How Changes in the Economics of Broadcast Television Are Affecting News and Sports Programming and the Policy Goals of Localism, Diversity of Voices, and Competition
Congressional research reportOct 20, 2010
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How Changes in the Economics of Broadcast
Television Are Affecting News and Sports
Programming and the Policy Goals of
Localism, Diversity of Voices, and
Competition
(name redacted)
Specialist in Telecommunications Policy
October 20, 2010
Congressional Research Service
7-....
www.crs.gov
R41458
CRS Report for Congress
Prepared for Members and Committees of Congress
Changes in the Economics of Broadcast Television
Summary
Market and technological changes are creating challenges to the long-standing business models
employed by broadcast television networks and local television stations, but at the same time
generating potential opportunities. The changes also may be affecting the three pillars of U.S.
government media policy—localism, diversity of voices, and competition—and damping the
effectiveness of existing regulations intended to foster them. These changes generally are
strengthening the position of parties that own or control popular content in their negotiations with
distributors of video programming. Broadcast networks and stations, alike, both own content and
distribute programming, so they have been strengthened and weakened by these changes.
The successful entry of hundreds of cable networks and the proliferation of social networking and
video Internet websites have fragmented audiences and provided advertisers with alternative
avenues for reaching consumers. This presents a significant challenge to broadcast networks and
stations, which traditionally have relied on advertising for more than 90% of their revenues. As
audiences have declined for both national and local news programming, networks and stations
alike have reduced costs by sharing the fixed costs of newsgathering over multiple platforms and
undertaking cooperative newsgathering with other outlets. Some broadcasters have sought to
generate additional cost savings or revenue by combining with other newsgathering
organizations, and urge modifications to the Federal Communications Commission’s broadcast
media ownership rules that restrict such combinations. Policymakers will have to weigh whether
allowing such consolidation will, on net, benefit the public by improving the financial viability of
newsgathering firms or harm the public by reducing diversity of voices and competition.
At the same time, competition has developed among the companies that deliver multiple channels
of video programming to subscribers—cable operators, satellite operators, and some telephone
companies. If a multichannel video distributor fails to obtain the retransmission rights to popular
national and local broadcast television programs, it risks losing subscribers to a competitor that
does offer the programming. As a result, broadcast networks and stations are able to demand
higher payments from these multichannel video distributors for the retransmission rights. This has
created a second revenue stream for broadcasters that is projected to reach $2.6 billion in 2016. It
also occasionally results in subscribers losing access to broadcast programming when their video
provider and the broadcaster reach an impasse in retransmission negotiations. A coalition of video
distributors and consumer organizations has petitioned the FCC to modify its retransmission
consent rules by adding dispute resolution mechanisms and mandatory interim carriage.
The amount of local broadcast news programming has been increasing despite declining
audiences and does not appear to be threatened by stations’ revenue declines. Many stations are
broadcasting more news because local news programs can be cheaper to provide than purchased
programming. In addition, local news provides a way for stations to develop strong brand
identities as they compete for local advertising dollars.
The production and distribution of major sports programming is largely controlled by the sports
entities that control the events. If it benefits them to distribute their programming through pay
venues, such as cable networks that they own, rather than over-the-air broadcast, they will do so.
This is likely to result in more events being televised, though many will only be available to
subscribers to pay television services.
Congressional Research Service
Changes in the Economics of Broadcast Television
Contents
Overview ....................................................................................................................................1
The Market Changes .............................................................................................................2
News, Sports, and Broadcaster Profitability...........................................................................5
Market Forces Affecting Broadcast News Networks ....................................................................7
Formal Ties Between National Newsgathering and Programming Organizations:
Issues for Congress .......................................................................................................... 10
Market Forces Affecting Local Broadcast News ........................................................................ 13
The Amount of Local Broadcast News Programming Is Increasing as Its Audience
Decreases......................................................................................................................... 13
Broadcast Station Profits Fell Most Rapidly in the Late 1990s............................................. 14
Financial Factors Specific to News Programming................................................................ 17
Local Newsgathering and Programming: Issues for Congress .............................................. 22
“Duopolies” .................................................................................................................. 22
Local Marketing Agreements (LMAs) or “Virtual Duopolies” ....................................... 23
Television-Newspaper Combinations ............................................................................ 25
Market Forces Affecting Broadcast Carriage of Major Sports Events......................................... 26
Unique Supply-side and Demand-side Characteristics ......................................................... 26
Sports Programming Is of High Value to Video Distributors Even if Not Profitable ............. 27
The Distribution of Major Sports Programming over Multiple Platforms ............................. 29
The Rise of Cable Networks Owned by Major Sports Entities ............................................. 30
Sports Programming: Issues for Congress ........................................................................... 31
Tables
Table 1. Broadcast Television Station Pre-Tax Profits ................................................................ 15
Table 2. The Profitability of Local Station News Programming.................................................. 18
Table 3. The News Expenses of Local Television Stations, 2009................................................ 19
Table 4. Percentage of Television News Departments Providing Content to Other Media,
2010 ...................................................................................................................................... 20
Table 5. Percentage of TV Stations with Cooperative Newsgathering or Coverage
Agreements with Other Media Outlets.................................................................................... 21
Contacts
Author Contact Information ...................................................................................................... 33
Congressional Research Service
Changes in the Economics of Broadcast Television
Overview
Market and technological changes are creating challenges to the long-standing business models
employed by broadcast television networks and local television stations, but at the same time
generating potential opportunities for those networks and stations. These changes generally are
strengthening the position of parties that control popular program content in their negotiations
with distributors of that programming. The changes also may be affecting the three pillars of U.S.
government media policy—localism, diversity of voices, and competition—and damping the
effectiveness of existing regulations intended to foster them.
As a result, various stakeholders have asked the Federal Communications Commission (FCC or
commission) to eliminate or modify some of its broadcast media ownership rules and
retransmission consent rules. In particular:
•
The FCC currently is collecting data and comments, and sponsoring research, as
part of the statutorily mandated quadrennial review of its broadcast ownership
rules. 1 Those rules, among other things, set limitations or prohibitions on the
number of national broadcast networks under a single owner, the number of
television stations that can be jointly owned in a local market, and the crossownership of a television station and a major daily newspaper in a local market.2
In its comments in that proceeding, the National Association of Broadcasters
(NAB) seeks elimination of the cross-ownership restrictions and relaxation of the
restrictions on a single entity owning or controlling two television stations in a
single local market, claiming these rules prevent efficient combinations required
to support the cost of providing local news and emergency journalism.3 Other
commenters claim that such consolidation would harm, rather than foster,
diversity of voices, competition, and localism. For example, the National
Association of Black Owned Broadcasters claims that consolidation places
smaller firms with few stations at a competitive disadvantage, and that “any
further relaxation of the Commission’s multiple ownership rules would
exacerbate the already dismal lack of minority ownership in the broadcast
industry.”4
•
The FCC is seeking comment on a petition for rulemaking, submitted by a
coalition of multichannel video distributors5 (cable operators, satellite operators,
and telephone companies) and consumer organizations, requesting that the
1
In the Matter of 2010 Quadrennial Regulatory Review—Review of the Commission’s Broadcast Ownership Rules and
Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, MB Docket No. 09-182, Notice
of Inquiry, adopted and released May 25, 2010.
2
For a detailed discussion of the FCC’s broadcast media ownership rules, see CRS Report RL34416, The FCC’s
Broadcast Media Ownership Rules, by (name redacted).
3
In the Matter of 2010 Quadrennial Regulatory Review—Review of the Commission’s Broadcast Ownership Rules and
Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, MB Docket No. 09-182,
Comments of the National Association of Broadcasters, July 12, 2010, at pp. i-iv.
4
In the Matter of 2010 Quadrennial Regulatory Review—Review of the Commission’s Broadcast Ownership Rules and
Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, MB Docket No. 09-182,
Comments of the National Association of Black Owned Broadcasters, July 12, 2010, at p. iii.
5
In statutes and FCC rules, these firms are formally referred to as “multichannel video programming distributors” or
“MVPDs.” For ease of presentation, in this report they will be referred to as “multichannel video distributors.”
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commission amend its retransmission consent rules6 to include dispute resolution
mechanisms and mandatory interim carriage while disputes are being resolved. 7
The NAB and the associations of the local station affiliates of the four major
broadcast networks oppose the petition, claiming that the market is working
properly and that FCC intervention is unwarranted and would be harmful.8
Since the FCC has addressed such issues in response to statutory instructions intended to foster
diversity, competition, and localism, Congress may choose to provide statutory or informal
guidance to the FCC as it moves forward with the proceedings.
The Market Changes
Broadcast networks and broadcast stations control program content that is highly valued by
multichannel video distributors and also distribute programming in competition with many other
media outlets. Thus, they are both strengthened and weakened by recent market changes.
Most notably, the successful entry of hundreds of cable networks and the proliferation of social
networking and video Internet websites have fragmented audiences and provided advertisers with
alternative avenues for reaching consumers. A recent UBS Investment Research report9 claims
that “every year, global advertising is losing 200 points [2 percentage points] of growth to other
marketing usage or is eliminated, thanks to technology improvements” and that “structural
changes [affecting broadcast television advertising] remain strong and are even accelerating.”
This presents a significant challenge to broadcast networks and stations, which traditionally have
relied upon advertising for more than 90% of their revenues.10 (In contrast, in 2008, advertising
revenues represented only 42.8% of the revenues of advertising-supported cable networks11 and
that proportion likely has fallen since then.)
Several research companies project television advertising revenues, each employing its own
proprietary model and assumptions. 12 Although the various forecasters project different levels of
6
47 C.F.R. §§ 76.64-65, which implement statutory provisions that were added to the Communications Act by the
Cable Television Consumer Protection and Competition Act of 1992, P.L. 102-385, 106 Stat. 1460 (1992). For a brief
discussion of the retransmission consent rules, see the section entitled “Broadcast Networks and Their Affiliated Local
Broadcast Stations” in CRS Report R41063, The Proposed Comcast-NBC Universal Combination: How It Might Affect
the Video Market, by (name redacted).
7
Public Notice, Media Bureau Seeks Comment on a Petition for Rulemaking to Amend the Commission’s Rules
Governing Retransmission Consent, DA 10-474 , Media Bureau, Federal Communications Commission, released
March 19, 2010.
8
In the Matter of Petition for Rulemaking to Amend the Commission’s Rules Governing Retransmission Consent,
Opposition of the Broadcaster Associations, May 18, 2010.
9
Matthieu Coppet, et. al., “Broadcast Rally: When Will the Music Stop,” UBS Investment Research, UBS Global I/0:
Global Media, March 15, 2010.
10
See, for example, Pew Project for Excellence in Journalism, State of the News Media 2010 (Pew Study), Section on
Local Television Economics, unpaginated, available at http://www.stateofthemedia.org/2010/, viewed on August 23,
2010, which states that despite the fall in advertising revenues, in 2010 they still will represent 91% of local broadcast
station revenues.
11
See SNL Kagan, Economics of Basic Cable Networks, 2009 Edition, at p. 2.
12
These include Magna Global, BIA/Kelsey, Veronis Suhler Stevenson, and SNL Kagan, as well as analysts at
brokerage and other financial firms, such as UBS.
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advertising revenues, they generally identify the same trends. As an example, according to a
recent forecast by Magna Global, a consultant to advertisers:13
•
the advertising revenues of English language national broadcast networks
peaked at $14.7 billion in 2005, fell slightly in 2006 and 2007 and then fell
significantly in 2008-2009; they have begun to recover in 2010 but are not likely
to reach the previous peak until about 2015.
•
the advertising revenues of Spanish language national broadcast networks
experienced a slight decline from their 2007 peak but are growing rapidly and
may be 50% higher in 2015 (exceeding $1.5 billion) than they are today.
•
the Olympics, which have provided a revenue shot in the arm in alternate years to
the network with the broadcasting rights and its affiliate stations, generating as
much as $785 million in incremental advertising revenues in 2000, will generate
substantial, but lesser amounts in the future as more of the programming is
carried on cable networks and the Internet. 14
•
the non-political advertising revenues of local broadcast television stations
peaked in 2007 at about $17.8 billion, fell substantially in 2008 and 2009, and are
now experiencing increases, but are not expected to reach the 2007 high by
2015.15
•
the political advertising revenues of local broadcast television stations, which are
much higher in even-numbered years than in odd-numbered years, and greatest
for the quadrennial presidential election, will continue to grow substantially, so
that the sum of non-political and political advertising revenues is likely to equal
or surpass that of the earlier peak. But political advertising revenues are not
spread equally across all broadcast stations; they are focused on stations in
geographic areas where there are contested elections.
