Dual Revenue Streams Don't Necessarily Even Playing Fields

Over-the-air networks in Russia just got what would seem to be an even playing field with new-fangled pay networks like Discovery and Disney.

That’s because Russia has banned advertising on pay channels. If ad dollars now go into the coffers of the traditional networks, Russian marketers can expect higher ad unit prices and CPMs.

In the U.S., cable networks have had a dual revenue stream -- subscription fees from TV distributors and national ads -- since the business started decades ago. In the early years, a case could be made that cable networks needed both streams of revenue to survive.

Only recently have broadcast networks started playing in both fields -- with retransmission revenues tacked on to advertising revenues.  We know they now need it, since ratings erosion means generally lower overall advertising revenue. Even then, many say those retrans fees aren’t where they should be. But a better playing field? Perhaps.



U.S. broadcast networks may still complain that retransmission fees are not on par with the subscriber fees received by networks like ESPN (a little over $5 per subscriber per month). Broadcasters complain that, by looking at viewing metrics alone, they should easily command top money over virtually all cable networks.

A freer market is always desirable. Let networks figure out how best to compete, and the metrics they need to work with.

But should viewership be the only measure? Maybe some viewers are worth more than others, such as harder-to-get male viewers (ESPN might say so). We haven’t heard whether viewership -- or a particular segment of viewers -- factored into Russia’s decision.

Russia does offer an exemption for pay networks who want to continue to be in the advertising business – they need to buy at least one free-to-air broadcasting license in at least one of Russia’s regions.  We are not sure what that entails and whether it is a wholly different and more complex corporate/legislative task.

In the U.S., big media like NBC, Fox, ABC or CBSall have cable properties and over-the-air broadcast stations. That doesn’t necessarily always mean better business prospects. The U.S. government is not about to ban advertising on pay /cable channels.

Decades ago, consumers probably wondered why they needed to pay for cable channels through monthly fees, while also being subjected to advertising. That train has left the station. The goal might be for playing fields to be level. But the reality is many are uneven at best, uphill for most.

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