Broadcast Beware The Cable Revolution

Cable is making big plays, and broadcasters risk their future if they sit on the sidelines

By Melissa Grego -- Broadcasting & Cable, 5/10/2010 12:01:00 AM

As the television business meets this week in Los Angeles for Cable Connection 2010 (click here for complete Cable Show coverage from B&C and Multichannel News), a slowly simmering revolution is starting to boil over. Deal by deal, perhaps even handshake by handshake, the standards for where television's biggest-drawing programming appears--and how it's paid for--are being dramatically rewritten.

Driving the change: top cable programmers' unprecedented programming grab, as they snap up properties once the sole domain of broadcast; and broadcasters' well-publicized pursuit of first-of-its-kind cash compensation to carry their signals.

At the current clip, within five years broadcast networks and top-tier cable networks will be nearly indistinguishable in terms of the type of programming they offer, and the sub fees and CPMs they command. So for broadcasters, the clock is ticking.

This transformation, while it appears a natural one, spells some trouble for broadcasters, who would be wise to play very close attention to the deals cable is making. Losing the bragging rights alone is problematic for broadcast troops' morale and the prestige that commands premium ad pricing. But more importantly, it will mortally wound broadcasters' key argument in retrans negotiations: that they deserve top-dollar cash for subs because they are the exclusive purveyors of the biggest-draw TV.

The current broadcast negotiating stance may hold up for the short-term retrans deals being made this year. By the time this round expires in three to four years, however, the big nets will need a new retrans pitch--or they will need to plow that retrans cash right into a new crop of must-have programming that backs up their current claims. "We've reached an inflection point where all the multiple-system operators realize they're going to have to pay to get the signal, and they should pay," Derek Baine, senior analyst at SNL Kagan Research, tells B&C. "The highestrated programming in primetime is on broadcast. But the broadcast networks have to make a decision about what they're going to do."

Will broadcasters fight to hang onto exclusivity of the big TV properties, death match-style? Will they come up with the next generation of programming that's cheaper to produce but still draws consistently big ratings? For broadcasters' sake, the answers should be yes and yes. Remember: Offense is the best, well, offense.
Meanwhile, cable's direction is most certain--it's going after the proven big draws of broadcast. Turner dropped hundreds of millions of dollars in a matter of weeks earlier this year to get in the NCAA basketball game and become the new latenight home for Conan O'Brien. And then there's Oprah Winfrey's huge move from two decadesplus in broadcast syndication to a joint venture cable network, OWN, with Discovery. There will be more to come from Discovery, too; COO Peter Liguori says to expect more event programming like the company's HD extravaganza Life (see Programming Strategy: Liguori's Launch Sequence Commencing).

Baine also expects some "surprising" announcements to come from Comcast, which is eager to make big moves on behalf of sports network Versus (the net has swung and missed at past major sports properties), not to mention what Comcast is likely to do once it controls NBC Universal. And Viacom has the need and means to rebrand a number of its networks. "These big media companies have the money to do it, the credit market is opening up and cable is ready for growth, so you're going to see a new phase of investment," Baine says.

On an absolute basis, cable networks are growing their revenue almost 10% a year, Baine tells B&C, not just due to their solid affiliate revenue but also the fact that the ad market for cable has proved "one of the most resilient industries in the recession." Most of cable's gains in revenue are getting reinvested in programming, he says: "We've got cable programming budgets going up 8% in 2010 and 9% in 2011." In the meantime, Baine projects broadcast programming budgets to be flat. And that's not going to cut it. This is not to say broadcast should aimlessly throw more money into its age-old mode of development. We all know that process is due for some major innovation (see "Is Network TV's Model Lost?" B&C, April 26).

But it is time for broadcast to step up. If broadcast nets are going to buy some breathing room by adding retrans cash to their coffers or teaming up with cable to hang onto incumbent rights (read: CBS and NCAA basketball) or an Olympic bid (read: Comcast and NBCU), they should spend that budgetary air wisely. If not, it will be their last gasp of the business as we know it.

E-mail comments to mgrego@nbmedia.com and follow her on Twitter: @melissagrego