This forecast implies that during the next five years, total broadcast television advertising
revenues will at best recover to their previous peak.
Other market changes, however, have led to a brighter outlook for broadcasters’ non-advertising
revenues. For example, competition has developed among the companies that deliver multiple
channels of video programming to subscribers—cable operators, satellite operators, and some
13
Magna Global can be contacted at http://www.magnagloval.com/?action=register.
14
It is likely, however, that in at least some cases the broadcast network will be part of the same parent company as the
cable network.
15
Interestingly, none of the forecasters projected the high level of revenue growth that a number of broadcast station
owners have been reporting for the second quarter of 2010. Although most forecasters projected rates of growth (after
the 2008-2009 decline) in the vicinity of 5%, most broadcast television station groups have reported double digit
revenue growth in the second quarter of 2010, with some reporting growth approaching 40%. For example, Fisher
Television reported a 37% increase in television revenues over the same quarter last year (see Michael Malone, “Fisher
Television Revenue Up 37%,” Broadcasting & Cable, August 9, 2010) and E.W. Scripps reported a 26% increase in
advertising revenues at its stations in the second quarter (see David Goetzl, “E.W. Scripps: Broadcast Enjoys Ad Hike,
Newspapers Dip,” Media Post News, August 9, 2010). This discrepancy between the forecasts of revenue growth and
the actual second quarter 2010 results can be at least partially explained: forecasters do not attempt to estimate
quarterly rates of growth, but rather try to project an average rate of growth over a longer period of time. To do this,
they must factor in, for example, the risk of a double-dip recession beginning later in the year that would not affect
second quarter 2010 revenue levels, but could affect later revenue levels.
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telephone companies. If a multichannel video distributor fails to obtain the retransmission rights
to national and local broadcast television programming, which many households consider “musthave” programming, it risks losing some of its subscribers to a competitor that does offer the
programming. As a result, broadcast networks and stations are able to demand higher cash
payments from these multichannel video distributors for the retransmission rights. This has
created a second revenue stream for broadcasters that is projected by SNL Kagan, a media
research firm, to grow from $762 million in 2009 to $1.09 billion in 2010, $1.36 billion in 2011,
and more than $2.6 billion in 2016.16 Note, however, that the projected increases in
retransmission consent revenues, which will be shared by broadcast networks and local stations,
may be less than the fall in network and local station advertising revenues from their earlier
peaks.
Technological innovations are creating the potential for other new broadcast revenue sources. For
example, in June 2010 12 large broadcast groups created a joint venture, Mobile Content
Ventures, to develop broadcast-based mobile digital television technology and bring it to
market. 17 In September 2010, a second consortium of broadcasters owning 346 television stations
announced the creation of the Mobile500 Alliance in support of mobile digital television
technology.18 This technology, an alternative to wireless broadband video, would allow a station
to broadcast encrypted video signals that could be received by anyone in its geographic service
area with the appropriate receiver; the viewer could move anywhere within the service area and
continue to receive the signal. With broadcast mobile video, the bandwidth (and, hence,
spectrum) requirements increase as the number of different video signals offered increases, but do
not increase as the number of users increases. In contrast, with wireless broadband video
distributed to cell phones, the more users in a location, the more bandwidth and spectrum is
needed. Since the broadcast technology allows many consumers to share the same spectrum,
broadcasters are unlikely to have to impose the sort of usage charges that AT&T recently imposed
on its customers.19 The underlying broadcast technology may not allow broadcasters to offer as
wide an array of programming as wireless broadband video providers, but the broadcasters
already own or control much of the “must-have” programming sought by consumers.
Also, with the digital transition, broadcasters are able to broadcast multiple video programming
streams, rather than a single stream, and this “multicasting” may generate additional advertising
and retransmission consent revenues for broadcasters. Although to date revenues are small, some
analysts are bullish on multicasting’s potential impact on broadcast station cash flow.20
16
SNL Kagan is a research firm specializing in media and communications whose data are widely used in the industry.
The SNL Kagan estimates for 2009, 2010, and 2011 were reported in Michael Malone, “Local Broadcasters Bullish at
SNL Conference,” Broadcasting & Cable, June 26, 2010. The SNL Kagan projection for 2016 was reported in Steven
C. Salop, Tasneem Chipty, Martin DeStefano, Serge X. Moresi, and John R. Woodbury, “Economic Analysis of
Broadcasters’ Brinkmanship and Bargaining Advantage in Retransmission Consent Negotiations,” a study prepared at
the request of Time Warner Cable, June 3, 2010, at p. 18, Figure 4. The study is available at
http://www.americantelevisionalliance.org under “Broadcaster Brinksmanship.”
17
See, for example, Glen Dickson, “Mobile DTV Joint Venture Outlines Leadership: Fox, NBC execs to handle
product development, distribution for Mobile Content Venture,” Broadcasting & Cable, June 8, 2010.
18
See “Broadcast Note,” Communications Daily, September 9, 2010.
19
See, for example, William Kidd, “Bandwidth Caps Are a Barrier to Emerging Internet TV Competition,” iSuppli
Applied Market Intelligence, July 20, 2010, available at [http://www.isuppli.com/Home-and-Consumer-Electronics/
News/Pages/Bandwidth-Caps-Area-Barrier-to-Emerging-Internet-TV-Competition.aspx.], viewed on August 11, 2010.
20
See, for example, Mary Collins, “Turning Subchannels Into Revenue,” TVNewsCheck, July 30, 2010, available at
http://www.tvnewscheck.com/article/2010/07/30/44016/turning-subchannels-into-revenue, viewed on September 14,
(continued...)
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None of these potential new revenue streams has been proven yet in the marketplace, and other
technological innovations may not benefit broadcasters. For example, while it is possible that the
nascent 3-D technology will lead to popular programming, it is more likely that such
programming will be distributed via a pay-television model than an over-the-air broadcasting
model. 21
News, Sports, and Broadcaster Profitability
This macro picture of the broadcasting industry, with some networks and local stations facing
declining advertising revenues without compensating new sources of revenues, has led to concern
about the future of broadcast television news and sports programming.
More Americans rely upon television news than any other news medium22 and, despite the
success of cable news networks, the national news broadcasts of ABC, CBS, and NBC continue
to attract more prime time viewers than the cable networks.23 But most network news programs
continue to lose audience share,24 and the average viewer age for the networks’ evening newscasts
has risen to 63.1 years.25 Not only does a smaller audience mean that broadcasters can charge less
for ads, but as advertisers tend to prefer younger viewers, an aging audience generates less
advertising revenue. As a result, in the past three years all three national broadcast networks that
have national news divisions have made cuts in those divisions and taken other steps that could
affect the quality or scope of their news coverage. 26
Although viewership of local television news programming continues to decline, 27 Americans still
rely more on broadcast television than any other media source for local news and public affairs
information. 28 Those stations that produce original news programming are broadcasting more
such programming than ever,29 but there has been a slight decline in the number of stations that
(...continued)
2010, citing a study performed by International Media Advisors and Bortz Media & Sports Group.
21
See, for example, Matthieu Coppet, et al, “3D TV is here to stay,” UBS Investment Research, UBS Global I/O: 3D
TV and Media, January 15, 2010, which suggests that consumers are most likely to obtain 3D TV service from the
multichannel video distributors.
22
According to a March 2010 Pew Internet & American Life Project report, entitled “Understanding the Participatory
News Consumer,” at p. 5, available at http://www.pewinternet.org/Reports/2010/Online-News.aspx?5=1#, “78% of
Americans say they get news [on a typical day] from a local TV station; 73% say they get news from a national
network such as CBS or cable TV station such as CNN or Fox News.” Although most Americans now get their news
information from multiple sources, no other source is as widely used as television.
23
See, for example, Pew Study, Section on Network TV Audience, at p. 4, which explains that the lowest-rated
broadcast network newscast (CBS Evening News with Katie Couric) had an average nightly audience of 5.9 million
viewers for the year, while the most popular prime time cable news program (Fox News Channel’s O’Reilly Factor)
had an audience of 3.3 million.
24
Pew Study, Section on Network TV Audience, at pp. 1-5.
25
Pew Study, Section on Network TV Audience, at p. 5.
26
These actions are discussed below in the section entitled “Market Forces Affecting Broadcast News Networks.”
27
Pew Study, Section on Local TV Audience, at pp. 1-5.
28
See footnote 22 above.
29
See Bob Papper, 2010 RTDNA/Hofstra Staffing & Profitability Survey (RTDNA/Hofstra Survey), Section on TV
Staffing and News 2010, unpaginated, available at http://www.rtdna.org/pages/media_items/2010-rtdnahofstra-staffingprofability-survey--full-data1944.php, viewed on July 22, 2010. According to the survey, the average amount of
original local news programming broadcast by those stations that produce their own programming increased to 5.0
(continued...)
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produce news programming and some stations have cut their news staffs.30 Some of the additional
hours of news consist of repeats of earlier broadcasts rather than fresh programming.
Increasingly, television stations that create news programming sell some of their programming to
other media outlets. 31
Major professional and intercollegiate sports leagues command very high payments for the rights
to televise their sports events. Cable networks have been able to successfully bid for the
programming rights to major events, either in conjunction with or in direct competition with
broadcast networks. Most recently, the National Collegiate Athletic Association (NCAA) signed a
$10.8 billion, 14-year agreement with CBS and Time Warner’s Turner Cable Networks under
which Turner will get the rights to first- and second-round NCAA basketball tournament (March
Madness) games in 2011-2015. Coverage of the semifinals will be split between Turner and CBS,
with the national championship game alternating each year between the two networks. 32 At the
same time, major sports leagues and conferences increasingly are retaining a portion of their
sporting events for cable networks in which they have an equity stake, rather than making them
available to outlets in which they do not have an equity stake. The National Football League
(NFL), the Big Ten Intercollegiate Conference, and the New York Yankees have created cable
networks of their own and distribute some of their games exclusively or semi-exclusively over
those networks. These changes have increased the total amount of sports programming available
to U.S. households, but an increasing proportion of popular teams’ or leagues’ schedules is
televised only on cable networks and therefore available only to subscribers.
Some broadcasters claim that relaxing broadcast media ownership rules would assure the
continued availability of free, over-the-air news and sports programming. They also claim that
their ability to offer such programming would be harmed if changes to the retransmission consent
rules constrain their ability to negotiate compensation from multichannel video distributors. A
report prepared for the National Association of Broadcasters, based on an April 2010 survey of 53
television stations that originate local news programming,33 concludes:
As the Commission examines the Future of the Media and considers ways to bolster the
provision of local news, it should adopt policies that allow (and to rescind, or at least not
adopt, policies that hinder) local broadcasters to (1) pursue opportunities for non-advertising
revenue, such as that derived from retransmission consent, and (2) benefit from economies of
scale and allocate their news resources in the most efficient ways, such as through
modifications to the Commission’s structural ownership rules. Such policies will support the
Commission’s vital focus on “localism” by providing a solid financial foundation for the
production of local news.
(...continued)
hours per weekday in 2009 from 4.7 hours in 2008.
30
These actions are discussed below in the section entitled “Market Forces Affecting Local Broadcast Station News.”
31
See RTDNA/Hofstra Survey, Section on How the Business of TV News is Changing, unpaginated.
32
See, for example, “Mass Media Notes,” Communications Daily, April 22, 2010.
33
Mark J. Prak, David Kushner, and Eric M. David, “The Economics Realities of Local Television News—2010: A
Report for the National Association of Broadcasters” (NAB Survey), In the Matter of 2010 Quadrennial Regulatory
Review—Review of the Commission’s Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of
the Telecommunications Act of 1996, Comments of the National Association of Broadcasters, Attachment B, July 12,
2010, at p. 30.
