Five blind mice
How the big cable nets lost their way
By John M. Higgins -- Broadcasting & Cable, 6/10/2001 8:00:00 PM
Finishing first in the cable Nielsens was a huge event at Lifetime Television. For the first time in its history, the women's network beat out every other basic-cable network in prime time household ratings. Less than two years after her arrival at the women's cable network, CEO Carole Black toasted her staff with champagne and chocolate-covered strawberries the day the final Nielsen tallies for the first quarter came out in April. "This is the way women celebrate," she said.
Black laid out an incentive policy for the whole company. Staffers would get a half-day off each time Lifetime finishes in first for an entire month. They'll get an additional full day off each quarter for which Nielsen counts the basic-cable network in first place. And if Lifetime wins for the entire year, Black plans to give everyone an additional week off.
One problem. Lifetime didn't do it all on its own. Its ranking came at least in part because other once-dominant cable networks are falling. For example, after consistently topping the widely followed quarterly Nielsen ratings with a 2.4 to 2.6 prime time rating, in the past year, USA Network has slid dramatically down to a 1.9. That was just enough of a fall for Lifetime to storm into first place and secure bragging rights for at least a few months.
USA isn't alone. Indeed, despite cable's steady growth in total viewership, the general-entertainment networks have not shown appreciable ratings growth over the past five years. USA, TNT and TBS are down in the most recent quarterly ratings. FX is up a tenth of a ratings point, and TNN is a little stronger, owing to its new World Wrestling Federation shows.
The decline of the broadcast networks was captured perfectly in the seminal 1991 work on the TV industry, Three Blind Mice. Reporter Ken Auletta, now with The New Yorker, spent five years looking at the broadcast networks that dominated TV, starting in 1986 when all three—ABC, NBC and CBS—abruptly changed hands and the new owners realized that the networks weren't as invincible as media executives had deluded themselves into thinking.
Now, in the the made-for-cable adaptation, that book might be called Five Blind Mice. Those are the five broad entertainment networks—USA, TNT, TBS, FX and TNN—that try to attract broad audiences, much like the big broadcast networks.
Except advertisers won't pay as much for those broad cable audiences. They prefer to pay premium prices for either big-audience delivery at NBC or hard-to-reach niches at places like MTV.
"The five blind mice know they've got a problem," said Lifetime's Senior Vice President of Research Tim Brooks, a former USA Network and former NBC executive. "They have to find a way out of the maze. The original three blind mice didn't know what trouble they were in."
ERODING THE BASE
Cable as a whole has continued to grow, steadily stealing audiences from the broadcast networks. It's just that it's not the big entertainment networks getting the eyeballs; it's the boutique upstarts like HGTV, Court, Turner's own Cartoon Network and others that are ramping up. During some quarters, the general cable networks may be up, but they tend to come right back down.
Like a lot of what's on those cable networks, this episode seems like a repeat. Some industry and Wall Street executives first saw vulnerabilities more than a decade ago, when the Big Three broadcast networks saw their core franchises get nibbled away by startup cable networks and by the then-new Fox Network. At the same time, the broadcast networks faced an endless spiral of escalating costs as they paid more and more for programs they prayed would hold their audiences. Now younger, mid-sized cable networks eat away at the broad cable networks' base, just as USA and TBS once feasted on broadcasters.
Morgan Stanley media analyst Richard Bilotti has been hammering home the hazards facing the big cable entertainment networks for the next several months. "I think they have the same problem the broadcast networks did, a constantly eroding audience," Bilotti said. "I think the single biggest issue in cable is the fragmentation of the audience ratings over time."
Said Barry Diller, chairman of USA Networks: "It makes everything more challenging, How do you create new things in a world where it's hard to generate new interests and all the broad or even narrow franchises are gone?"
New USA Network President Doug Herzog contended that he's "not in the same business the broadcast networks are," largely because he has a second source of revenue: license fees from cable operators. He agreed, however, given the ratings trends, that "we would be remiss in looking across the street at the trials and tribulations of the broadcast networks and not take notes."
Most of the mature networks are in a scramble, installing new management and whipping out new branding campaigns to convince viewers, advertisers and maybe themselves that their channels are something other than general-entertainment networks.
TNT this week is repackaging itself as the home for dramatic series, movies and, somehow, NASCAR races, touting the slogan "We know drama." TBS is trying to position itself as a network for guys. TNN, after shedding the last remnants of a redneck image left over from its two decades as The Nashville Network, is now calling itself The National Network. The network declares that it is a pop-culture network, which is somehow completely different from a general-entertainment network.
