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The Shape of Things To Come - Broadcasting & Cable

The Shape of Things To Come

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The television business moves in all directions and at different speeds, depending on what part of it you're looking at. It moves fast sometimes (where was Bravo a year ago?) and other times so very, very slowly (Washington has argued over the ownership cap forever, it seems).

But the combination of creativity, technology, regulation and mass appeal makes marking television's trends deliciously complex. So as the new year beckoned, Broadcasting & Cable checked with experts about what's really happening. Here's our list of the Megatrends of 2004 that we think will be affecting you everyday.

Boomers Get Older ... and Older

Will 2004 be the year that advertisers 'fess up and admit that older viewers matter? Probably not, but one of the biggest societal changes is shifting demographics. The baby boomers (born between 1946 and 1964) are getting older, while the generations growing up behind them are smaller in number and more ethnically and culturally diverse.

But older-demo defenders say that, unlike previous "old" generations, boomers are the young old, trying to cling, however clumsily, to what's happening now. They like to point out that Mick Jagger is 60 and still filling Madison Square Garden, though they don't recognize that, to many truly young people, Jagger looks
like he's 60.

Ted Nelson, an ad executive whose agency handles some General Motors business, noted to TheChristian Science Monitor
that "someone turns 55 every 7.5 seconds." As a group, he noted, the boomers bring "the greatest purchasing power in the history of mankind."

The aging of America poses a key challenge for advertisers, who have always put their marketing emphasis on attracting younger consumers. In the future, marketers won't be able to afford to let the boomers slip away because there aren't enough younger consumers to sustain the spending level.

The boomers are affluent and like to spend, notes David Poltrack, executive vice president, research and planning, for CBS. Of course, CBS has the oldest median audience of the broadcast networks, so it has reason to argue for the awesome buying power of middle-agers. "What marketers need to do is develop a bifurcated marketing strategy that keeps the boomers in tow while pulling in younger viewers as well," he said.

The flip side, experts note, is that boomers spent so much of their lives buying that they haven't saved as much. The New York Times
reports that the median boomer household has a net worth of $123,684. While median means that half are below and half are above that figure, boomers at the lower end may be learning that, in lean times, consumerism is really for the chronologically young, not those just young at heart.—P.J. Bednarski

Keeping Up With the Nerds

If you can't beat 'em, join them. That's something TV programmers may be learning from entertainment options like videogames, DVDs and feature-laden cell phones that are luring viewers from their TV sets.

So, if young viewers are playing video-games in traditional prime time hours, networks might consider pushing "prime time" shows later into the night or at least repeat them later. It is something young-skewing cable nets are already trying.

DVDs offer alternate endings and behind-the-scenes footage. TV can, too. There's plenty of material on the cutting-room floor from popular sitcoms, dramas and, most certainly, reality shows.

ESPN, ABC Sports and the Game Show Network have led the way in integrating TV with the Internet. That's old news. What's still to come is a hookup between the TV and the cell phone. In one of the best efforts so far, Fox's American Idol
let voters participate by text messaging on their cell phones. And cell-phone companies may pay for the privilege of being part of the show.

"You start to think about what made these technologies so relevant," says MTV Networks research chief Betsy Frank,

It may be wise to start soon. Today's "media actives"—MTV-speak for viewers born since the mid 1970s—are sure to take their habits with them as they age, she says. "This media-actives segment is still going to change the world. They have grown up in completely different ways and have different choices and alternatives."—Allison Romano

Dotcom Redux

Do you remember how sick you were of reading about how the Internet would change everything and how you were secretly happy about the dotcom bust of 2001? Well, get ready. This global, instantaneous and limitless medium is due for a big comeback in 2004. This time, though, without all the IPOs, multimillion-dollar marketing campaigns and endless hype. This time, the grownups will be in charge.

Just about every Internet indicator points up this year: number of users, number of high-speed users, hours of usage, streaming, commerce and advertising. According to ComScore, 151 million Americans, more than half the population, are now online.

During the original dotcom boom, the spoilsports would point out that nobody had quite figured out how to make money from the Internet (other than getting in early on the IPO). Well, some have now figured it out. Amazon and other online retailers, for instance, rang up (clicked up?) big sales over this holiday season—nearly 30% more than last year.

According to Universal McCann's Bob Coen, Internet advertising hit $5.6 billion in 2003, up 15% over the prior year. Google is expected to go public as companies clamor to buy their way on to the search engine. The Online Publishers Association says even content-for-pay revenue is growing significantly: It hit $746 million in the first half of 2003, up 23% from the same period in 2002.