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Not all market data, however, suggest that broadcast provision of news and sports programming
is at risk. News and sports programming are major sources of station revenues and continue to be
profitable for most broadcast networks and stations. 34 Moreover, it often is easier for broadcast
networks or stations to control the costs of news programming they produce than the costs of
scripted or syndicated programming they must purchase. As will be explained below, broadcasters
at both the network and local station level have undertaken cost-cutting measures and are
employing business models that better exploit the economies of scope associated with
newsgathering and program production. These changes may require Congress and the FCC to
review how best to foster the goals of localism, diversity, and competition.
Audience fragmentation and the substantial upfront fixed costs associated with newsgathering
and the rights to major sports events are not going away. Increasingly, to recoup these upfront
costs, programming will have to be distributed over multiple platforms, and media outlets may
have to share facilities and staff to gain economies of scope and scale. But some broadcasters
claim that cooperative activity and sharing does not provide the cost savings or generate the
additional revenues attainable if they could combine with other newsgathering organizations.
Traditionally, there have been concerns that such consolidation could reduce diversity of voices,
harm competition, and discourage programming of local interest. In light of the underlying
market changes, however, Congress and the FCC may decide to reexamine whether and when the
benefits of consolidation of newsgathering capabilities outweigh the harms and whether it would
be possible to construct either bright-line rules or criteria for case-by-case evaluations that could
limit the harms while retaining the benefits.
Market Forces Affecting Broadcast News Networks
Two studies of national broadcast television news networks prepared 11 years apart—The State of
the News Media 2010 study prepared by the Pew Foundation Project for Excellence in Journalism
and a Nieman Foundation Special Issue report prepared in 199935—present very similar portraits
of the market forces at play and identify the same market trends and policy implications. This
suggests that many of the market forces that broadcast news networks are contending with today
represent long-term structural trends that may be accentuated by, but are not the result of, cyclical
economic factors. It also suggests that while these trends have challenged old business models,
the networks have been able to adapt and to survive in the marketplace.
Three of the four major national broadcast networks—ABC, CBS, and NBC, but not FOX—have
national news divisions that produce for their local affiliates half-hour evening newscasts,
morning news shows (that range in length from two to four hours and tend to provide softer news
than the evening newscasts), Sunday morning public affairs discussion shows, weekly or periodic
news magazine shows (such as “60 Minutes” and “20/20”) that mix investigative news with softer
34
In reviewing the financial data in this report specific to newsgathering and news (and sports) program production,
please note that neither broadcast networks nor local broadcast stations are required to report revenues, costs, and
profits at that level of disaggregation. The data presented therefore either are indirect estimates prepared by researchers
or the aggregated responses of individual news directors to survey questions, where the respondents may not all be
basing their responses on the same set of definitions and assumptions. As a result, it generally is more useful to rely on
these data to identify trends over time than to provide point estimates of revenues, costs, or profits.
35
See Pew Study, Section on Network Television, and Marc Gunther, “The Transformation of Network News: How
Profitability Has Moved Networks Out of Hard News,” Nieman Reports Special Issue 1999 (Nieman Report), available
at http://www.nieman.harvard.edu/reportsitem.aspx?id=102153, viewed on August 16, 2010.
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news and entertainment, and unscheduled breaking news reports.36 This mix of programming has
not changed significantly in the past decade. Although the networks continue to lose audience to
cable and Internet providers of news and information, they still serve a much larger audience than
the cable news networks or Internet news services. 37
Interestingly, in the late 1990s the broadcast television networks were losing money on their
entertainment and sports programming, for which costs were growing faster than revenues, but
were able to earn profits on their news programming, in part by controlling costs.38 NBC News,
the most watched and the most profitable national broadcast news division, a decade ago created
a multiplatform organization that shares the high fixed costs of newsgathering across broadcast,
cable, and Internet platforms. NBC News was quite profitable then and remains so.39 The other
two national news divisions, ABC and CBS, do not have cable news networks with which to
share costs and have not developed as effective an Internet presence. They earned relatively small
profits in 1999 and today they are at best marginally profitable and, in the case of CBS News,
may be losing money. 40
The Nieman Report and Pew Study, supplemented by current market data, provide a dynamic
portrait of the broadcast network news market:
•
The average nightly audience for the three major broadcast networks’ evening
newscasts has fallen from more than 50 million viewers in 1980 to 30.4 million
in 1998 to 22.3 million in 2009, a decrease of about 1 million viewers per year
(though the annual decline has been less than that in recent years).41 The
audiences nonetheless remain far larger than the prime time audiences for cable
news networks.42 The audience for broadcast network morning news shows also
has fallen for the past five years.43 The prime time news magazine programs
continue to attract large audiences, with each of the three networks having at
least one successful program.
36
The Fox Broadcasting Company provides its affiliates the one-hour weekly public affairs program Fox News
Sunday. It also provides coverage of political events such as the State of the Union address and national election
coverage and breaking news, with programming produced by, but separate from the programming provided on, the
cable Fox News Channel. Also, the Fox News Edge service provides national and international news reports for local
Fox affiliates to use in their own newscasts.
37
See footnote 24 above.
38
Nieman Report, at p. 1. The following discussion of network news profitability presents estimates made by industry
analysts who had to make many explicit or implicit assumptions about how much of the parent company’s overhead
and other costs should be assigned to the broadcast news network. It is not possible to verify the findings of these
analysts.
39
According to the 1999 Nieman Report, NBC News earned more than $200 million in 1998 and its profits had grown
steadily during the decade. The Pew Study estimates 2008 NBC News pre-tax profits of $400 million, although about
two-thirds of its revenues came from the cable networks MSNBC and CNBC.
40
The 1999 Nieman Report estimated that ABC News earned $55 million in 1998, down from a peak of $110 million
two years earlier. It also estimated that CBS News earned only $15 million in 1998, but that those earnings were
growing. The 2010 Pew Study estimated that the ABC news division may have generated a small operating profit in
2009 on total revenues of approximately $600 million. It also estimated that CBS News lost money in 2009 on
revenues of about $400 million.
41
Pew Study, Section on Network TV Audience, at p. 2, citing Nielsen Media Research data.
42
See footnote 26 above.
43
Pew Study, Section on Network TV Audience, at pp. 6-8, citing Nielsen Media Research data.
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Changes in the Economics of Broadcast Television
•
The audiences for the evening newscasts of the two Spanish language broadcast
networks—Univision and Telemundo (owned by NBC)—are almost as large as
the prime time audiences for the major cable news networks (FOX News, CNN,
MSNBC, HLN, and CNBC).
•
The declining and aging audience for evening and morning newscasts has placed
downward pressure on advertising revenues. This is countered somewhat by the
relative affluence of that audience and by the fact that, despite the decline, the
audience for the evening newscast at each network continues to be significantly
larger than the audience for any other broadcast or cable programming presented
at that time of day. The network newscast audiences therefore continue to
command a premium from advertisers. There has been a shift toward
sponsorships of particular segments of network news programs—or even entire
newscasts—by a single advertiser. Still, advertising revenues generated by
evening and morning network news programming have been falling.
•
Since the 1990s,44 there have been periodic layoffs in all three network news
divisions. Some domestic and foreign bureaus were closed, with the networks
relying more heavily on outside sources they could pay as needed rather than on
full-time staff and offices. The broadcast networks have expanded their use of
“pooling”—sharing footage from a single camera with other networks, including
cable networks. They have reduced the amount of “breaking news” coverage,
increasingly leaving that to 24-hour cable news networks. These cost-cutting
measures continue. In 2010,45 ABC announced it would reduce its news division
by 300 to 400 employees, out of 1,500. CBS News reduced its staff in 2010 by
100 people, or 7%. NBC News reduced its workforce by more than 10% in 2009.
Although the number of domestic bureaus has stabilized, the three networks
continue to trim permanent overseas bureaus and rely more on one-person
operations, often sending resources to overseas locations only as events occur.
•
The broadcast news networks continue to employ a business strategy developed
in the 1970s, using news teams to create hybrid news and entertainment
programming shown during prime time. These “newsmagazine” programs tend to
be less expensive to produce than scripted entertainment programming for two
reasons: many of the underlying costs can be shared with the hard news
programming and, even when successful, the correspondents and writers tend not
to be able to demand the huge increases in salary and other compensation that the
stars and writers of successful entertainment programming can demand. As a
result, even if newsmagazines generally attract smaller audiences than pure
entertainment programming, they can be more profitable. The correspondents and
news teams have credibility from their involvement with hard news programming
that their counterparts on competing cable networks may lack. Newsmagazines
continue to provide the financial backbone of network news organizations.
Even with serious cost containment measures in place, the fixed costs associated with maintaining
a news network are substantial. Since the late 1990s, the networks have responded by seeking
economies of scope by using those news assets to produce revenue-generating programming for
44
45
The following discussion of the 1990s is based on the presentation in the Nieman Report.
The following discussion of 2010 is based on the presentation in the Pew Study.
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Changes in the Economics of Broadcast Television
multiple platforms. The 1999 Nieman Report explained how NBC was already successfully
following this business model:
Here is why this model works so well. ABC and CBS generate nearly all of their income
from broadcasting. NBC takes in additional revenues from cable (MSNBC, CNBC), NBC’s
Internet sites, and NBC News channels distributed outside of the United States.... Therefore
NBC is better able to shoulder the overall costs involved with newsgathering not just for the
“Nightly News” and “Today,” but for its 24-hour cable networks and Internet sites as well....
By programming more than 6,000 hours of news a year across its broadcast and cable
platforms, the average cost per hour of news at NBC has fallen from about $250,000 to
$50,000 during the past five years.46
This essence of this quote is echoed in the 2010 Pew Study, which finds:
NBC News is a profit center for NBC Universal, but its earning power now comes from its
multiplatform structure. On paper, the news division derives more revenue from cable news
channels than from the broadcast. About two-thirds of news revenues come from MSNBC
and CNBC. ABC News and CBS News, by contrast, have no such multiplatform systems....
Sooner rather than later, other platforms like the Web or video streaming will need to
become a more integral part of the networks’ distribution and revenue strategy, a strategy
NBC has already largely developed and reaped benefits from.47
Market forces thus appear to be pushing ABC and CBS toward partnerships with other news
organizations. The Pew Study cites speculation in 2010 that ABC or CBS were looking to partner
with cable news networks, with CBS News and CNN the likeliest partners since CNN
correspondents already appear regularly on the CBS program “60 Minutes.”48 In 2009, ABC
reporters began appearing on the Bloomberg business cable channel; the two organizations have
jointly hired employees, and Bloomberg obtains content from ABC’s affiliate news service. It also
is possible that the ABC or CBS news divisions could seek to form partnerships with nontelevision newsgathering organizations, such as major newspapers, to share the high fixed costs
of newsgathering. Such consolidation might prove the best way to ensure the continued existence
of three strong newsgathering organizations supporting broadcasting networks, though at the
potential expense of diversity of news sources and competition.
Formal Ties Between National Newsgathering and Programming
Organizations: Issues for Congress
A formal tie between two previously independent major newsgathering organizations would
trigger review by either the Antitrust Division of the Department of Justice or the Federal Trade
Commission to determine whether the combination would lessen competition. This review would
only scrutinize economic effects—for example, if the combination would allow the new entity to
raise the price broadcast stations and other outlets pay for news programming. It would not
consider the impact on the diversity of voices or localism.
46
Nieman Report, Section on Economics of Network News, unpaginated.
Pew Study, Summary Essay in Section on Network TV, at pp. 1-2.
48
Such speculation is not new. According to the Nieman Report, in 1998 ABC, NBC, and CBS each had discussions
with CNN about sharing staff and bureaus outside the United States.
47
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Changes in the Economics of Broadcast Television
If the proposed merger or formal tie would result in the transfer of ownership or control of a
spectrum license—broadcast networks and other major newsgathering organizations are likely to
hold a variety of licenses for spectrum needed to gather and distribute information and
programming—the FCC would have to review the proposed transfer to determine whether it is in
the public interest. That review would take into account such public interest goals as diversity of
voices and localism, as well as competition.
Although the merger of two major newsgathering organizations primarily would affect diversity
and competition at the national level, such a combination also would be subject to existing FCC
broadcast media ownership rules for local markets if the merging companies owned local outlets,
as all the major broadcast networks, and some other major newsgathering organizations, do.
The national cable news networks do not have a local presence and therefore a merger with a
national cable news network would not be subject to the FCC’s broadcast media ownership rules.