"Our goal is to get TNN differentiated from a general-entertainment network," said MTV Networks Chairman Tom Freston, who was put in charge of the network when his parent company, Viacom Inc., bought CBS. "We don't want to be spoken of in the same breath as TNT and USA." That may be tough when TNN's big programming moves have been deals for wrestling, Star Trek and Baywatch reruns, off-CBS drama CSI and movies.
UNDER NEW MANAGEMENT
It's no accident that four out of the five general-entertainment networks have shifted management. Just about all of them are scrambling to adjust their approach so that they somehow look more like a niche network than a broad broadcast channel.
AOL Time Warner fattened the portfolio of The WB Network chief Jamie Kellner by adding Turner Broadcasting System, which includes TNT and TBS. USA Networks Inc. tapped ex-MTV and Comedy Central whiz Herzog. And MTV Networks assigned Nickelodeon executive Diane Robina to awaken TNN from its long slumber by throwing money into entertainment programming.
The exception is FX, which, if anything, is broadening rather than narrowing its target. After programming heavily to men with series like raunchy Baywatch parody Son of the Beach, the network has a slate of off-network series coming that skew heavily toward women, including Ally McBeal and Buffy the Vampire Slayer.
Network executives counter that there's no problem. Household ratings can reflect some broad viewership trends, but advertisers don't buy household ratings; they buy eyeballs of a certain demo. And household ratings points, which divide viewership by a cable network's distribution universe, doesn't account for, say, a fall-off in undesirable 50-plus viewers in favor of 20-year-olds.
The other problem with falling ratings is that they neutralize the gains in actual viewers that come with wider DBS distribution. (A 1.0 rating is 1% of whatever distribution a cable network has at that point in time.)
Brad Siegel, president of TBS' entertainment networks, contends that looking at his networks' schedule gives an inaccurate picture of the health of TNT and TBS. For example, TNT walked away from the NFL, and both networks dumped World Championship Wrestling programming, which was still their highest-rated programming even after sliding from a 6.0 rating in 1996-97 to a 2.0 in recent months. And ratings for NBA games have hurt anyone carrying the league's games.
The conventional series and movies on which the networks are not investing their money are doing far better. Siegel is particularly happy that there is now an expensive move to buy Hollywood movies in the window that traditionally belonged to broadcast networks, instead of waiting five or seven years for the basic- cable window. "We have made a conscious choice to shift away from some of the sports programming that was driving ratings," he said.
GOING TO THE BOUTIQUES
However, one advertising researcher said that TNT and TBS have been flat in their adults 18-49 ratings over the past five years. And to ignore the networks' sports programs is somewhat like a stockbroker in 2001 asking a client to ignore all of the Internet stocks in the portfolio that were so highly touted a couple years before.
The key difference between the broadcast networks of the late 1980s and maturing cable networks is profits. The Big Three started posting losses as they fell from 75% of the prime time audience in 1984 to 60% when Auletta published Three Blind Mice and to 38% today.
But they were totally dependent on ad revenue and were the leaders. Cable networks sold ads at a discount to broadcast networks and have been growing revenues by chiseling away at that gap. And no one in the cable business forgets that 45% to 55% of basic networks' revenue comes from license fees to cable and DBS operators.
Turner's Kellner said that, until the economy started sputtering for everyone, the Turner networks had been showing strong revenue and cash-flow gains. "They have been quite successful without seeing a lot of audience growth."
It's not as if the whole cable sector has slowed. Bilotti's crunching of Nielsen Media data shows that, in the past five years, basic networks' combined ratings have grown 9% annually, from 21.0 to 29.8. At the same time, the broadcast networks have lost about 4% annualized, falling from 41.4 to 35.3.
But that first stat is for basic cable as a whole. The five cable broad-entertainment networks have dropped at the same rate as the broadcasters, about 4% per year.
TNT's ratings were 30% lower in the first quarter than in the same period five years ago, falling from a 2.0 to a 1.4. USA, for all its recent post-wrestling problems, did a little better, off 27%, from 2.2 to 1.6. TBS was only off 10%, from a 2.1 to a 1.9. FX was flat at a 0.7.
Only TNN showed a gain after ending the long starvation programming diet its owners demanded. Ratings were falling until the network landed wrestling last fall. The network's ratings now stand 22% higher than they were in 1996.
So where are the viewers going? Some are going to established networks whose owners finally found a programming groove. Court TV has tripled its Nielsen scores, VH1 ratings are up 150%, Sci Fi Channel is up 80%, and MTV and TLC are up 50%.
But about a third of the ratings growth is coming from startups, the boutiques of cable. Bilotti's data shows that networks either too young or small to get Nielsen ratings in 1996 now get 20% of cable's prime time viewers. That includes networks like HGTV, Animal Planet and History Channel.
