How The CW Stays Undead
The CW's owners say that despite eight-figure losses at the network, the profitable buzz-worthy shows make it an overall win
By Melissa Grego -- Broadcasting & Cable, 2/1/2010 2:00:00 AM
How Dollars Flow To CW's Makers
Losses on the network level at The CW are offset by the profits its co-owners Warner Bros. and CBS earn from revenue related to shows they own that air on the network. CBS also owns nine CW-affiliated TV stations: WPSG Philadelphia, KBCW San Francisco, WUPA Atlanta, WKBD Detroit, WTOG Tampa, KSTW Seattle, KMAX Sacramento, WPCW Pittsburgh and WGNT Norfolk.
Here is how ownership of the shows on The CW's schedule breaks down:
CBS' CW Program Properties
America's Next Top Model (started on UPN)
90210 (studio remake)
Melrose Place (studio remake)
Warner Bros. Program Properties
Smallville (started on The WB)
Supernatural (started on The WB)
One Tree Hill (started on The WB)
Jointly Owned Program Properties
Source: The CW
In the three-plus years that The CW has been on the air, it has built a growing coterie of buzz-worthy shows, launched a handful of budding box-office stars, and forged innovative approaches to advertising to its gadget-friendly but finicky 18-34 target audience. Yet the network's future has been questioned in industry circles since its creation was announced in late January 2006.
The doubt may be rooted in the fact that The CW, like many businesses that had to face the perils of the last couple of years, has not met all expectations set for it.
In unveiling the joint venture, executives at CBS and Warner Bros., the co-owners of the network born of the former WB and UPN, said they expected The CW to be profitable from the start and become a “fifth great broadcast network.” Yet in 2009, The CW lost tens of millions of dollars. Bernstein Research estimates the loss at $25 million to $50 million, and one source indicates that the loss is closer to the high end, though it pales in comparison to NBC's reported $500 million deficit in 2009. What's more, the network's ratings are routinely and firmly in fifth place among the English-language broadcast networks in many key demos.
But according to the people who really count in determining The CW's fate—the network's owners and affiliates—The CW will be here for a long time. The actual network's red ink is just part of the picture, according to CBS and Warner Bros. executives who say that despite the losses on the network level, the profitable programming assets created by the venture overall are a big win.
“So long as the economic model is consistent or better than it is today, we see no reason not to be fully invested and supportive of The CW as a brand, as a broadcast network and whatever ancillary businesses are developed as a result of this investment,” Warner Bros. TV Group President Bruce Rosenblum says. “So there's no hidden agenda here. There's not an end date to the network.”
Rosenblum and CBS' Senior Advisor to the CEO Nancy Tellem, who sit on The CW's board with CBS chief Leslie Moonves and Warner Bros. Chairman Barry Meyer, went on the record with B&C last week to express their commitment to the network and set straight how they evaluate the investment. Rosenblum, Tellem and several key CW affiliate executives praised the venture's progress in the face of the unforeseen circumstances of the network's formative years—factors such as the WGA strike, the country's economic collapse, the digitally driven revolution in consumer habits and changes in TV viewership metrics.
“When you reflect back, it's pretty impressive what The CW accomplished in its early years against considerable headwinds,” says Tellem, who is CBS' executive overseeing the network. “The CW is a network that everyone in the broadcasting industry should be rooting for.”
The execs say that syndication, international, digital, home-entertainment, merchandising and other ancillary revenues that the partners derive from shows that air on The CW platform offset the losses, and will keep The CW setting trends for years.
A HOLISTIC INVESTMENT
Rosenblum argues that those who look simply at the network's losses don't get the scheme. He looks at The CW as a “holistic investment in both the network and the content.”
From the Warner Bros. standpoint, Rosenblum says the profit from the shows the company controls on The CW exceeds its share of the losses. Profit and loss on The CW are split 50-50 between Warner Bros. and CBS.
“Has it been more challenging to grow our audience than we initially expected? Yes,” Rosenblum admits. “Has the network generated as much revenue as we initially anticipated? No. But has the network succeeded in its strategic initiative of the creation of content that benefits both of the partners? A strong yes.”
CBS also looks at the venture from a more macro perspective. “In four short years, The CW has proved its ability to develop hit programs for a specific target audience, creating and sustaining profitable program franchises for both parent companies,” Tellem says. “We established a brand. Every year we had a hit. From a studio standpoint, a content creation standpoint, we built franchises and assets that not only grew on The CW but internationally. To us, it's a win-win.”