There are no specific statutory or FCC rules that set bright line tests or even generic criteria for
evaluating the public interest implications of a proposed combination of a broadcast news
network and a cable news network.49 Given that both the NBC and FOX corporate organizations
already own broadcast newsgathering capabilities alongside cable news networks without being
subject to unique regulatory conditions or requirements, it might be difficult for the FCC to set
conditions on an ABC or CBS merger with a cable news network.
It is possible that a broadcast news network seeking to share the fixed costs of newsgathering and
to exploit economies of scope would find a good potential partner among the major newspaper
companies, which face similar, if generally more threatening, challenges. 50 Most large newspaper
companies already own television stations and websites that use video, so they already have some
experience turning their newsgathering capabilities into video news programming. They also have
a presence in many local markets, though perhaps not in the local markets where ABC or CBS
own their own local affiliate stations.
If ABC News or CBS News were to propose a merger or other formal tie with a major newspaper
company, then, in addition to the normal antitrust review and the FCC transfer of license review,
the proposed combination would be subject to the current local market broadcast-newspaper
cross-ownership rule. 51 The rule includes a rebuttable presumption that the merger in one of the
20 largest local markets of a major daily newspaper and one of the four highest-rated television
stations would be deemed inconsistent with the public interest. ABC and CBS own and operate
local stations in many large cities. In all of those cities, the ABC and CBS stations are among the
four highest-rated in the market. It therefore might be necessary for the combined entity to divest
itself of a television station or a newspaper to consummate the merger. In addition, most major
newspaper companies also own broadcast television stations, which might compete in a local
market with an ABC or CBS owned-and-operated station. In such a situation, the companies
might be unable to consummate a proposed merger without divesting a local television station.
49
The FCC’s Dual Network Ownership rules prohibits a merger among the “top four” broadcast networks—ABC,
CBS, FOX, and NBC—but does not relate to cable networks. The FCC’s National Television Ownership Rule allows a
broadcast network to own and operate local broadcast stations that reach, in total, up to 39% of U.S. television
households, but does not relate to the reach of co-owned cable networks.
50
See, for example, CRS Report R40700, The U.S. Newspaper Industry in Transition, by (name redacted).
51
The broadcast-newspaper cross-ownership rule had been stayed by the Third Circuit Court of Appeals while it is
being appealed, but the court has vacated its stay. See John Eggerton, “Third Circuit Lifts Stay on Media Ownership
Rules,” Broadcasting & Cable, March 23, 2010.
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The local market broadcast ownership rules thus could make it more difficult for the ABC or CBS
news networks to consummate a merger or formal tie with a major newspaper company than with
a cable news network.
The economic impact of Internet competition and audience and readership fragmentation is
affecting all newsgathering organizations, though some are more challenged than others.
According to the Pew Study, the median prime-time viewership of the three major cable news
networks (FOX, CNN, and MSNBC) increased from approximately 1.3 million households in
1998 to about 3.9 million in 2009, but in 2009 CNN’s median prime-time audience fell 15% from
2008, while the FOX audience grew by 19% and the MSNBC audience grew by 3%.52 The
cumulative audience (the number of unique viewers who watch a channel for at least six minutes
over the course of a month) of the three cable news networks fell slightly between 2002 and 2009,
but remains between 50 million and 68 million for each of the networks.53 Cable news network
revenues and profits continue to be robust. The Pew Study reports that SNL Kagan estimated that
aggregate revenues for FOX News, CNN, HLN, and MSNBC increased from $2.62 billion in
2008 to $2.76 billion in 2009, and profits increased from $1.07 billion in 2008 to $1.16 billion in
2009.54 Although the combined revenues of CNN and HLN fell slightly in 2009, their profits
increased slightly.55
In contrast, newspaper readership, revenues, and profits are falling. The number of daily
newspapers in the United States fell from 1,600 in 1990 to 1,400 in 2008,56 and continues to fall.
Paid newspaper circulation in the United States in September 2009 was 43,500,000 daily and
46,500,000 Sundays, a decline of 31.5% and 27%, respectively, from peak totals in the last 25
years.57 That decline has been greatest recently. In the six-month period ending September 30,
2009, compared to the same period a year earlier, newspaper circulation fell 10.6% daily and
7.1% Sundays. Newspaper advertising revenues reportedly fell by a total of 23% in 2007 and
2008 and by 26% in 2009.58 The Pew Study estimates that, despite substantial cost cutting,
average newspaper operating margins fell from the high teens in 2007 to the low teens in 2008,
and then to around 8% in 2009.59
It appears that the newsgathering activities of newspaper companies are more challenged than
those of cable news networks. But the current FCC broadcast media ownership rules, which focus
on safeguarding localism, could unintentionally encourage broadcast network consolidation with
newsgathering organizations such as cable news networks rather than with newspaper companies.
This is consistent with long-standing U.S. media policy to foster localism and local programming,
but could lead to a reduction of national and international news coverage.
52
Pew Study, Section on Cable TV Audience, unpaginated, based on Nielsen Media Research data.
53
Ibid. Interestingly, although Fox prime-time programs have the highest ratings among the three networks, CNN
continues to have the highest cumulative audience.
54
Pew Study, Section on Cable TV Economics, unpaginated.
55
Ibid.
56
Pew Study, Section on Newspaper Audience, unpaginated, citing Editor and Publisher Yearbook data.
57
Ibid, citing Audit Bureau of Circulations and Newspaper Association of America data.
58
Pew Study, Section on Newspaper Economics, unpaginated, citing data from the Newspaper Association of America
and newspaper industry analyst Rick Edmonds.
59
Ibid.
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Changes in the Economics of Broadcast Television
Market Forces Affecting Local Broadcast News
Today, just under half of the non-PBS broadcast television stations in the United States produce
and air original local news programming, an additional 14% broadcast local news programming
produced by another station, 60 and somewhat less than 40% do not broadcast local news at all.61
This represents a small decline from 2009 in the number of stations originating news
programming, but a slightly larger increase in the number of stations broadcasting news
programming produced by others.
The Amount of Local Broadcast News Programming Is Increasing
as Its Audience Decreases
Those stations that produce their own local news programming increased the amount of original
news programming aired from an average of 4.7 hours per station per weekday in 2008 to an
average of 5.0 hours in 2009, continuing an upward trend that began in the early 2000s.62
Although most stations reported no changes in the amount of newscasts in 2009, 28.6% reported
adding a newscast and only 13.7% reported cutting a newscast;63 almost all of the cuts were in
weekend programming. Some of the additional programming represents the rebroadcast of
programming offered in an earlier program or the use of national or international news
programming provided by the national network to which the station is affiliated.
Interestingly, the increase in local news programming comes when audiences for local early
morning, early evening, and late news programs are falling, and when local television advertising
revenues and local television station profits also are falling. The Pew Study64 analyzed Nielsen
Media Research data for 2009 and found:
•
ratings, share, and viewership declined for the local news programming of the
affiliates of all four major broadcast networks—which produce most of the local
television news in the United States—in all months and in all news timeslots
studied. The viewership declines for the early evening and late news were steeper
than in 2008.
•
even FOX affiliates, which employ the strategy of broadcasting local news at offhours (7 a.m. and 10 p.m.), experienced declining news viewership.
60
This may be unique programming produced exclusively for the station, the rebroadcast of programming aired by the
producing station, or a combination of these.
61
These aggregate figures were constructed by Bob Papper, the Lawrence Stessin Distinguished Professor of
Journalism and chairman of the Department of Journalism, Media Studies, and Public Relations at Hofstra University.
He is the primary researcher and author of the annual RTDNA/Hofstra Staffing and Profitability Survey of broadcast
station news directors cited earlier in this report that is widely recognized within the industry. Professor Papper found
that currently 737 non-PBS stations produce local programming, 214 run programming of local interest produced by
other stations, and 609 do not air local news programming. He also found that 19 Public Broadcasting System (PBS)
stations originate local news programming and 181 do not broadcast local news programming.
62
2010 RTDNA/Hofstra Survey, Section on TV Staffing and News 2010, unpaginated. The amount of original local
news programming is much lower on weekends, averaging 1.7 hours on Saturdays and 1.6 hours on Sundays.
63
RTDNA/Hofstra Survey, Section on TV Staffing and News, unpaginated.
64
Pew Study, Section on Local TV Audience, at pp. 1-5.
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Changes in the Economics of Broadcast Television
•
local affiliate news in nontraditional timeslots, such as noon and 4 p.m., also
experienced declining audiences.
•
only a few independent stations had large enough audiences for Nielsen to track.
These collectively attracted 9% of the news audience when their news
programming competed in the news time slots used by ABC, CBS, and NBC
affiliates. When they competed in the time slot used by FOX affiliates, they
typically attracted at most 10% of the news audience. Only at noon did they
capture almost half of the news audience.
Broadcast Station Profits Fell Most Rapidly in the Late 1990s
The broadcasting industry has voiced concern that the decline in station advertising revenues
without compensating new revenue sources could reduce profitability and impair stations’ ability
to offer news programming. It is difficult to construct a reliable database of the profits of
individual television stations because most are owned by companies that own multiple stations or
other interests; the reported profitability of any individual station thus depends heavily on how
the parent company chooses to allocate non-station-specific costs and revenues to the station.
Nonetheless, companies’ reports on individual stations may provide useful information on trends
in station profitability, unless there is reason to believe that station owners as a group have an
incentive to over-assign or under-assign non-station-specific costs and revenues to the station.
Since the 1980s, the NAB has collected data on local station revenues, expenses, and profits,
which it compiles each year in an annual Television Financial Report.65 It appears that the dollar
level of profits enjoyed by local broadcast television stations in the mid-1990s eroded sharply in
the late 1990s—perhaps as a result of competition from cable channels.66
Table 1 reproduces a table included in the submission made by the NAB in the FCC’s current
media ownership proceeding, 67 showing the distribution of station pre-tax profits for 1998-2008.
(The NAB has not yet released data for 2009.) The data show that profits (1) are highly cyclical,
falling substantially in economic downturns, when advertising falls, and (2) generally increase in
even-numbered years, when broadcasters benefit from high levels of political advertising and
broadcasts of the Olympic Games. In each year, average profits are significantly higher than
median (50th percentile) profits, and in many years are higher than the profits of the station in the
75th percentile, indicating that a relatively small number of highly profitable stations bring up the
average.
65
National Association of Broadcasters, annual Television Financial Report: Station Revenue, Expenses and Profit,
from 1980s through 2010.
66
Unfortunately, the NAB’s annual Television Financial Reports in the 1990s do not include average and percentile
data for “all stations in all markets,” but they do include tables for many different subsets of television stations and a
review of them indicates that, for stations as a whole, the dollar level of profits fell substantially in 1999 and has not
recovered to the 1998 level. Through 1997, only a relatively small share of stations had before-tax losses; since 1998, at
least one-fourth of all stations have had pre-tax losses.
67
NAB Survey, Attachment C, at p. 2. The NAB table provides pre-tax station profits for the average station, the station
in the 25th percentile for profits, the 50th percentile (the median station), and the 75th percentile for the years 1998-2008,
based on data compiled by the NAB is an annual survey of more than 700 stations. Unfortunately, those data are not
included in the NAB’s annual Television Financial Reports prior to 2002 and therefore it is not possible to reproduce
the data the NAB provides for the period 1998-2001 and it is not possible to use the annual Television Financial
Reports to extend the overall profits data back earlier than 1998. But a review of the data in the earlier Financial
Reports strongly indicates that stations in the mid-1990s earned higher absolute levels of profits than they have
(continued...)