"This is basically the endgame for the big networks," Bilotti said. "This doesn't stop. Every time a digital set-top ships another cable, an established network takes a hit."
The ratings shrink has the painful side effect of making the smaller networks strong enough to compete for programming deals. Suddenly, Court TV is entertaining auctions for off-network series that fit its crime-and-justice theme, bidding $1 million per episode. Bravo, whose entire programming and operating budget last year was a mere $30 million, just agreed to pop $1.2 million each for what looks to be at least 100 episodes of The West Wing.
"You're spending more and more money to chase the same audience you already had," said Sanford Bernstein media analyst Tom Wolzien. "Something's got to give, and that will be profits."
"I don't worry about the other networks from a competitive-ratings perspective as how much they're willing to pay for programming," said Siegel.
The big question is how to reinvent a mature network within that cost structure. The most aggressive is TNN. For years, joint owner Gaylord Entertainment and Westinghouse simply milked it for cash, balking at spending much on programming other than The Waltons and The Real McCoys. When Westinghouse bought CBS, and Mel Karmazin ascended to become CEO, he was cutting costs, not investing in cable.
So it was only last year when Viacom took full control that TNN began investing and dramatically changing. The biggest boost came from snatching away from USA Network the WWF, which, despite a ratings dip, still generates the highest ratings in cable.
Also, TNN's Robina was the only TV executive not to complain loudly about the XFL because even its worst games doubled and tripled ratings in the games' Sunday- afternoon time slot. The network lost NASCAR rights to TNT and Fox, so it is redeploying that budget into entertainment programs. A lot of the moves are typical for entertainment networks seeking their footing (like Memorial Day weekend's Miami Vice marathon).
But Robina and executives at other networks are being careful not to make too many dramatic changes, learning from the self-inflicted wounds over at Fox Family Channel. News Corp. and Saban Entertainment bought The Family Channel to remake it as a kids network by day and an edgy parents network at night. It was a library-driven deal, one of those synergistic deals that are supposed to work so well. Saban had a fat library of older cartoons and kids shows from his years as a syndicator.
But Saban's new shows tanked in the ratings. And worse, he chased away Family Channel's existing audience. Fox Family's ratings are down 40% over the past five years, and the network is now up for sale.
"We really don't want to scare away the old viewers," Robina said, even the 50-plus crowd advertisers avoid. Hence, The Waltons and Dukes of Hazzard stay on the schedule. So do the weekend fishing, hunting and bull-riding shows. "Weekends were the only things people were watching," Robina said. "There is a fan base there. Why send those males 18-34 over to ESPN2?"
Don't wait, however, for many more new episodes of Grand Old Opry or homegrown trucker drama 18 Wheels of Justice.
It's one thing to start a network from scratch with a specific point of view. But attempting to rebrand—or, in some cases, brand for the first time—an existing operation can stretch the label pretty thin.
Take TNT's new proclamations about being "the home for dramas." Yes, the network has plenty of hour-long dramas on the schedule—four runs of ER on weekdays (a hugely expensive acquisition from sister division Warner Bros.) and Law & Order reruns starting this summer, as well as an original police/action series Witchblade.
Turner's Siegel explained that positioning emerged from focus groups with heavy viewers. Turner has long bought hour-long dramas for TNT and sitcoms for TBS, but Siegel wants to hammer the differentiation hard. "This drama-lovers group really emerged as a unique group," he observed, noting that they're heavier TV watchers and skew surprisingly young.
The drama label is a bit of a stretch. Even ignoring morning airings of CHiPs, TNT's schedule the first week of its "drama" campaign includes prime time runs of You've Got Mail, and Three Men and a Baby and Adam Sandler laugher The Wedding Singer (twice). Fringe-hour movies include Adventures in Babysitting and chick karate flick China O'Brien.
"It will be interesting to see how the regular guy responds to seeing Pretty Woman and how the drama lover responds to seeing Austin Powers," said the president of a rival cable network.
Kevin Reilly, president of entertainment at FX, dismissed the branding talk. "Viewers watch shows, not networks," he said. A network's brand is only as good as its last hit, and network executives will shift gears instantly in the face of a new hit. He contended that Kellner's The WB started out as the "kids and urban network. Then they stumbled onto Buffy: " 'Did we say kids? We meant teens.'"
Not that he faults The WB or other networks for quick shifts. Home Box Office is now hailed for high-quality original series. "It was only a few short years ago they was all about Tales of the Crypt." Reilly applauds the switch.
The fragmentation of the big networks could be good news for one group: cable operators. "The MSOs should like this," Bilotti said. "In a totally fragmented world, none of their suppliers have leverage over them."
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