Most media companies are in good shape. They maintained strong Web sites, even as they cut staff and costs to keep them in line with the modest revenues. They will enjoy the upward ride this year.

But broadcasters and the networks shouldn't expect a return of the dotcom advertising dollars that swelled their coffers during the dotcom boom. Those days are gone for good. Kinda makes you sick.—Harry A. Jessell

TiVo's Got a Gun

"Wake up! Wake up! While there is still time to head off Armageddon," began Sanford Bernstein & Co. media analyst Tom Wolzien's holiday missive to clients. He went on: "May Time Warner quit aiding and abetting commercial destruction with its DVR rollout in Manhattan, where, of all places, there is no competition from satellite. May execs at all companies quit hoping their retirement comes before DVR penetration hits critical mass."

Many industry executives share Wolzien's concern about DVRs or TiVos (the most popular brand), if not his hyperbole. They see DVRs ripping the heart out of the TV advertising business in several years as 36 million to 79 million consumers acquire them, largely through their cable or satellite TV provider.

Wolzien has a plan: Regulate the DVR so consumers have to watch the commercials. It's the only way to prevent the technology from destroying a $60 billion business. The government mandates all sorts of things in TV sets, after all—from UHF tuners to closed-captioning to HDTV. He sees networks feeding their signals with codes that tell DVRs whether the commercial can be skipped, giving "control of playback parameters to the content provider who sells the bulk of the revenue-producing advertising that funds that content."

Wolzien is particularly fond of ESPN.com's ESPN Motion, which trickles several minutes onto users' hard drives, then prevents zapping through commercials if the user is going to view the content. "The protection of commercial-financed television is both a logical, and an essential place for near-term government legislation," Wolzien says.—John M. Higgins

Reality TV's Unreal Attraction

Reality television is not going away. It's here to stay for as far as the eye (Queer
or not) can see. Of course, before NBC debuted The Cosby Show
a couple of decades ago, pundits were mourning the apparent death of the sitcom. So trends do change—that's why they call 'em trends—and some day, reality television might just be a bizarre memory. But not anytime soon and certainly not in 2004.

Strangely, broadcast networks seem the hardest to convince. At last year's upfronts, some network programmers vowed they'd keep their distance from reality shows. But, in a buzzless fall season, it has been the plight of the Average Joe
(and, soon, a sequel of schleppy types, but in Hawaii) and Paris Hilton on a farm that has viewers talking.

Cable pioneered the genre—MTV's Real World
starts Volume 14 this week. And cable pioneered warping reality, too, with Spike TV's Joe Schmo Show, which was one elaborate setup for poor Joe, who thought he was on a real Big Brother-type reality show (unknown to him, everybody else was part of a "cast" of sorts). Fox is revisiting that idea with My Big Fat Obnoxious Fiancé
starting later this month. So maybe that's the trend: Unreality! On television? Who woulda thunk it?—P.J.B.

Cable Cash Flow Flows

It seems kind of silly given the multibillion-dollar takeovers going on in the industry all the time, but cable operators generally don't really make money. Lots of operating cash flow, but, after writing checks for little things like debt service and system upgrades, MSOs generally have had no "free" cash flow left over. They've borrowed money each year to finance their growth.

That's changing. Massive, expensive system upgrades—literally pulling much of the old plant from the ground and replacing it with optical fiber—are pretty much complete for the major operators. Digital fiber technology designed by Time Warner more than a decade ago makes systems much more flexible. Capital spending will be tied more to digital boxes and telephone gear in the homes, items that will generate revenues immediately, not in few years. So, after $60 billion of capital spending over the past seven years, predicts Bank of America media analyst Doug Shapiro, five of the six major cable operators will post positive free cash flow this year, and the sixth, Cablevision Systems, will do so next year. That even includes ailing Charter Communications and MediaCom.

So what will cable operators do with their financial strength? Reduce debt, but not too much because low debt means lower return on capital. (At just three times cash flow next year, Comcast's debt will be extremely low by cable standards.)

Acquisitions are most likely. Charter and Adelphia Communications are likely to come on the block, and Comcast, Cox and Time Warner are clearly buyers. Comcast will clearly spend more buying networks.—J.M.H.

ENG Gets Easier

When broadcasters head to NAB this year, they'll be tempted to purchase gear that will do something that most equipment only promises: Revolutionize the way they gather video for news. Sony and Panasonic will have new tapeless video formats on the show floor. Other manufacturers will introduce related equipment, and the industry will begin to move into a new era of electronic newsgathering. With the tapeless formats, video can be shot and moved nearly instantly, speeding up the time to air in an business where every second counts.