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Changes in the Economics of Broadcast Television
Table 1. Broadcast Television Station Pre-Tax Profits
(all markets, all stations)
Year
Average
25th Percentile
50th Percentile
75th Percentile
1998
$6,145,583
$220,970
$1,575,778
$5,944,967
1999
$4,361,828
$659,146
$916,554
$4,323,452
2000
$4,537,894
$584,884
$1,113,634
$4,596,413
2001
$2,171,188
$1,445,544
$67,067
$2,575,895
2002
$3,858,644
$451,601
$911,827
$4,188,476
2003
$4,073,056
$458,512
$464,019
$3,344,000
2004
$4,442,379
$158,079
$1,128,782
$4,686,237
2005
$3,512,208
$512,639
$670,946
$3,426,952
2006
$4,210,359
$305,161
$1,120,443
$4,154,310
2007
$3,320,667
$454,837
$520,164
$3,446,126
2008
$2,686,481
$750,149
$630,300
$3,178,780
Source: Mark J. Prak, David Kushner, and Eric M. David, “The Economics Realities of Local Television News—
2010: A Report for the National Association of Broadcasters”, In the Matter of 2010 Quadrennial Regulatory
Review—Review of the Commission’s Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of
the Telecommunications Act of 1996, Comments of the National Association of Broadcasters, Attachment C, p. 2,
“Television Station Financial Data 1998-2008: Pre-Tax Profit Television Station National Averages,” based on
NAB Television Financial Surveys 1999-2009
Average pre-tax profits have remained well below the high level posted in 1998. It is possible that
some of that decline is attributable to high debt loads taken on by ownership groups that financed
acquisitions of stations through highly leveraged borrowing.68 Such leveraging increases the risk
of financial loss if revenues do not grow as forecast, but increases the return on equity if revenues
meet expectations. It is possible that a highly leveraged firm could experience a financial loss
despite enjoying positive operating cash flow, because the latter takes into account operating
expenses but not debt service.
The NAB’s Television Financial Reports present data indicating that the great majority of stations
enjoy positive operating cash flows. The 85 tables in the 2009 Report suggest, however, that there
are three general categories for which a significant minority of stations suffered negative
operating cash flow in 2008: major network affiliates in small markets, Spanish language stations
in large markets, and independent stations.69 While losses are sometimes attributable to poor
(...continued)
subsequently.
68
Table 1 of the NAB’s 2009 Television Financial Report presents “national average” data for all stations, for the
overall average, the 25th percentile, 50th percentile (median), and 75th percentile. For both the 25th and 50th percentile,
interest expenses are zero. For the 75th percentile the interest expenses are $431,571. Average interest expenses are
$772,920. This suggests that some stations have very high debt loads. (There are several reasons why a company might
choose a highly leveraged financial structure. The tax code creates an incentive since interest payments are tax
deductible for the company but dividend payments (to equity holders) are not. Also, there is no dilution of the equity
base if a company chooses to fund expansion (whether internal or by acquisition) by using debt financing. If an owner
chooses a highly leveraged financing strategy, it trades off higher equity capital requirements for higher interest
expenses.)
69
The 2009 Television Financial Report presents 2008 operating cash flow data for 85 different categories of television
(continued...)
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Changes in the Economics of Broadcast Television
management, there also may be other explanations. Some major network affiliates in small
markets are owned by station groups that may be allocating non-station-specific costs to those
stations. Alternatively, it may be that small markets have too little advertising to support all the
stations in the market. Similarly, Spanish-language stations that are not affiliated with a major
Spanish-language network may have difficulty attracting sufficient advertising revenues, even
though they are located in a large market, because they attract a niche audience. The same is true
for independent stations, which do not have access to network programming.
Even though most stations are enjoying positive operating cash flows, the high debt loads of some
stations are imposing large interest expenses that may be causing pre-tax losses.70 These debt
burdens do not appear to be threatening the viability of the stations, which generally continue to
enjoy positive operating cash flows. In the more serious cases they are forcing the financial
restructuring of the station groups, with lenders taking equity positions while the stations continue
to operate largely as before. Nonetheless, financial distress can affect station investment and
programming decisions.
It would be useful to have a better understanding of the underlying financial position of those
stations that are experiencing pre-tax losses. If most of those stations have positive operating cash
flows, are affiliates of major national networks whose retransmission consent revenues are likely
to grow, 71 and are successfully offering branded local news programming to their communities,
but are burdened by interest expenses due to highly leveraged acquisitions, then there may be
little reason for concern that losses will lead to reductions in local news programming. On the
other hand, if most of the stations with pre-tax losses originate local news programming but have
not successfully created strong brand identities, do not have major network programming to
bolster their retransmission consent negotiations, and are suffering operating losses due to
structural market changes, then it is more likely that local news programming will be cut back. It
would be useful if the FCC could collect the data necessary to analyze these relationships as part
of the current quadrennial review of its media ownership rules.
Falling profits and the expectation that revenues may be relatively slow to recover have reduced
selling prices of broadcast television stations. SNL Kagan estimates that the “stick price” for a
television station—roughly, the price per household that can be reached with a signal of
(...continued)
stations (by network affiliation, by size of market, by station revenues, and various combinations of these). Of these 85
categories, the cash flow is negative for the station in the 25th quartile for 10 categories of stations: all affiliate and
independent stations in markets 121-130; ABC, CBS, and NBC affiliates with net revenues between $5 million and $6
million; ABC, CBS, and NBC affiliates with net revenues between $4 million and $5 million; ABC, CBS, and NBC
affiliates with net revenues between $2 million and $3 million; ABC, CBS, and NBC affiliates with revenues under $2
million; CW affiliates in markets 76+; Spanish language stations in markets 1-25; all independent stations; independent
stations in markets 1-25; and independent stations in market 26+. For one category—CW affiliates in markets 76+—at
least half the stations had a negative cash flow. Unfortunately, the Television Financial Report does not indicate the
number of stations in each of its categories; it is possible that some of these tables are reporting the financial data of
only a very few stations.
70
The format in which the data are presented in the NAB’s annual Television Financial Reports does not allow for an
analysis of the impact of debt load and interest expenses because it is presented in percentile format. The station in the
25th percentile for pre-tax profits is unlikely to be the same station that is in the 25th percentile for cash flow, or the
station that is in the 25th percentile for interest expenses. As a result, there is no way to use the data as presented by the
NAB to determine the impact of debt load on profits.
71
Cash payments for retransmission consent is a relatively new phenomenon. Major networks provide more “musthave” programming of the sort that can command high cash payments than do non-major networks or independent
stations.
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reasonable quality for a station without measurable market share or cash flow, thus simply
representing the value of the broadcast license and equipment72—peaked at $32.52 in 2001 and
then fell irregularly to a low of $12.68 in 2009.73 As other avenues became available for
advertisers to reach consumers, the broadcast licenses generated less cash and became less
valuable. 74 It is likely that most broadcast television stations will continue to generate revenues
that exceed their operating costs, but the value that the broadcast license commanded when the
station was a cash cow may continue to fall, or at least not rebound to earlier peaks. Owners that
acquired licenses near the peak price may have difficulty covering those acquisition costs.
Financial Factors Specific to News Programming
While a station’s decisions on the amount and type of local news programming may be affected
by its overall financial status, those decisions are more likely to be affected by the direct financial
impact of the news programming itself. Although broadcast stations are not required to report
financial information specific to their news programming, there is some information available
about the revenues, costs, and profits attributable to such programming.
For those stations that originate their own local news programming, that programming generates a
significant portion of station revenues. Although most local station news directors responding to
the RTDNA/Hofstra Survey did not know what portion of their station’s revenues came from news
programming, those that did know reported, on average, that local news generated 44.7% of
station revenues—about the same level as reported throughout the past decade. 75 The median
reported figure was 45% and the average and mean did not vary much by market size, never
falling below 39.7% or rising above 50%. Since the amount of news programming has increased
over time, however, this suggests that news programming is generating a smaller share of station
revenues per hour of programming. The NAB Survey corroborates the importance of local news
for station revenues. It found that “although local news programming accounts, on average, for
only 16% of the broadcast day, 39% of a station’s revenues, on average, is derived from
advertising associated with the broadcast of local news.”76
News programming continues to be profitable for most stations. The annual RTDNA/Hofstra
Survey asks news directors about the profitability of their news programming. As shown in Table
2, far more news directors characterize their news programming as profitable than unprofitable or
just breaking even. While a smaller percentage of respondents indicated in 2010 that their news
programming was profitable than in most previous years, at the same time a smaller percentage of
respondents indicated that their news programming lost money than in most previous years
(reflecting, in part, that more news directors reported they did not know the profitability).77 The
percentage of stations reporting that their news programming is profitable did not vary much by
72
This is the price that a religious broadcaster or other non-profit broadcaster would seek to pay to acquire a license
from an existing licensee. Stations with positive cash flows would of course command a higher price.
73
SNL Kagan, Broadcast Investor: Deals & Finance, Number 538, June 29, 2010, at p. 4.
74
See, for example, Steve Lawson, “How Much is a TV Station worth today?” on the blog Explaining Social Media
and Social Networking, February 24, 2010, available at [www.friendlyvoice.com/blog/2010/02/24/how-much-is-a-tvstation-worth-today], viewed on October 12, 2010.
75
RTDNA/Hofstra Survey, Section on TV News Staffing and Profitability, at p. 4. 71.4% of survey respondents said
they did not know how much revenue (or what percentage of station revenue) came from news programming.
76
NAB Survey, at p. 10.
77
RTDNA/Hofstra Survey, Section on TV News Staffing and Profitability, at p. 3.
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Changes in the Economics of Broadcast Television
market size—ranging from a low of 42.9% for stations in the 25 largest markets to a high of
51.7% for stations in markets 26-50. In the smallest markets (151-210), 45.8% of stations
reported their news programming was profitable, 12.5% reported breaking even, 8.3% reported
losses, and 33.3% did not know. Even for stations for whom news is not profitable, however, it
may be beneficial to produce news programming if that programming creates a strong brand
identity or if a news audience provides a stronger lead-in to the entertainment programming that
follows.
Table 2.The Profitability of Local Station News Programming
(percentage of stations)
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
Showing
Profit
47.8
52.7
55.4
56.2
57.4
44.5
58.4
55.3
54.9
56
58
Breaking
Even
14.6
11.6
11.5
11.5
8.1
24.2
10.4
13.6
11.6
13
11
Showing
Loss
8.3
14.5
10.5
6.4
10.0
12.1
9.2
9.2
11.2
10
11
Don’t
Know
29.2
21.3
22.6
26.0
24.4
19.2
22.0
21.9
22.3
21
20
Source: 2010 RTDNA/Hofstra Staffing & Profitability Survey, Section on TV News Staffing and Profitability, at p. 3.
The stations that spend most on local news production tend to be in the larger markets, but station
spending on news programming does not appear to be correlated with market size, and a higher
proportion of stations in large markets do not originate local news. In its 2010 Television
Financial Report, the NAB provides detailed information on the television news expenses
(defined as “the salaries and wages of those engaged in the production and presentation of news
and other expenses incurred by the news department”) incurred by stations. Table 3 presents
summary data, broken out by market size and station affiliation. While average news expenses
fall as market size falls, that appears to be the result of heavy spending by a few stations in large
markets; the spending by the median station does not appear to vary significantly by market size
for the top 120 markets. It is more likely that in large markets with many stations some stations
focus on news programming and others entirely forgo it. In the top 60 markets, more than onequarter of television stations have no expenses for news programming. Local stations affiliated
with ABC, CBS, and NBC are more likely to spend on news programming than stations affiliated
with other networks or independent stations. More than half of the CW and MTN affiliates do not
have any expenses associated with news programming.
Television stations are taking cost-cutting actions. Even as the quantity of news programming has
been increasing, station news staffs, in aggregate, fell by 400 positions in 2009 (primarily in the
large markets), after a loss of 1,200 positions in 2008.78 Almost two-thirds of TV news directors
reported budget cuts and staff cuts in 2009.79 Although hard statistics are not available, the Pew
Study reported many instances of stations laying off experienced and highly paid staffers,
including anchors, on-air reporters, and sportscasters, and of salary reductions, as well as
anecdotal evidence of use of part-time journalists and freelance and per-diem staffers to gather
78
79
RTDNA/Hofstra Survey, Section on TV News Staffing and Profitability, at p. 1.
RTDNA/Hofstra Survey, Section on TV News Staffing and Profitability, at p. 1.
