Commentary

Are Subscription-Based Companies A Threat To Advertising-Supported Platforms?

Worries continue to arise about what will happen to advertising-supported TV in the light of more network deals with the likes of Netflix, Amazon, and Hulu.

All this comes with the news of a new deal CBS has made to sell “CSI” to a U.S.-subscription-based video-on-demand service (SVOD.).

The “CSI” franchise -- a big piece of CBS’ current success -- has brought in billions through global TV licensing deals around the world, including many advertising-supported TV networks and stations.

Bernstein analyst Todd Juenger continues to make the case for CBS and others to take a different approach with these deals: "We believe networks need to wean themselves off of SVOD (subscription video on demand) licensing, which we believe is the primary driver of the demise of ad-supported video consumption," he noted.

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CBS positions this deal in a different way: not only about getting multimillion dollars in license fees, but as a way to market the program. CBS believes those watchers of “CSI” on SVOD platforms will be moved to watch newer episodes on CBS, episodes that are supported by advertising sales.

Decades ago, when big media companies made deals to rerun network shows -- first on TV stations through U.S. syndication, and more recently with the addition of cable TV networks, the issue was raised that exposure to rerun content would siphon away viewers from the original.  Then, as now, proponents countered with the belief older TV program content would push viewers to watch more networks shows -- fresh, original fare.

Detractors might now say all this didn’t work -- that broadcast TV ratings have witnessed a steady decline, while cable networks, with their off-net comedies and dramas, contributed to that decline. Others might say that had networks not made those program deals, their declines would have occurred faster.

Now a bigger factor comes in light of advertising-supported programming versus content that comes free of advertising -- on Netflix, for example.

CBS still pulls in a hefty piece of its overall revenues from advertising sales, around 50% -- though that share has been failing rapidly as the company expands its revenue base. 

Though Viacom still dismisses the activity, its sales to Netflix of Nickelodeon content may have affected ratings on its advertising-supported traditional TV network.

Future questions for CBS and other traditional TV network producers: 1) Are TV viewers moving more to advertising-free TV platforms, and 2) can revenues from TV license deals with such platforms grow and eventually replace deals with advertising-based networks?

And while you’re mulling that, think about this: When growing sales of off-network shows were in their heyday, back in the late ‘80s and early ‘90s, there was no DVR technology -- no way for advertising avoidance.

1 comment about "Are Subscription-Based Companies A Threat To Advertising-Supported Platforms? ".
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  1. Ed Papazian from Media Dynamics Inc, February 17, 2015 at 4:13 p.m.

    When "off-network" fare like "Star Trek", "Bonanza", "I Love Lucy", "Dragnet". etc. went into syndication many years ago, this rarely happened while the series was still running on the network's' primetime schedules. Also, many of these shows were owned by independent producers----often helmed by their stars--- and/or movie studios, though in some cases the networks also were directly involved. At the time, a typical episode garnered about 25-35% added income via syndication sales and this was seen as a vital source of income for producers who frequently broke even on the original run or made a small ( 10-15% ) profit. The networks usually convinced or coerced independent producers, who didn't have such staffs, to "hire" their syndication arms to execute rerun sales to TV stations for fees ranging as high as 40-50%, but the movie studios handled this chore themselves and retained all of the ensuing profits. The FCC's Primetime Access Rule, in the early 1970s, banned the networks from making such deals due to their "dominance" over original TV program production, but the ban against "partnership" pacts was lifted some years ago when the no-longer "dominant" networks were, once again, allowed to have a major profit stake in shows they licensed from independent producers. Because rerun sales have become vastly more profitable than in the 1960s and 1970s, thanks to the huge appetite for such fare on cable, the practice in the past 30 -35 years has been to sell skeins of episodes to stations or cable channels while the original series was still airing new episodes in primetime. Thus the primetime runs were seen as making the reruns more popular and this, in turn, garnered larger syndication fees for the owners of the shows, more recently, again including the networks. From an audience standpoint, this is the crux of the problem as fans of many of these shows---plus millions just discovering them ----can get their fill via syndication, without flocking to a network for one more primetime installment---even if it's an "original". I think that the broadcast TV networks will, privately, concede that rating erosion will continue no matter what they do and their profits as owners or "partners" in popular shows that are made available to alternative platforms as well as the conventional syndication market are so large they can't be ignored. It should also be noted that the broadcast TV networks now make most of their profits from the cable channels they own plus TV and radio O&Os and retransmission fees, so the decision to sell "premium" fare to other players is not that hard to make. As we point out in "TV Dimensions 2015",In reality, the TV network parts of their portfolios have become virtual "loss leaders" where net corporate earnings are concerned.

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Wayne Friedman is West Coast Editor of MediaPost. You can reach Wayne at wayne@mediapost.com.