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channel universe
Forecast: There's a big shakeout coming in cable
By Kevin Downey
Remember the 500-channel universe?
For a quick refresher, it was to be the television landscape of the near future, when technological advances converged with an ever-growing appetite for niche programming that would result in hundreds of cable networks beaming a wide variety of services into American homes.
Although that 500-channel universe seems no less possible today, considering that there are already 231 national cable networks, it's unlikely to ever happen.
That’s one forecast from PricewaterhouseCoopers’ Global Entertainment & Media Outlook: 2002-2006.
If anything, the report concludes, the number of cable networks won’t grow much beyond the current level and may well decline.
The reason comes down to money: There isn’t enough of it, either from advertising or licensing fees, to support many more networks.
“The fact is that the cable networks have proliferated faster than the broadcast and cable advertising market,” says Peter Winkler, global marketing director for the entertainment and media practice at PricewaterhouseCoopers.
“There will also be a continuing shift, where the larger networks are going to get larger, which will also lead to some networks to fall by the wayside.”
PricewaterhouseCoopers is forecasting that advertising expenditures on broadcast and cable TV will only begin to recover significantly sometime in 2004 from the downturn in 2001.
Ad revenue increases will be modest until then, with broadcast networks expected to pull in about 4.6 percent more than last year, to reach $16.9 billion. The cable networks will get about 5.4 percent more, to reach $12 billion.
Overall revenue, including license fees and other sources, will go up about 7.1 percent annually.
Together, the surge in the number of cable networks and the slowdown in revenue will probably lead to steep cost cutting wherever possible to hold onto revenue.
That is already happening with repurposing, which is when a cable network rebroadcasts a broadcast network show.
PricewaterhouseCoopers estimates that a show has to run at least two times in order to be profitable.
The broadcast networks have also been cutting back on movies because it’s costly to promote them, and after having appeared on DVD, video and cable, the payoff is typically low ratings.
And TV sports have been shifting to the cable networks for the same reason.
NBC, for example, got rid of football, basketball and baseball in the past few years simply because the ratings didn’t justify the enormous broadcast rights fees.
But cost cutting has been going on in other ways for some time, if perhaps more subtly.
“What you don’t see is that back office operations are being streamlined,” says Winkler.
“What we’re also seeing is the TV station market is consolidating, meaning the networks will own most of their affiliates by 2005 for the cash flow. But that also gives them leverage, in terms of providing content, and it gives leverage to the network ad sales team.”
Another cost-cutting measure is that cable networks are expected to begin producing fewer original programs, in a complete reversal from recent years.
The result of all this will be something of a catch-22 situation.
The quality of programming on broadcast and cable will go down, which will pull ratings down, which in turn will cause advertising revenue to slow down.
Fewer networks, especially the lowest-rated cable networks, will be able to survive and some will start disappearing.
“Eventually, toward the end of our forecast (2006), there will be a shakeout with some networks falling out,” says Winkler.
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GLOBAL ENTERTAINMENT &
MEDIA OUTLOOK: 2002-2006 |
||||||||||
| Category |
'97- |
'98- |
'99- |
'00- |
'01- |
'02- |
'03- |
'04- |
'05- |
'06- |
|
'98 |
'99 |
'00 |
'01 |
'02e |
'03 |
'04 |
'05 |
'06 |
'07 |
|
|
Brdcst |
34.9 |
33.3 |
33.4 |
31.9 |
30.2 |
29.0 |
28.2 |
27.5 |
26.9 |
26.4 |
|
Basic Cable |
21.4 |
24.4 |
25.5 |
27.5 |
29.8 |
31.0 |
32.0 |
32.8 |
33.5 |
34.0 |
|
Pay |
3.6 |
4.2 |
3.4 |
3.4 |
3.5 |
3.5 |
3.6 |
3.7 |
3.8 |
3.8 |
|
All |
25.0 |
28.6 |
28.9 |
30.9 |
33.3 |
34.5 |
35.6 |
36.5 |
37.3 |
37.8 |
|
Total |
59.9 |
61.9 |
62.3 |
62.8 |
63.5 |
63.5 |
63.8 |
64.0 |
64.2 |
64.2 |
|
*Ratings for Fox, UPN, WB are
prorated by program hours. |
||||||||||
|
Multichannel Households (Millions) |
||||||||||
|
Category |
'97 |
'98 |
'99 |
'00 |
'01 |
'02 |
'03 |
'04 |
'05 |
'06 |
|
Multi |
74.0 |
77.6 |
81.3 |
85.2 |
89.3 |
92.9 |
96.1 |
98.1 |
99.5 |
100.5 |
|
TV House |
97.0 |
98.0 |
99.4 |
100.8 |
102.2 |
105.5 |
106.8 |
108.1 |
109.3 |
110.5 |
|
Multi |
76.3 |
79.2 |
81.8 |
84.5 |
87.4 |
88.1 |
90.0 |
90.7 |
91.0 |
91.0 |
|
Source: Paul Kagan Associates, Sky Report, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates |
||||||||||
June 24, 2002 © 2002 Media Life
-Kevin Downey is a staff writer for Media Life.
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