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and produce the news. 80 It is important to recognize, however, that some of the staffing reductions
are the result of technological changes associated with the digitization of television program
production that allow stations to use fewer editors and other skilled staff to produce news
programming. Most notably, in recent years there has been a trend toward “one-man bands”—
reporters equipped with cameras to eliminate the need for separate camera operators.81
Table 3.The News Expenses of Local Television Stations, 2009
Average Station
News Expenses
News Expenses as
Percentage of Station
Expenses (Average)
News Expenses for
Station at 25th
Percentile
News Expenses for
Station at 50th
Percentile (Median)
All Stations
$2,662,766
23.9%
$47,420
$1,188,758
Markets 1-10
$9,332,778
24.4%
$0
$2,675,000
Markets 11-20
$4,886,718
24.9%
$0
$1,026,153
Markets 21-30
$4,286,410
25.5%
$0
$4,999,000
Markets 31-40
$3,132,172
25.2%
$0
$2,612,343
Markets 41-50
$2,350,654
23.0%
$0
$1,010,444
Markets 51-60
$1,971,951
22.3%
$0
$1,341,376
Markets 61-70
$1,977,246
22.5%
$246,698
$2,371,189
Markets 71-80
$1,747,958
25.1%
$32,563
$1,414,020
Markets 81-90
$1,640,597
24.4%
$681,065
$1,741,917
Markets 91-100
$1,582,148
22.7%
$812,904
$1,726,716
Markets 101-110
$1,298,857
20.2%
$480,234
$1,542,042
Markets 111-120
$1,342,884
22.1%
$800,347
$1,658,677
Markets 121-130
$1,077,062
21.5%
$338,343
$1,210,838
Markets 131-150
$1,028,904
22.7%
$340,618
$1,085,758
Markets 151-175
$717,734
21.2%
$35,082
$846,120
Markets 176+
$488,507
17.2%
$50,453
$397,721
All ABC, CBS, and
NBC affiliates
$3,862,522
28.2%
$1,144,873
$2,011,276
All FOX affiliates
$1,190,646
16.0%
$115,348
$532,370
All CW affiliates
$1,379,084
10.8%
$0
$0
All MNTV affiliates
$534,684
9.0%
$0
$0
All Spanish
Language Stations
$771,952
15.5%
$0
$154,182
All Independent
Stations
$2,522,099
16.5%
$0
$81,306
Source: National Association of Broadcasters, 2009 Television Financial Report: Station Revenue, Expenses and
Profit, various tables.
80
81
Pew Study, Section on Local TV News Investment, at pp. 2-3.
RTDNA/Hofstra Survey, Section on One-Man-Bands 2010 Update.
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The RTDNA/Hofstra Survey found that, across market size and network affiliation, many
television news departments provide content for media platforms other than their own television
station, as shown in Table 4. Approximately one-third of all stations produce news programming
for another television station in their local market, with this most prevalent among stations in
markets 101-150. The survey explicitly asked about mobile devices for the first time in 2010—in
past years it was included under “other”—and yet more than 40% of local stations make their
programming available on mobile devices. As is the case for broadcast networks, producing
content for multiple platforms allows stations to exploit economies of scope by sharing the high
fixed costs associated with newsgathering across those outlets.
Table 4. Percentage of Television News Departments Providing Content to
Other Media, 2010
Another
Local TV
Station
TV in
Another
Market
Cable TV
Channel
All TV Stations
32.7%
13.8%
10.7%
52.0%
13.8%
44.9%
13.8%
Big Four Affiliates
33.5%
12.5%
9.7%
52.8%
12.5%
46.0%
14.8%
Other Commercial
Stations
23.5%
23.5%
23.5%
35.3%
29.4%
41.2%
5.9%
Markets 1-25
38.9%
13.9%
16.7%
44.4%
22.2%
55.6%
19.4%
Markets 26-50
22.7%
18.2%
0.0%
63.6%
9.1%
50.0%
9.1%
Markets 51-100
26.2%
13.1%
11.5%
49.2%
14.8%
50.8%
21.3%
Markets 101-150
45.2%
11.9%
4.8%
59.5%
7.1%
31.0%
4.8%
Markets 151+
28.6%
14.3%
17.1%
48.6%
14.3%
37.1%
8.6%
Local
Radio
Website
not your
own
Mobile
Device
Other
Source: 2010 RTDNA/Hofstra Survey, Section on How the Business of TV News is Changing, unpaginated.
In addition to producing news programming for others, more than 60% of all stations are involved
with some sort of cooperative newsgathering or coverage agreement, as shown in Table 5, which
reproduces a table from the RTDNA/Hofstra Survey. More than one-quarter of those stations that
do not currently participate in a cooperative arrangement indicate they are planning or discussing
one. The RTDNA/Hofstra Survey authors noted, “Interestingly, stations in smaller markets are a
little less likely to be involved in cooperative agreements than stations in larger markets.” Also,
smaller stations are less likely to participate in cooperative agreements than larger ones.
Stations also are increasingly using their newsgathering and news program production
capabilities to provide news programming for the non-primary video streams made possible by
the digital transition. More than 50% of the news directors responding to the 2010
RTDNA/Hofstra Survey oversee at least some portion of the programming on a secondary video
stream. 82 Programming ranges from all-news formats to weather channels to entertainment
programming that includes some local news programming in the schedule. Almost half of the
news directors that do not currently oversee news programming on their station’s non-primary
video streams expect to do so sometime in the future.
82
RTDNA/Hofstra Survey, Section on How the Business of TV News is Changing, unpaginated.
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Changes in the Economics of Broadcast Television
Station websites are nearly universal; only one responding station in the RTDNA/Hofstra Survey
did not have one. 83 Only the stations with the smallest news staffs do not include local news on
their websites. Nearly all station websites provide news videos, 35.9% provide live newscasts,
and 37.5% provide recorded newscasts. On average, station websites have 2.8 full-time and 4.5
part-time staffers. Respondents for 70% of the stations indicated that employees with other
responsibilities also help with the website.
Table 5. Percentage of TV Stations with Cooperative Newsgathering or
Coverage Agreements with Other Media Outlets
(excluding local or nearby TV stations for which station produces news programming)
Another TV
Station
Local
Newspaper
Local Radio
Station
Other
No
All Stations
23.6%
23.6%
27.7%
4.0%
38.6%
Markets 1-25
41.3%
22.2%
22.2%
9.5%
30.2%
Markets 26-50
22.7%
27.3%
22.7%
2.3%
38.6%
Markets 51-100
18.5%
33.7%
33.7%
6.5%
30.4%
Markets 101-150
13.1%
19.0%
29.8%
0.0%
50.0%
Markets 151+
28.6%
14.3%
25.4%
1.6%
42.9%
Source: 2010 RTDNA/Hofstra Survey, Section on How the Business of TV News is Changing, unpaginated.
Increasingly, broadcast television stations are pursuing a business model that focuses on local
content distributed over the air and on websites to strengthen local brand identity. SNL Kagan has
monitored the growing “hyper-localism” strategy of combining the capabilities of stations and
their websites to create a strong local brand identity:
In recent years, local content has been a cornerstone of broadcasters’ strategies. Nowadays
broadcasters have learned to tailor this local content specifically for the Web to take
advantage of local audiences via platforms outside of television. In addition, many
broadcasters are engaging in major M&A deals to grow their local content online and
increase their market share among competitors.84
This strategy may be further strengthened by broadcast-based mobile digital television. An
ongoing test by the Open Mobile Video Coalition in Washington, DC, has revealed local news to
be the most popular type of programming, with spikes in viewing during weather and public
safety emergencies. 85
As a result of the expanded use of station newsgathering capabilities, two-thirds of news directors
indicated their station employs a three-screen—on air, online, and mobile—approach to news.86
More than one-third of all stations are either producing programming for other stations or media
83
This discussion of station websites is based on the presentation in RTDNA/Hofstra Survey, section on “TV and Radio
on the Web,” unpaginated.
84
E-mail message from SNL Kagan to clients, August 19, 2010, marketing its scheduled video presentation entitled
“Watch: SNL Kagan analyzes the broadcast strategy of tailoring hyper-local content.”
85
“Broadcast,” Communications Daily, September 15, 2010.
86
RTDNA/Hofstra Survey, Section on How the Business of TV News is Changing, unpaginated.
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Changes in the Economics of Broadcast Television
outlets or actively involved in cooperative newsgathering or coverage arrangements with other
stations or media outlets. These strategies appear to allow many stations to use news
programming to compete successfully in the market, even as advertising revenues are challenged.
As the Pew Study found: “It comes down to a simple cost-benefit analysis. For most stations,
producing more local content is cheaper than paying the fees stations [must pay] for syndication
programming.”87
The various survey results presented in this report suggest that local news programming does not
appear to be threatened by market forces currently at play. However, that general conclusion may
not reflect the situation facing an individual station when it is making news programming
decisions. As a reminder, almost 40% of all broadcast television stations—primarily in large
markets—do not broadcast any local news programming. If these stations were to offer original
local news programming, that programming would not necessarily increase station profits,
particularly for stations with weak brand identify and no existing audience for local news
programming.
Local Newsgathering and Programming: Issues for Congress
“Duopolies”
Table 4 and Table 5 show how common it has become, on the local level, for broadcast television
stations to cooperate with other media outlets. About one-third of all stations that have their own
news departments produce original news programming for other stations in their local market.
Also, almost one-quarter of all stations that produce news programming participate in cooperative
newsgathering or coverage agreements with other television stations in their local market and a
similar number participate in cooperative newsgathering or coverage agreements with newspapers
in their local market. As long as each of the stations and newspapers involved retains control of
its own programming decisions and operations, such arrangements are not subject to the
restrictions in the FCC’s local television multiple ownership rule or newspaper-television crossownership rule. But the NAB and Newspaper Association of America claim that the sharing
activities currently allowed by the rules do not provide sufficient financial relief and seek to
reduce or eliminate current restrictions on local television and local television-newspaper
mergers.88
It is not possible to determine from the data in Table 4 and Table 5 the extent to which the
cooperative news activities were fostered by earlier changes in FCC ownership rules—and, if so,
whether these rule changes led to more or to less independent news programming. In 1999, the
FCC revised its local television ownership rules to allow common ownership of two stations in a
market that has at least eight competing television owners, as long as one of the two stations is
not among the top four in ratings. (This was intended to prohibit a single entity from operating in
87
Pew Study, Section on Local TV News Investment, unpaginated.
In the Matter of 2010 Quadrennial Regulatory Review—Review of the Commission’s Broadcast Ownership Rules
and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, MB Docket No. 09-182,
Comments of the National Association of Broadcasters, July 12, 2010, at pp. i-iv, and In the Matter of 2010
Quadrennial Regulatory Review—Review of the Commission’s Broadcast Ownership Rules and Other Rules Adopted
Pursuant to Section 202 of the Telecommunications Act of 1996, MB Docket No. 09-182, Comments of the Newspaper
Association of America, July 12, 2010, at p. 1.
88
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a local market two stations that were affiliated with major broadcast networks. Typically, the toprated stations in a market are affiliated with national news networks. These high ratings often, but
not always, hold for local news programming as well as for entertainment programming.) The
rule change allows a single entity—including a large station group—to own two stations in a
single large market. In the broadcast industry this is often referred to as a “duopoly,” although
that is not the usual meaning of the word duopoly.89
Stations affiliated with major news networks are more likely than other stations to originate local
news programming and also are likely to offer more local news programming than other stations
(see Table 3). If a duopoly consists of a top-four station and a non-top-four station, the latter is
less likely than the former to have been originating its own news programming prior to
acquisition. Data are not publicly available to determine whether the rule change allowing
duopoly ownership affected the amount of independently produced local news programming in
the local market (for example, by one of the stations discontinuing its own news production and
letting its partner station produce news programming for it; or by a station producing news
programming for its duopoly partner station that had not previously broadcast any news; or by the
two stations entering into a cooperative newsgathering or coverage agreement that affects the
total amount of news programming aired). It would be informative if the FCC were to collect
relevant data and investigate the impact of duopolies on local news programming in the current
quadrennial review of its local television multiple ownership rule. This might provide insights on
whether the current bright line rule should be retained, eliminated, or modified to allow for the
case-by-case determination of whether a proposed combination would be in the public interest.
Local Marketing Agreements (LMAs) or “Virtual Duopolies”
In addition to the shared newsgathering activities, since the 1980s some station owners have
entered into various contractual arrangements—local marketing agreements (LMAs),
management service arrangements, shared services agreements, and joint operating agreements—
whereby one station in a market performs sales, marketing, and operational functions for another
station in the market. 90 In 1999 the FCC formally allowed these arrangements, sometimes referred
to as “virtual duopolies,” as long as the controlling station does not program more than 15% of
the programming day of the other station. It is possible for one station to produce or co-produce
news programming for its contractual partner without exceeding that 15% ceiling.
