November 29, 2021

TV Networks Face Falling Ratings and New Rivals

Prime-time ratings for the Big Four broadcasters — ABC, CBS, NBC and Fox — together are dropping more precipitously than ever. Even their biggest hits, like “American Idol” and “Dancing With the Stars,” are fading fast. Advertisers are moving more cash to cable, cutting into the networks’ quarterly profits. New technologies are making it easier to skip those ads, anyway.

That’s not all: there are more outlets for programming cropping up all the time, with Netflix and Amazon and dozens of cable channels competing for actors, producers and, most important, viewers. Government regulators want to take back some of the spectrum allotted to local television stations. And start-ups like Aereo are threatening to deprive the stations of subscription revenue, causing some broadcasters to talk of options that were unthinkable a few short years ago. Some have warned they might go off the air entirely.

The many pressures bearing down on the industry are casting a shadow over this week’s upfronts, an annual tradition in New York in which the new sitcoms, dramas and reality shows are previewed at splashy, open-bar events and the networks try to capture their portion of an estimated $9 billion in advertising commitments.

“The networks are getting picked at from every direction,” said Jessica Reif Cohen, the senior media analyst at Bank of America Merrill Lynch. “This year was the tipping point,” she said, “when the television ratings really fell apart.”

The broadcast networks have managed declining viewership for years, but executives by and large said they believed that they had escaped the punishing losses that digital media exacted on the music industry and newspapers.

Now, though, they say they are not sure; even the industry’s biggest boosters concede that the business is under assault, though they express confidence that the networks will adapt. While the challenges before them are numerous, said Gary Carr, who oversees ad-buying at TargetCast, “the networks are far from dead.”

They are certainly smaller, though. Historically the broadcasters have had outsize cultural and civic importance in the country; their owners pledged long ago to uphold the public interest and provide news programming in exchange for valuable access to the airwaves.

No matter how optimistic the Big Four networks may feel about their new seasons — TV executives are masters at forgetting last year’s failures and staying on message about the future — the stress factors are enough to make them long for the days of “I Love Lucy,” when 50 million Americans would watch the same show at the same time.

Now NBC and ABC are lucky to get five million to tune in. Goldman Sachs found last month that broadcast ratings in the 18-to-49-year-old demographic, the one most coveted by advertisers, fell by 17 percent in the winter months compared with last winter. Goldman Sachs called it “the sharpest pace on record.”

While broadcast networks were setting record lows, cable channels were setting record highs; AMC’s “The Walking Dead” and the History mini-series “The Bible” regularly beat almost all the shows on network television while they were on.

At ABC, the lowest-rated of the four broadcasters, first-quarter profit fell 40 percent compared with the same quarter last year, but the network still made $138 million. NBC, on the other hand, lost $35 million in the quarter, because of lower advertising revenues. NBC’s parent, Comcast, said the network would have fared better if its biggest hit, “The Voice,” had been on in the quarter.

Ad revenue slipped at Fox too, partly because “Idol” has lost nearly a quarter of its viewers this season, on top of a 50 percent decline over the previous five years.

“We’re clearly disappointed” with the season’s ratings, said Chase Carey, president of Fox’s parent, News Corporation, to Wall Street analysts last week before delivering bullish words about the coming season’s slate. Fox eked out 15 percent profit growth, to $196 million, by spending less on programming and persuading distributors to pay higher subscriber fees — a strategy pioneered by the cable channels that the broadcasters also own.

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Aereo Has TV Networks Circling the Wagons

Mr. Kanojia had come to Washington to sell lawmakers and reporters on the virtues of his upstart service, Aereo, which scoops up the free signals of local television stations and streams them to the phones and computers of paying subscribers. Because Aereo cuts off the stations from the retransmission fees that they have grown to depend on, they are determined to shut down the service — even, the station owners say, if they have to take their signals off the airwaves to do so.

Mr. Carey’s suggestion was dismissed by some as a hollow threat intended to scare the courts — which have ruled twice in favor of Aereo so far — and perhaps prod Congressional action. It is, at best, a far-fetched outcome. But it revealed a lot about the state of broadcasting, which appears increasingly antiquated in an age when wireless companies like ATT and Verizon — instead of TV stations — are snapping up spectrum and using it to deliver Internet services like Aereo.

The networks aren’t just concerned about Aereo, which has a tiny following, but about copycats. “It’s Aereo today, but it could be something else tomorrow,” said Robin Flynn, a senior analyst at SNL Kagan.

For several decades companies that were lucky enough to own licenses for local TV stations thrived on advertising revenue alone, and because there was relatively little competition they enjoyed huge audiences and profit margins to match.

As cable and then the Internet introduced new competitors, station owners began to rely on a second revenue source, the so-called retransmission fees that come from the cable and satellite operators that pick up their signals and repackage them for subscribers. Now that they’ve had a taste of these fees, the stations aren’t willing — or able, they say — to go back to the old model of advertising alone.

SNL Kagan estimates that station owners took in $2.36 billion in retransmission fees from subscribers last year. (Some of that money is pocketed by owners, while a portion is paid to the network that the station is affiliated with, like Fox or CBS. Each of the networks also owns some stations outright.)

The research firm projects the fee revenues to hit $6 billion by 2018. The trend lines for broadcasters are similar to those in the newspaper business — subscribers are paying a bigger and bigger piece of the overall cost of content creation.

That’s why the stations are doing battle with Aereo, because it doesn’t pay any fees, the same way antenna users do not. News Corporation, the Walt Disney Company, Comcast, the CBS Corporation and Univision, all of which own stations in New York, sued Aereo shortly after the service was announced last year, accusing it of copyright infringement. But the media giants failed to win a preliminary injunction against the service last summer, and their appeals were rejected last week in a 2-to-1 decision in the Second Circuit Court of Appeals in New York.