CBS officials point out that new franchises launched on The CW—Gossip Girl, the 90210 remake and this year's freshman entry Vampire Diaries—proved profitable their first year out. Typically in the broadcast network paradigm, studios don't recoup their deficit for several years, if they do at all. 90210 currently earns $2 million per episode in foreign revenues, according to sources. Legacy shows carried over from UPN such as America's Next Top Model, and former WB shows such as Smallville, Supernatural and One Tree Hill, continue driving revenue for the parent companies.
The owners see upside in exploiting the program assets further, but also in creating new revenue opportunities with CW's core network viewership. “The CW has firmly established a distinct place in the broadcast space among 18-34 viewers—a segment that is rapidly growing in sheer size, as well as influence among marketers,” Tellem says. “It is also an audience with more monetization potential in the future as television evolves to a more integrated approach with content creation, distribution and audience measurement.”
Some key affiliates also weighed in on The CW's longevity. Hearst Television Senior VP Frank Biancuzzo's two linear CW affiliates, in Orlando and Kansas City, are among the top-rated CW affils. “Our group is very pleased with how they continue to evolve,” he says.
Gray Television President/COO Robert Prather, whose company has seven CW digital channel affiliates, tells B&C that Gray's affiliation with The CW overall is profitable. “They seem to be getting better every year,” he says.
Sean Compton, senior VP of programming and entertainment for Tribune Broadcasting, like most current Tribune executives, was not at the company when it made the initial 10-year major-market affiliation deal that runs to 2016. He acknowledges that the broadcast landscape in general is challenging: “My feelings about The CW are like my feelings for all the networks; it's a tough time.”
But Compton adds that he's “clearly happy with the efforts CW has made. The first-run shows all look good—they're not doing it half-assed.”
But going forward, he's looking for the network's programming to cast a wider demographic net. “I wish CW would go a little broader,” he says.
That indeed is the network execs' intention. “Next is to broaden out our schedule even further,” CW President of Entertainment Dawn Ostroff says of the opportunity to build on this season's successes with breakout Vampire Diaries and promising newbie Life Unexpected, which debuted on Jan. 18.
The fact that the network and its affiliates are so in line with the goal of broadening the programming typifies the close manner in which they've been operating, execs say. CW Executive VP of Distribution Elizabeth Tumulty says the network culture is one of a startup in which all stakeholders exhibit real ownership. “It's a small group, so everybody truly has a voice,” Tumulty says. “Even the affiliates, they are truly heard. If they call Friday, we're talking about it Monday.”
She adds that CW COO John Maatta leads open communication by example: He includes his home phone number on his business cards.
NOT GOING CABLE
Rosenblum calls the affiliates “a very important piece of the distribution puzzle.” He also refutes speculation in the industry that it is only a matter of time before CW goes all-cable. “That's not in the strategic game plan to convert this 100% to a cable model. We have a very important partner in our broadcast stations in the top 100 markets,” he says. “Unlike the other four broadcast networks, we have had a hybrid model going back to The WB 100+. We've used cable to help fill out the distribution footprint. But it is not on our strategic hit list to convert this thing to cable.”
But it's a fair question, one being asked about all of the broadcast networks. Comcast Chairman and CEO Brian Roberts, whose company is seeking approval of a deal that will give it control of NBC, addressed the same notion last week. He said that any thought of migrating NBC to cable is “right off the table.”
Despite the network's success penetrating the youth Zeitgeist, that is not to say there isn't significant room for improvement. By all accounts, Maatta and Ostroff must create more lucrative programming assets for their parent companies, mitigate the network losses, convert the buzz to new revenue, and continue to aggressively market and work with their affiliates to improve flow and compatibility with local programming and, of course, ratings.
The CW does get compensation from affiliates for its programming, and while Maatta would not specify how much that comp is worth, he called it a “material percentage” of revenue for the network. It is built into the model from the start, a la The WB.
Retransmission consent cash on the horizon could serve to supplement that comp, though Maatta says the retrans model will be established between the big networks and the MSOs. “Once that business model is set up, we'll participate,” he says.
According to Maatta, the fundamental direction of The CW has been established. “Now it's just the execution, the pick-and-shovel tactical work of actualizing the strategy,” he says. But all change takes time, he points out: “Anything you do in this business is like turning an ocean liner.”
And the backers of The CW maintain that this ship is firmly on course.
Michael Malone and Claire Atkinson contributed to this story.
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