In some cases, the two parties to a virtual duopoly arrangement are fully independent. In other
cases, it appears that a station group has been actively involved in the creation and financing of a
separate entity that has acquired stations in markets in which the station group already owns a
station, and then entered into LMAs or similar arrangements with that new entity such that the
station group effectively controls more than one station in the market. For example, Cunningham
Broadcasting Corporation owns six television stations, all of which are operated by Sinclair
Broadcast Group under LMAs. It appears that most Cunningham stock is or has been controlled
by trusts in the name of members of the family of the Sinclair founder, who concurrently owned
89
To economists, and in common usage, a “duopoly” is a market situation in which there are only two producers, so
each firm consciously takes into account the decisions of the other when making its own business decisions.
90
This discussion is based on Kim McAvoy, “Virtual Duopolies Coming Under Fire,” TVNewsCheck Focus on
Washington, June 9, 2010, available at http://www.tvnewscheck.com/article/2010/06/09/42842/virtual-duopoliescoming-under-fire, viewed on August 31, 2010.
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controlling shares of Sinclair. 91 Similarly, Mission Broadcasting, Inc. owns 15 broadcast
television stations that all are managed by Nexstar Broadcasting Group through LMAs. Nexstar
and Mission have a very close financial relationship. In April, they were co-issuers of $325
million in senior secured second lien notes due in 2017.92 Sometimes these LMAs exist in
markets where a formal duopoly would not be allowed.
Data are not available to determine whether the amount of independently produced local news
programming in the local market has changed as a result of these LMA or similar contractual
relationships. If the FCC were to collect relevant data and investigate the impact of LMAs on
local news programming in the current quadrennial review of its local television multiple
ownership rule it might provide insights on whether the rule, which does not address LMAs,
should be retained or modified to address LMAs and, if the latter, whether a bright line rule or a
case-by-case review would be the best way to serve the public interest.
LMAs and similar arrangements allow broadcasters to exploit potential efficiencies from running
multiple stations in a market, which could foster competition, diversity of voices, and localism if
the cost savings strengthen the financial viability of marginal stations and foster programming of
local interest. But LMAs also have been criticized by multichannel video programming
distributors, especially small cable operators, for allegedly enabling broadcasters to raise
retransmission consent fees. According to the American Cable Association (ACA), 93 when a
single broadcaster can jointly negotiate retransmission consent agreements for two local stations
in a market, especially if both stations are affiliated with one of the Big Four broadcast networks
that offer “must-have” programming, it has great leverage when dealing with a small cable
operator. Three small MVPDs that are members of the ACA—Cable America, USA Companies,
and Pioneer Telephone Cooperative—filed letters in the FCC’s retransmission consent proceeding
alleging that when they have negotiated with broadcasters that jointly represented two “Big 4”
stations in a market, the average subscriber fee they paid was 161%, 133%, and 30% higher,
respectively, than the average fee that they paid to separately controlled Big Four stations.94 The
cable operators argue that they must pass through these higher payments to their subscribers.
Thus, at a time when broadcasters are actively promoting their need for higher retransmission
consent payments to be able to support local newsgathering, produce original local news
programming, and bid for major sports programming, cable and satellite distributors are pushing
back, arguing that these increased retransmission consent fees will result in higher cable and
satellite subscriber bills.
LMAs also tend to strengthen the position of the affiliated stations when negotiating advertising
rates with local merchants. Rather than competing with one another, the two stations can act as a
single entity to maximize their joint profits. Advertisers may benefit by obtaining access to two
separate audiences through a single contractual negotiation, and may even be able to obtain
91
See, for example, Leon Lazaroff, “Media Firm Accused of Dodging FCC Rules, Knight-Ridder, October 17, 2004.
United States Securities and Exchange Commission, Mission Broadcasting Inc. Form 8-K, April 12, 2010.
93
In the Matter of 2010 Quadrennial Regulatory Review—Review of the Commission’s Broadcast Ownership Rules
and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, MB Docket No. 09-182,
Comments of the American Cable Association, July 12, 2010, at pp. 11-17.
94
In the Matter of Petition for Rulemaking to Amend the Commission’s Rules Governing Retransmission Consent, MB
Docket No. 10-71, letter dated May 28, 2010, from Christopher A. Dyrek, executive vice president, Cable America, to
Marlene H. Dortsch, Secretary, Federal Communications Commission.; letter dated May 28, 2010, from Christian M.
Hilliard, president, USA Companies, to Marlene H. Dortsch; letter dated June 4, 2010, from Scott Ulsaker, manager
Pioneer Long Distance, Pioneer Telephone Cooperative, to Marlene H. Dortsch.
92
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volume discounts by advertising on two stations rather than one, but they are likely to be at a
disadvantage relative to negotiating with two independent, competing stations. This is especially
the case if the two stations are major network affiliates and thus among the small number of
media outlets capable of reaching a wide audience. This likely will increase the advertising
revenues of the virtual duopoly stations, which would increase the level of resources potentially
available to them for local news programming. But this might come at the expense of advertising
revenues available to non-duopoly stations in the market. This question might be answered if the
FCC conducted a study of the impact of virtual duopolies on retransmission consent fees, on the
local advertising market and, indirectly, on the level of local news programming in the current
quadrennial review of its local television multiple ownership rule.
Television-Newspaper Combinations
The market pressures on local television stations to develop multiple program platforms to
support their newsgathering and news program production facilities and to participate in
cooperative newsgathering or coverage agreements with other media outlets in their local markets
are also being felt by local newspapers. Some of these newspapers may have an even more urgent
need than local television stations to share with or combine with another local newsgathering
organization. 95 Under the current rule, a proposed combination between a television station and a
major daily newspaper is presumed inconsistent with the public interest if the combination is not
in one of the 20 largest markets, or if the television station is among the four highest-rated
stations in the market, or if after the transaction there were no longer at least eight independently
owned and operating major media voices in the market. However, that presumption is reversed—
it is presumptively in the public interest—if the proposed merger includes a newspaper or
television station that has failed or is failing. In addition, one of the factors considered to confirm
or rebut the positive or negative public interest presumption is the financial condition of the
newspaper and television station and, if either is in financial distress, the proposed owner’s
commitment to invest significantly in newsroom operations.
In general, newspapers in smaller markets are in less distress than major daily newspapers in
large markets. CRS analyst Suzanne Kirchhoff found: “Smaller papers are in a better financial
position than large dailies for several reasons. Smaller papers are less dependent on classified ads,
operate in less complex markets, and tend to be closer to their readers and advertisers than large
dailies.”96
This would suggest that the current FCC cross-ownership rule—which presumes a proposed
newspaper-television merger in the largest 20 markets to be consistent with the public interest,
but presumes such a merger in a smaller market to be inconsistent with the public interest—
reflects current market conditions. At the same time, the current rule takes into account financial
distress when addressing proposed mergers in smaller markets, though the burden remains on the
entities proposing the merger to make a public interest case.
95
See CRS Report R40700, The U.S. Newspaper Industry in Transition, by (name redacted). See also
In the
Matter of 2010 Quadrennial Regulatory Review—Review of the Commission’s Broadcast Ownership Rules and Other
Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, MB Docket No. 09-182, Comments of
the Newspaper Association of America, July 12, 2010, at p. 3.
96
CRS Report R40700, The U.S. Newspaper Industry in Transition, by (name redacted).
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The ability to claim financial distress raises an interesting policy issue. In the past decade, a
number of broadcast station groups and newspaper groups expanded through acquisition, using
highly leveraged financing that left them with sizable debt loads. 97 When television and television
advertising revenues fell during the economic downturn, some of these companies did not
generate enough revenues to cover their interest expenses in addition to their operating expenses;
the companies had positive cash flows, but pre-tax losses. In some cases, they were in breach of
financing agreements or covenants with their lenders or at least risked being in breach. What if
such a newspaper or television station group chose to use this financial distress as the basis for
justifying an otherwise prohibited merger? If the station or newspaper enjoyed a positive cash
flow, but experienced distress in significant part as a result of choosing a risky method of
financing expansion, could that distress provide the basis for rebutting a negative public interest
presumption against allowing that station or newspaper to merge with another local station? Or
would the proper test be whether the station or newspaper would be in stress even if relieved of
its heavy debt load, which could happen if there were a restructuring with the lenders assuming
equity positions?
Market Forces Affecting Broadcast Carriage of
Major Sports Events
Unique Supply-side and Demand-side Characteristics
Unique supply-side and demand-side characteristics of major professional, intercollegiate, and
Olympic sports programming create market forces that are very different than those for other
types of programming, especially news programming. On the supply side, major sports
programming presents unique, time-sensitive events for which there is no close substitute
programming. A competing programmer cannot create copycat programming, the way a popular
scripted or unscripted show could spur imitators that potentially could create an even more highly
demanded product.98 Moreover, with major sports programming there is a well-defined entity—a
professional sports league, a major intercollegiate conference, or an International Olympic
Committee—that controls access to the events that provide the basis for the programming and
that typically retains control of the programming itself. This is in sharp contrast with news
programming, which primarily covers events to which competing programmers have roughly the
same access. As a result of their control over access to the sports events, these sports entities are
able to negotiate with programmers and distributors from a position of strength. 99
97
For example, Sam Zell acquired the Tribune Co. in a leveraged $8.2 billion deal in 2007; in 2006, McClatchey Co.
bought newspaper chain Knight Ridder for more than $4 billion. See CRS Report R40700, The U.S. Newspaper
Industry in Transition, by (name redacted).
98
See, for example, Testimony of W. Kenneth Ferree, President, The Progress & Freedom Foundation, Hearing on
“Competition in the Sports Programming Marketplace,” Before the Committee on Energy and Commerce,
Subcommittee on Telecommunications and the Internet, United States House of Representatives, March 5, 2008, at p.
3.
99
While major sports events that can be expected to attract a large audience frequently will generate bids for the
programming rights to those events, less popular sports events are more likely to be packaged into television
programming by syndicators (independent sports television producers who develop programs they sell directly to local
stations, sell to advertisers who in turn pay stations to run them, or barter with local stations, with the station and
syndicator sharing advertising revenues) or as time buys (in which show producers pay networks or local stations for
(continued...)
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On the demand side, there are several distinctive characteristics of the audience for major sports
programming. First, a minority of U.S. households have such a high intensity of demand for the
programming that they consider it “must-have” programming. They are likely to decide whether
to rely on free over-the-air broadcast service or to subscribe to a pay multichannel video
service—and which such service to subscribe to—based upon which option gives them the most
favorable access to the desired sports programming. 100 The behavior of this small minority of
total television households affects the sports programming decisions of pay multichannel video
distributors. At the same time, there is a much larger total audience for major sports
programming. 101 Individual households in that mass audience are less likely to base their
decisions to subscribe or not subscribe to a pay service on the availability of that programming
and are unlikely to be willing to pay specifically for that programming. Both the high-intensity
audience and the mass audience include men who watch very limited amounts of other types of
programming and therefore represent a unique target for advertisers. The entity that controls the
sports programming will take into account these demand characteristics—mass appeal, highintensity appeal, and unique appeal—when constructing a profit-maximizing distribution strategy.
Sports Programming Is of High Value to Video Distributors Even if
Not Profitable
Program networks and multichannel video providers have long utilized major sports
programming to promote their own brand identities, and major sports entities have been able to
take advantage of that to generate competitive bidding for the rights to their sports programming:
•
In 1987, ESPN obtained rights to offer ESPN Sunday Night Football, on the
condition that it simulcast the games on local broadcast stations in the
participating markets. Although ESPN had carried National Basketball
Association games in 1982-1984, its acquisition of rights to National Football
League games was viewed as an important step in attaining credibility as a major
distributor of sports programming.
•
In 1993, when the FOX Broadcasting Company’s network had neither the full
schedule of programs nor the geographic reach of the three established broadcast
networks (ABC, CBS, and NBC), it successfully bid $1.58 billion for four years
of programming rights to the National Football Conference of the NFL. At the
time, the FOX network had neither a sports division nor a news division, but by
winning the rights and then attracting key on-air talent away from CBS (which
(...continued)
broadcast time, sell advertising for their shows, and keep all the advertising revenues generated).
