060.070.080.090.0

Channel

% A

vg W

eekl

y C

um

e

Source: Nielsen 2002; weekly cume

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Fragmented Competition: Number of US Cable & Satellite

Channels

6072 78

91

113130

155168

202

227235

250267

0

50

100

150

200

250

300

Nu

mb

er o

f C

han

nel

s

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Year

Source: Screen Digest

1994: Launch of

Digital Satellite

1997: Launch of

Digital Cable

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Cable TV & Satellite -- US

• Direct Broadcast Satellite – 15.8% US households (up from 13.8% 7/02)

• Wired Cable - 70.3% of US Households, down from 67.9% 7/02 (back to 4/96 levels)

• 58 TV markets now have Alternate Delivery system penetration of 25% or more

• Springfield, MO 46%• Dallas/Ft. Worth 38%

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US Channels Available Doesn’t Materially Impact 14-19 Channels

Watched

195

115.5

104.895

8475.5

66.156.3

45.636.2

15.624.4

17.919.116.115.916.615.615.6151412.37.15.80

50

100

150

200

250

11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-100 101-110 111-120 121+

Channels Available

Nu

mb

er o

f Ch

ann

els

Avg Receivable Avg Viewed

Source: Nielsen, National People Meter Sample 8/01; TVB

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How Do Cable Channels Compete?

• Marketing• Niche Programming – repackaged, syndicated, used

across platforms• HGTV, Discovery, History, MTV, ESPN

• Repurposing (co-owned networks; quick reruns)• Original Programming

• FX: The Shield, Nip/Tuck• Bravo: Queer Eye for the Straight Guy• ESPN/Fox: Sports programming

• More Expensive!• Off-Network Programs

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Network Concentrated Landscape

Turner ABC/ESPN MTV Networks

Discovery Fox NBC Scripps

10 10 19 13 8 6 4

• CNN Fin

• CNN Int

• Cartoon

• TBS

• TNN

• TNT

• CNN

• TCM

• Disney

• ESPN

• Toon Disney

• SoapNet

• VH1

• Comedy

• MTV

• Nick

• TV Land

• Spike

• Noggin

• Animal Planet

•En Español

•Learning

• Discovery

• excluding regional)

• Fox Movie

• FX

• Fox News

• Fox Sports

• Nat Geo

• CNBC

• CNBC world

• MSNBC

•Bravo

• Food

• HGTV

• DIY

• Fine Living

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2 3 2 3 3

• A & E• Histor

y

A & E AMC E! Lifetime USA

• WE

• AMC

• Lifetime

• LMN

• USA

• SCI Fi

• HSN

Independent Channels

Golf Channel

Hallmark

Weather

QVC

Oxygen

IFC

• Style

• E!

33


Recent Off-network Programs to Cable

Year Avail.

Program

Syndicator

Cable Network

Orig. Network

Eps. Fee/episode

2006 Frasier Paramount

Lifetime NBC 264 $600K

2004 Smallville

Warner ABC Family

WB 66 $400K

2004 Fear Factor

NBC FX NBC 100 $280K

2005 Alias Buena Vista

TNT ABC 66 $200K

2004 Jamie Kennedy

Warner ABC Family

WB 61 $150K

2004 Yes, Dear

Fox TBS CBS 96 $75K


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U.S. Changing – How about other Countries?

• Different cable/satellite mix• National programming – culture• Reality Show – Global Impact• Ownership concentration• Interactive TV – U.K. (Sky TV), Israel (cable)

• Competitive advantages

35


Digital Customization for Local Appetites –

MTV brand extensions

36


Current Challenges?

• Vertical & Horizontal Integration• New Services• Reality (previous kings included game show)• Advertiser support – Integration – Product

Placement• Reruns & Cable Repurposing

37


Vertical & Horizontal Integration

• Comcast - AT&T (failed bid for Disney)• News Corp. buys DirecTV• Adelphia up for sale• Intensifies competition: more at stake,

more pieces to maneuver

38


Competition Driving New Services

• Cable launching VOD (difficult for satellite, inefficient upstream path)

• Satellite counters with DVR, calls it VOD (cable launching DVR too)

• Cable offers broadband and voice (satellite teams with DSL, RBOCs)

• HDTV - advantage for satellite in short-run, capacity issues later; regulatory local “must-carry” considerations

• ITV and custom IPGs next (Murdoch’s success with BSkyB)

Retail prices kept at bay for now

39


People Meter Controversy

• Nielsen is trying to record what people watch every 15 minutes to determine rating with 2,000 households

• Challenges now that sample is unrepresentative of total population (higher end house skew).

• Boxes just tell if the TV set is on, not whether a person is there actually watching it or not.

• Issues that have arisen with technology is that there are multi-set households, VCR and Tivo which alter when people watch, etc.

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Reality Show – Winner of 2003/04 Season

• 9 of the top 20 top-rated shows among adults 18-49 were reality shows.

• A reality show was the top-rated show in the key demo for ABC ("The Bachelor“), NBC ("The Apprentice," tied with "Friends"), Fox ("American Idol") and UPN ("America's Next Top Model").

Source: Variety 5/27/04

41


Reality Show Economics

How American Idol makes $• Ad spots (network, national spot, local spot, cable

insertions)• Sponsors• Concerts• Albums• Cell phone• Syndication of idea to other countries• Low Cost & No Reruns or Traditional Syndication

(except Reality Show Network)

42


DVDs -- TV Episodics Releases

Source: Video Store Magazine Market Research 2003

TV Episodics are the latest goldmine for Studios who will be expanding the category for the next few years as they mine their deep TV catalogs.

Top 10 Television DVD Sellers

Rank Title Supplier Index1 Family Guy Vol. 1 Seasons 1 & 2 Fox 1002 Osbournes: Season 1 (Uncensored) BVHE 85.43 Simpsons Season 3 Fox 72.04 Sex and the City: Season 4 HBO 63.15 Friends: Season 3 Warner 51.46 Family Guy Vol. 2: Season 3 Fox 49.37 Buffy the Vampire Slayer: Season 3 Fox 47.88 Band of Brothers HBO 43.19 South Park: Season 1 Warner 37.2

10 Buffy the Vampire Slayer: Season 4 Fox 35.7

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Digital Television & High Def (HDTV)

• Rule change in 1997 allowed broadcasters to hold onto their analog channel until 85 percent of Americans have made the DTV transition.

• End of transition• December 31, 2006 or when 85 percent of

U.S. TV households have the capability to receive Digital TV signals (whichever is later)

• Digital Must Carry??

44


Distribution: Changing the Basic Economics of Television?

•

Broadband: 24% of households

•

Cable 15.9 mm, DSL 10.4 MM 1Q94

•

Cable 60+% of all broadband customers in U.S

•

Voice over IP (VoIP)

•

Video On Demand (VOD)

•

Satellite Surge

•

Cable TV Subs declined 63,000 1Q04

•

DirecTV -- Murdoch took over Dec. 03

•

Europe -- Sky TV

•

Asia -- STAR TV

•

Echostar (Dish+)

•

Tivo / PVRs

45


Media 2010

• How fragmented?• How much piracy?• How much band to the home? Who controls it?• How much will the consumer be willing to

spend each month?• How do advertisers get their impressions to the

home?• How much band OUTSIDE the home? • How portable does media become? • How personalized?

PowerPoint Presentation: Sept. 8, 2004 -- TV 2010

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