Aereo’s success in court could embolden cable and satellite providers to do their own end-runs around retransmission fees. So now the station owners are plotting their next moves.

“We won’t just sit idle and allow our content to be actively stolen,” Mr. Carey said after speaking on stage at the National Association of Broadcasters conference in Las Vegas. “It is clear that the broadcast business needs a dual revenue stream from both ad and subscription to be viable.” If the revenue from retransmission fees starts to erode, he said, “one option could be converting the Fox broadcast network to a pay channel”

“It sounds like an idle threat,” said John Bergmayer, a senior staff lawyer for Public Knowledge, a public interest group in Washington. Mr. Bergmayer called Mr. Carey’s comments “probably just part of an opening gambit to Congress,” noting that the broadcasters could press for a change to copyright law that would effectively choke Aereo out of existence.

Mr. Carey’s comments also seemed meant to reassure affiliates. “He made clear that moving to a cable network isn’t their preference,” Ms. Flynn said.

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Scandal Stirs U.S. Debate on Big Media

They say the British hacking scandal that has stained Mr. Murdoch’s reputation is an opportunity to raise awareness of — and, they hope, objection to — media consolidation at a time when the American government is reviewing the rules that govern how much companies like News Corporation, Comcast and the Walt Disney Company can own.

“For those of us who’ve been warning about the dangers of too much media power concentrated in too few corporate hands, this scandal is a godsend,” said Jeff Cohen, the founding director of the Park Center for Independent Media at Ithaca College.

The scandal is also giving Democratic lawmakers an opportunity to call for more attention to the practices of such companies.

Representative Bobby Rush, a Democrat of Illinois and a past critic of Mr. Murdoch, questioned in an interview whether the media mogul had been allowed to amass too much media power. “We can’t forget the fundamental tenet of media ownership in the United States. It’s not a right, it’s a privilege. And it’s a privilege based on trust and responsibility,” he said.

Representative Tammy Baldwin, a Democrat of Wisconsin, said that along with media consolidation, the scandal raised questions about “privacy expectations in the digital world” and about how “we support freedom of the press while ensuring the integrity and truthfulness of the press.”

There are few if any immediate threats to Mr. Murdoch’s American portfolio, which includes the Fox network, two dozen local television stations, The Wall Street Journal, The New York Post and the 20th Century Fox movie studio. The Federal Communications Commission signaled last week that it regarded the hacking scandal as isolated to Britain.

But the scandal in Britain could influence the F.C.C. review of media ownership rules, especially if there is perceptible public discord about powerful media moguls like Mr. Murdoch.

The discord is already evident in Britain, where politicians have talked openly about considering new laws that would lead to a breakup of the News Corporation, which owns 39 percent of British Sky Broadcasting as well as numerous newspapers there.

In the United States, politicians have called for investigations into whether News Corporation entities hacked into the phones of Americans, including the victims of Sept. 11 terrorist attacks. The Federal Bureau of Investigation is now investigating; on Tuesday, Mr. Murdoch said that he was aware of no evidence that any 9/11 American victims had been affected.

But media reform groups like Free Press, which advocates for more diversity in media ownership, say their interest extends far beyond any single investigation.

“I think this is the moment to contend with the serious damage the Murdoch empire has done to our media system over the past few decades,” Craig Aaron, the head of that group, said last week.

The 2004 book “The New Media Monopoly” by Ben H. Bagdikian found that more than half of the radio and television stations, daily newspapers, magazines, publishers and movie studios in the United States were owned by five companies. In January, in the most recent case of consolidation, the government approved a bid by Comcast to take control of NBC Universal.

Proponents of media mergers say such combinations improve consumer access to news, information and entertainment. They say the Internet has fostered competition, creating new choices for consumers.

Groups like Free Press say the opposite — that such combinations reduce the country’s journalistic corps and decrease the diversity of voices in print and on the air. Mr. Aaron said he sensed that most Americans were aware of big media brands like Fox and NBC but unaware that their owners also controlled dozens of other brands. Media companies present an obstacle to awareness: “Most media outlets don’t like to cover themselves.”

But “when people find out just how much those companies own, they are worried about it and want to know more,” he said, adding that the who-owns-what chart was the most popular feature on the Free Press Web site.

This week, the F.C.C. declined to comment on the status of its ownership review, which is supposed to assess whether the existing rules are effectively promoting diversity, localism and competition. Earlier this month, an appeals court upheld most of the steps that the commission took in 2007 to loosen ownership rules, but it rejected on procedural grounds one rule that enabled more companies to own a newspaper and a station in the same local market.

Cable outlets like Fox News — the scourge of liberals and a symbol of Mr. Murdoch’s political power — are not under the purview of the F.C.C. or its ownership review, but the News Corporation’s 27 local stations are, because each is dependent on a federal license for use of the public airwaves.

License revocations are extremely rare, and analysts said they did not anticipate problems for the stations as a result of the hacking scandal. But an F.C.C. provision assessing the character of a station owner could be invoked by the News Corporation’s opponents when the company’s licenses for Fox and MyNetwork stations come up for renewal.

The broader problem for Mr. Murdoch, Mr. Aaron suggested, is that he “had an air of invincibility” before the scandal became one of the most talked-about news stories in Britain and the United States. “Whatever happens now, that’s gone,” he said.

Andrew Jay Schwartzman of the public interest group Media Access Project, said he doubted that loyal viewers of Fox News, a News Corporation property, would change their views.

But, he added, “a much larger group of people have an instinctive mistrust of powerful media, and they understand that consolidation of media ownership is not good for democracy.”

“For better or worse,” Mr. Schwartzman said, “News Corporation’s misdeeds will fuel that skepticism.”

Jeremy W. Peters contributed reporting.

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