Sony's magneto optical-disc-based system will hit the streets March 1, and Panasonic's P2 solid-state recording system gets into broadcasters' hands after NAB. Both have their strengths and weaknesses: Sony's optical media can record 23 GB of data onto a $20 disc, a large advantage vs. the P2 system, which uses very expensive flash memory. But the Panasonic system is turning heads by not
turning heads: It has no moving parts. That's attractive to broadcasters accustomed to having camcorders in the shop getting parts replaced, driving up ownership and staff costs.—Ken Kerschbaumer

The Year of HD. Really.

Advertising and TV news continue to be two of the last HD holdouts, but that could change in 2004. CBS has been asking advertisers to supply HD versions of their Super Bowl spots for its HD broadcast of the game. It's a beginning that CBS and other HD pioneers hope will lead to paid HD spots.

One of the stumbling blocks for HD news has been the high cost of the cameras and other production gear. But prices are coming down. At this year's NAB convention, a consortium of HD manufacturers, including Sony, JVC and Canon, promises affordable gear for the newsroom. Now what's your excuse?

The demand for all sorts of HD programming will rise because the number of owners of HD sets is rising. The Consumer Electronics Association expects that 9 million households will add HDTV sets in the next 18 months, and retailers already expect the 2004 holiday season to be a big one. Conn Maloney, CEO of Cowboy Maloney's Electric City, a consumer-electronics retailer in Mississippi and Tennessee, figures HDTV set sales next Christmas will be three or four times what they were this year. "The pricing has dropped to where it's affordable for a whole lot of people, and I think that folks are seeing it, enjoying it and they're stepping up and buying it."

When they plug in these sets, they will be looking for HD to watch. They will want HD movies, HD dramas, HD sitcoms, HD news and maybe even HD commercials.—K.K.

Time for News To Get Serious

Time, poverty and post-9/11 fears are changing what Americans expect from news, says Dick Haynes, vice president of research for Frank N. Magid Associates, the Iowa-based TV consulting firm that has mega-influence with local newscasters.

The news about the news in 2004, he believes, is that local newscasters are going to find out they need to get more serious to survive. "I don't want to say 'hard' news because it's a term that confuses people. But our research is saying that, for people to watch local news today, they want two things. One, it must be topical, right now. And it must have news value. ... If you can't give me news, real news, I'm out of there."

Haynes cites tense and fast times for what he sees as a coming wave of change at local news shops. "There has to be a total rethinking of what news departments are doing," he says, and it may come with the realization that stations "don't have the people to do this." The result, if he's right, may mean beefed-up news staffs. "Here's what I'm a little concerned about: How do we develop, pay promote and train them?"

Without quite saying so, Haynes suggests that reporting has taken a back seat to flash in recent years. "Local news is fabulous. It's the best 'describer of events' in the world. But now viewers are saying that's not enough."—P.J.B.

The FCC Confronts the Mob

As we knew all along, the federal courts and Congress will have final say on media-ownership rules: how many TV stations companies may own and where they may own them. But, after the nearly year-long battle over those rules—first at the FCC, then in Congress—the only real result was the mobilization of a grassroots movement determined to combat ownership concentration and make big media more responsive to the public. It's not going away.

Using little more than e-mail and Web sites, liberal groups like MoveOn.org delivered hundreds of thousands of messages from citizens opposing the FCC's June 2 relaxation of broadcast-ownership limits and staged demonstrations and town-hall meetings across the country. The movement has already prodded FCC Chairman Michael Powell to consider new public-interest obligations on broadcasters as part of a new localism initiative.

Some conservative groups, such as the National Rifle Association, also opposed media deregulation, but the right's main focus has been tougher enforcement of indecency restrictions. Led by the Parents Television Council, conservatives made a cause célèbre of the FCC's exculpation of NBC stations for airing rock star Bono's "f-word"-laced speech during the Golden Globes broadcast. The attention led the FCC to step up fines in other indecency cases and even to threaten license revocations. Congress is getting in on the act, too: A pair of lawmakers introduced a bill that would make Bono's exclamation and a bunch of other terms a fineable offense regardless of the context.

All the grassroots attention is good news to FCC Commissioner Michael Copps, who has been helping whip up the activists and provide a forum. As he said on June 2, "the media-concentration debate will never be the same." —Bill McConnell

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