The Big Four broadcast networks' new season goal is to build series ratings hits over at least three schedule cycles that command lucrative syndication license fees in the U.S. and international markets to help offset the high cost of series production. Less than one-fourth of the 22 to 24 new series typically launched in prime time (representing 18.5 to 20.5 hours) survive to become a syndication prospect.
However, the exploding near-term availability of those same series in streaming video on the Internet, in downloads from various content platforms, may erode traditional off-network syndication revenues, while simultaneously creating a new revenue stream tantamount to a reinvented digital syndication marketplace.
The shift and balance of these two forces is still so new that no one knows how much money can be lost and gained by particular companies or the industry. The general entertainment cable companies, which have been making big investments in original series, are caught in the same changing tides.
But it is reasonable to assume that the off-network syndication per-episode windfalls of the past may be more difficult to come by as consumer and advertiser interest is picked away by the immediate overexposure of series episodes on a myriad of platforms. These range from the broadcast networks giving immediate multiple airings of the same series episodes on their own and companion cable networks, to providing episodes as free or limited-time ad-supported downloads from their own or others' Web sites, to selling them as downloads and sharing revenues with Apple's iTunes or cable system operators.
Off-network syndication is not just about belated reruns on general interest cable TV networks and television stations anymore. As the video consumption value chain gets a digital makeover, off-network syndication and content monetization will, too. And that could have a negative and positive impact on broadcast network and media company ledgers.
"The increased availability of popular shows before and during their off-network syndication runs ultimately reduces their value to the syndicators," says Lehman Brothers analyst Vijay Jayant. "The availability of on-demand and online programming also makes syndicated programming less compelling to viewers."
For instance, by the time "The Office" airs on TBS, it will already have aired on NBC, and will have been sold on DVD, been available for ad-supported viewing on NBC.com, paid downloads at iTunes and paid VOD through cable operators such as Comcast. Despite new competition, TBS still must attract a certain level of viewers to satisfy its advertisers and justify the estimated $650,000-per-episode licensing price paid by Turner, Jayant points out.
Indeed, this may be the first TV season where an erosion of the afterlife value of prime-time series becomes evident.
New media revenues are expected to total as much as $1 billion each for companies such as News Corp. and NBC Universal, which recently told analysts that double-digit revenue growth from new content monetization models depends on wireless, online streaming and download options catering as much to the digital masses as the special-interest consumer.
Given the plethora of content that can be supported in the digital marketplace, it is possible that the monetization of off-network series could collectively yield more revenues from new media options than a handful of off-network series hits are now generating in the traditional syndication pipeline.
A lot will depend on how masterfully the broadcast networks and series producers manage distribution outlets to offset and better leverage their production costs. And that's where trying to maintain the status quo in prime time could get them into trouble.
The growing instability of the prime-time launch pad could undermine broadcasters' efforts to produce formidable enough hit series that viewers will continually watch and advertisers will support at any time and on any platform. The broadcast networks ratings for key adult ages 18 to 49 declined between 7% and 14% the first three quarters of the 2006-2007 prime-time TV season, which worsened to a 20% decline in the season's fourth quarter, points out Bernstein Research analyst Michael Nathanson.
An exacerbated struggle to get consumers to initially watch could threaten the broadcast networks' ability to catapult prime-time series into syndication gold. That will become more of a bottom-line issue should ad dollars fragment as dramatically as viewers in a multi-platform digital universe, depressing what's left of broadcast network profits.
These convergent negative forces already are at work at NBC. Some analysts estimate that NBC's prime-time and related TV stations' profits have declined by about 60% in recent years, creating a 30% drag on NBC Universal's overall operating profits. It is imperative for the network to avoid any further fall-off in prime-time ratings, advertising and syndication prospects.
Indeed, NBC's recent controversial move to report and to sell advertising off a collective audience reach number for its "Heroes" series, averaging in weekly broadcasts of the same episode on Monday and Saturday nights, underscores a basic premise: Broadcast networks no longer attract enough eyeballs to support their business model.
This also could become a widespread economic dilemma for media companies' studio operations, of which television syndication often is the main driver of profits. News Corp. produces the most returning, currently unsold programs with only two completed seasons. Time Warner's TV studios, one of the largest in the industry, accounts for as much as 6.5% of the parent company's estimated $47 billion in consolidated revenues. Time Warner also could sustain blows to its TBS and TNT general cable networks. Both schedules have been as much as half-filled with broadcast network syndicated fare, on which it must now be less dependent.
"As new distribution channels, such as streaming media, Internet downloads and TV-on-DVD grow and begin to precede the traditional network cable syndication window, the ratings points that content will be able to generate while being broadcast on cable networks will be negatively impacted," analyst Jayant says.
CBS has the most revenue exposure (43%) of any media conglomerate through its networks, TV stations and syndicated programs, according to Bernstein's Nathanson. An estimated $353 million in off-network syndication licensing agreements for "Frasier" and "CSI Miami" in 2006 could be matched again in 2008. Television license fees represent about 17% of CBS' television segment revenue and about 25% of its television segment EBITDA--all of which will be exposed to certain changes in the monetization of TV content that reaches far beyond traditional syndication.
Viacom CEO Philippe Dauman said last week his company is shifting its mix of programming to original content from licensed programming. Goldman Sachs analyst Anthony Noto calls this an important strategic and economic change, as it "provides greater upside in ensuring new windows of syndication" as they evolve.
As News Corp. chief executive Rupert Murdoch and other media peers are fond of saying, their content machines are platform-agnostic--whether it's to the long-tail consumer on MySpace or the so-called mass audience on TNT or Fox. "We don't care who pays us for it, as long as we get paid wherever it is," said Murdoch.