Get Set for A Pivotal TV Business Year

Programmers, distributors, advertisers and investors are on alert for important answers in coming months

As 2012 gets underway, the TV industry faces situations
that can alter its economic foundation. Here’s a rundown
of some of the more pressing concerns.

Will the number of cable subscribers fall?

A combination of rising rates and competition from digital alternatives
is putting pressure on the number of cable subscribers; a
decline would cause profound changes to the economics of the TV
business. Cable networks would lose money from subscriber fees,
broadcasters would lose retransmission money and, because most
forms of over-the-top video distribution are not yet measured, ratings
would suffer, leading to a decline in advertising revenue.

“[2012] will be a watershed year for the media industry,” says analyst
Richard Greenfield of BTIG Research, arguing that the growth
of online activities, including authenticated video and social games,
and the growing popularity of connected TVs and tablets, will
end the ever-increasing amount of time
people spend watching television.

To retain subscribers, cable operators
are looking into lower-priced
channel packages, including some
that would exclude high-priced
sports networks, a move that
could cut their revenue and

Will investors cash in
on television company
stocks in 2012?

Last year, media companies
earned points with Wall
Street by sharing bigger
chunks of their earnings
with shareholders in the
forms of stock buybacks and
increased dividends. That’s
likely to continue in 2012.

In a year-end research note, analyst Craig Moffett of Sanford C. Bernstein & Co.
said that cable stocks are cheap but are “poised to make significant increases to
their dividend payouts in January.” Cablevision Systems’ dividend yield is at 4.1%.
Time Warner Cable has a 3% dividend yield currently but a new increase matching
last year’s 20% increase would raise the yield to 3.6%. Comcast’s yield is lower, but
Moffett expects a big dividend increase there too.

Another way shareholders could benefit would be from takeovers. Most likely to
go? According to BTIG analyst Greenfield, AMC Networks will be sold and Starz
will be spun off or split off by Liberty Media.

Will broadcast and cable networks register more big gains in this year’s

Despite a looming economic slowdown last May, broadcasters’ upfront ad sales rose
about 9% to $9.1 billion while cable networks saw a 16% increase to $9.3 billion.
Since the upfront, the ad market has fluctuated. Media executives said demand
softened in the fourth quarter. When earnings come out, we’ll see how that softening
hurt revenue growth.

On earnings calls, the moguls were more hopeful about first-quarter revenue
growth leading into the upfront. The dynamics of the upfront, in which sellers
have more information and control
over their inventory than the buyers
do, plus the secretive nature of buyers
and sellers, often make the ad market
look stronger in May than it does when
the year ends.

Nevertheless, with fears of a doubledip
recession fading and demand keeping
prices up in the scatter market, it
looks to be another year of increases for
the networks, although the gains probably
won’t match last year’s.

Will the Olympics bring NBC gold
or dross?

NBC was able to sell out the Super
Bowl, but will it be able to get enough
advertisers for its coverage of the Olympic
Games to be held this summer in
London? And even if it sells all those
ads on broadcast, cable, online, mobile
and any other platform it can dream up,
will it be enough to make money for
parent company Comcast?

NBC registered a $233 million loss
on the Winter Olympics from Vancouver
in 2010. That deficit came despite
better than expected ad sales for the
event and higher ratings. But the $829
million in rights fees NBC paid for the
event resulted in ! ve rings’ worth of red ink. NBC is paying a record
$1.18 billion for the London games, and last year Comcast anted up a
whopping $4.38 billion to win the rights to the Olympics from 2014
to 2020, bidding far more than rivals Fox and ESPN.

Even with gold-medal ratings and a flood of green from Olympics
sponsors, analysts expect Comcast and NBCU to limp home carrying
losses of another $250 million from London.

Will American Idol hold up, or will the talent show craze end on a sour note?

In the second half of the TV season, American Idol makes its return. Last year, Fox’s
singing competition, the highest-rated program in which the contestants do not
wear helmets, defied the odds by increasing viewership while losing Simon Cowell,
the nasty man in black who seemed to be the show’s linchpin. Instead, buttressed by
new judges J-Lo and Steven Tyler, ratings were up 4% for the season among adults
18-49, and the finale drew 29.3 million viewers, up 21%.

This year, Idol is following Cowell’s The X Factor, which performed well for Fox duering
its run in the first half of the season, but nowhere near the network’s or Cowell’s
expectations. Idol will also be facing competition for talent-show fans from NBC’s The
and America’s Got Talent, with Howard Stern in for Piers Morgan on the latter.

Fox gets huge bucks from Idol’s key sponsors—Coke, Ford and AT&T—and other
advertisers paid top dollar for spots on the series during the upfront last May. But
what goes up must come down, so it’s a good bet that Idol won’t be able to measure
up to its 2011 performance.

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