100
Different households may define “favorable access” differently. For example, one household may favor access to a
large amount of the desired sports programming, even at a high price, and another household may favor access to sports
programming subject to some price ceiling.
101
Although programming of major sports events attract large audiences, not even the Super Bowl attracts half of U.S.
television households in most years—typically attracting 43%-48% of households. NFL conference championship
games may attract about 30% of television households, the Olympics 18%. Over the decades, only a handful of
blockbuster programs—the I Love Lucy show where Lucy went to the hospital to have her baby, Elvis Presley’s first
appearance on the Ed Sullivan Show, the final M*A*S*H episode, the Dallas episode that answered “Who shot J.R.?,”
the finale of the Roots mini-series programs, and a CNN program of the O.J. Simpson murder trial—have attracted half
of U.S. households. (See Nielsen Media Research and other data presented in the Wikipedia entry on “Highest rated
network telecasts.”) Most programming of major sports events attract at most 20% of U.S. television households.
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Changes in the Economics of Broadcast Television
lost the rights), it created credibility that allowed it both to purchase additional
owned and operated stations for its network and to attract additional affiliates.
•
More recently, DirecTV has obtained the exclusive rights to the NFL Sunday
Ticket package of “out of market” games102 and other sports programming as part
of a strategy to brand itself as the premier provider of sports programming.
As the proliferation of cable networks led to audience fragmentation, major sports programming
that attracted a large audience offered new value to the broadcast or cable network that won the
programming rights—a means to market the other programs on the network to the large sports
viewing audience. It became common for the game announcers to market other network programs
by identifying the stars of those programs that were in attendance at the sports event being aired.
When the network with the rights to the sports programming is owned by a major programmer
with multiple broadcast and/or cable networks, the major sports programming also can be utilized
to cross-market the programming aired on those other networks. As a result, the bids for sports
programming rights increased even though the sports programming on its own did not generate
enough revenues to directly cover costs.103
One reason why bids increased is that, with the successful entry of cable networks, there were
more entities able to bid. By 1998, the most successful cable networks, such as TBS, TNT, and
ESPN, each had achieved penetration into more than 75 million cable and satellite households; by
2007, they were received by more than 95 million households.104 Although the cable networks
generated significantly lower advertising revenues than the broadcast networks, they generated
very substantial per subscriber fees. In 2003, at a time when broadcast stations were not receiving
cash payments from cable operators for retransmission consent rights, ESPN commanded
monthly fees of $2.17 per subscriber, TNT $0.77, and TBS $0.30.105 SNL Kagan estimates that in
2010 ESPN commanded $4.41; TNT commanded $0.96; and TBS $0.48. These popular cable
networks all were carried on the cable and satellite tiers reaching the largest number of
subscribers.
In 2008, subscriber license fees represented 54.0% of revenues for advertiser-supported cable
networks; advertising revenues only represented 42.2% of revenues.106 In 2009, advertising
102
In March 2009, DirecTV signed a contract with the NFL valued at $4 billion for four years for the exclusive rights
to sell the Sunday Ticket package. (See Matthew Futterman, “NFL, DirecTV Extend Pact in $4 Billion Deal,” The Wall
Street Journal, March 24, 2009, at p. B5.) DirecTV offers the service for a monthly charge of $59.95 for five months of
the year. The target audience is football fans who are living outside the local viewing area of their favored team as well
as football fanatics who want to view games other than the games of their home team. Some of the NFL Sunday Ticket
subscribers live in so-called “orphan counties” that are located in one state, but assigned to the local market (known as
a “designated market area”) for which the principal city and most or all of the local television stations are in another
state. Cable and satellite subscribers in these counties may only receive the retransmitted broadcast signals of the
stations in their market area, which may not carry the NFL games of their in-state team. Households in these orphan
counties can only see the programming of their in-state team if they subscribe to the NFL Sunday Ticket package.
103
See, for example, Penelope Patsuris, “A Wider World of TV Sports,” Forbes.com, December 12, 2002, available at
http://www.forbes.com/2002/12/12/cx_pp_1212sports.html, viewed on 08/24/10, which states that “Football, baseball,
basketball and hockey often are moneylosing propositions, but they make up for that to some degree since they’re
excellent platforms for promoting prime-time shows and also help affiliate TV stations boost profits.”
104
SNL Kagan, Broadband Cable Financial Databook, 2009 Edition, table entitled “Census of Basic Cable TV
Services (Mil.),” at pp. 14-15.
105
SNL Kagan, Economics of Basic Cable Networks, 2009 Edition, table entitled “Network Monthly Affiliate Revenue
Per Subscriber, By 2010 Average ($),” at p. 53.
106
Based on data in SNL Kagan, Economics of Basic Cable Networks, 2009 Edition, at p. 2.
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Changes in the Economics of Broadcast Television
revenues fell while subscriber fees grew, so today advertising represents an even smaller share of
cable network revenues. In contrast, advertising continues to represent the preponderance of
broadcast network revenues, in the vicinity of 90%. It is only recently that broadcasters began to
collect retransmission consent compensation from multichannel video providers in the form of
per subscriber fees. Given that advertising revenues are highly sensitive to the business cycle, and
often fall during recessions, broadcast networks rely on a less stable source of revenues than cable
networks.
To compensate for this, broadcast networks increasingly are demanding that their local station
network affiliates help fund the acquisition of expensive sports (and other) programming, either
through direct affiliate payments to the network or by requiring the affiliates to share a portion of
their retransmission consent revenues with the network. 107
The bidding for the programming rights to major sports events occurs years before the events, at
which time it is not possible to accurately predict economic conditions in the months leading up
to the event, when the bulk of the advertising will be sold. As they bid for rights against cable
networks, broadcast networks invariably have less certain projections of the revenues they will
have available to support the bid. Thus, in February 2002 News Corp., parent of FOX
Entertainment Group, cited the downturn in advertising as the reason why it took a $909 million
one-time operating charge for broadcast sports contracts with the National Football League,
Major League Baseball, and Nascar auto racing.108 In 2003, NBC bid $2.2 billion for the rights to
the 2010 and 2012 Olympic Games (including $820 million for the 2010 Winter Olympics), a
33% increase over the rights fees for the 2006 and 2008 Olympic Games,109 but had to attempt to
sell advertising during 2009 and early 2010, when the advertising market was at its nadir. NBC
has indicated that it lost approximately $200 million on the 2010 Olympics. 110 In comparison, for
the 2006 Olympics, when General Motors was the primary advertiser, NBC was able to generate
advertising revenues that exceeded rights payments by about $200 million.111 Many observers
believe the 2010 experience will constrain future bids for the programming rights to the
Olympics.
The Distribution of Major Sports Programming over Multiple
Platforms
Despite the negative financial bottom line of the 2010 Olympic programming, the strategy
employed by NBC is likely to be the model for the future. NBC fully exploited its wide range of
distribution outlets—the USA, MSNBC, CNBC, and Universal HD cable networks, as well as
NBCOlympics.com—to provide far more complete coverage of the Olympics than ever before.
The NBC broadcast network and its cable networks offered more than 835 hours of sports
programming—more than the total number of hours that elapsed between the opening and closing
of the Olympics. Multiple events occurred simultaneously and thus could not be covered by a
107
See, for example, Michael Malone, “Sinclair, ABC Agree on License Fees for Affiliates,” Broadcasting & Cable,
March 26, 2010.
108
Derek Caney, “News Corp posts wider loss on sports write-down,“ Reuters, February 12, 2002.
109
See Jon Weisman, “Olympics become NBC loss-leader,” Variety, January 29, 2010.
110
Ibid.
111
Ibid.
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Changes in the Economics of Broadcast Television
single network, but the combination of broadcast and cable networks was able to provide
extensive coverage, including significant amounts of live coverage. The NBC broadcast network
did not want to pre-empt so much of its non-Olympics programming that it undermined its other
programming, but the 835 hours of Olympic programming could be borne by a combination of
networks with less impact on their program schedules. There also was coordinated coverage on a
website, NBCOlympics.com. The high fixed costs associated with the rights fees and production
facilities were spread across the many NBC-Universal affiliated distribution outlets, and the total
quantity of Olympics programming far exceeded that for any previous Olympic Games.112
This strategy of using several outlets to cover a complex sports competition also was used in the
recent successful bid by CBS and the Turner Cable Networks for the rights to future National
Collegiate Athletic Association basketball tournaments (March Madness). Even as the tournament
expands to include more teams, and thus encompass more games, the wider reliance on cable
networks to supplement the broadcast network will allow all games to be televised. The fixed
costs of production will be shared across more hours of programming.
Similarly, the strategy of coordinating television and Internet is being adapted to other sports. A
recent GMR Marketing survey of consumers in markets where Comcast offers cable service
found that while television remains the most important medium for National Football League
fans, “the number of multimedia multi-taskers is growing at a swift pace due to the enormity of
fantasy sports,”113 with 76% of the respondents who identified themselves as NFL fans using the
Internet to follow sports at the same time as they are watching sports on television.
The Rise of Cable Networks Owned by Major Sports Entities
There is a major new development in the sports programming market. A number of major sports
entities with strong brand identities—leagues such as the National Football League and the Big
Ten Intercollegiate Conference, and teams such as the New York Yankees and Baltimore
Orioles—have created their own national or regional cable networks and distributed some or all
of their sports events exclusively over those networks. This business strategy allows leagues or
teams to leverage their control of a limited amount of seasonal “must-have” programming, which
represents only a relatively small number of hours in a network’s annual programming schedule,
into a package that can command payment year round. In effect, it ties access to the limited
amount of must-have programming to the purchase of lots of less-demanded programming, such
112
Interestingly, beginning in 2006, the United States Olympic Committee (USOC) sought to launch its own Olympic
cable channel. It unsuccessfully pursued creating a partnership with several major program networks before reaching an
agreement with Comcast in 2009. Its intention was to create a cable network, which would debut after the conclusion of
the January 2010 Winter Olympics in Vancouver, whose programming would include future and past Olympic events
and additional programming and for which multichannel video providers would pay monthly per subscriber fees. (This
business model of a major sports entity creating its own cable network is discussed below.) When the USOC-Comcast
agreement was announced in 2009 it was immediately criticized by the International Olympic Committee.
Subsequently, Comcast announced its proposed merger with NBC-Universal, which has been the holder of the U.S.
television rights to the Olympic Games, and that dampened Comcast’s interest in the cable venture. In April 2010,
USOC and Comcast ended their agreement to launch the Olympic cable channel. See Tripp Mickle and John Ourand,
“USOC, Comcast End Agreement to Launch New Olympic Channel,” SportsBusiness Journal, April 21, 2010.
Although the channel is not going forward at this time, it does indicate that in the future USOC may seek to place all
the Olympic events programming on a cable network, rather than keeping the more popular events on a broadcast
network.
113
Mass Media Notes, Communications Daily, September 2, 2010.
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Changes in the Economics of Broadcast Television
as “classic” game re-runs, interviews, pre- and post-game shows, pre-season shows, player drafts,
and less popular sports events.
In general, these successfully branded sports entities have insisted that cable and satellite
operators place their sports networks on the tier with the largest number of subscribers, in order to
generate monthly per subscriber fees from the maximum number of subscribers. This also allows
the sports entity to receive payment for the entire year. If the must-have programming were
placed on a sports tier, fans could sign up just for the season and then drop the tier. Although
cable companies initially resisted the requirement that the sports networks be placed on the tier
with the largest number of subscribers—preferring that the sports networks be put in a special
sports tier—the sports entities have succeeded in their negotiations by using the threat that those
subscribers with a high intensity of demand will desert the cable or satellite operator who does
not carry the sports channel on a basic tier for an operator who does carry it on a basic tier. The
sports entities have been able to exploit the fact that their events represent must-have
programming to a sufficiently large minority of television households to require all households to
pay for the programming through the entire year. This is likely to reinforce the long-standing
pattern of sports networks accounting for a much larger percentage of cable and satellite operator
programming costs than their percentage of cable and satellite subscriber viewing.114
The unique supply and demand characteristics of major sports programming appear to have two
significant implications for future broadcast carriage of such programming. On one hand, the
sports entities control access to the sports events and therefore have the ability to command for
themselves most of the economic rents generated by the intensely valued sports programming. 115
Broadcasters may have relatively little control over the largest programming cost—the license fee
for the right to broadcast the sports events. On the other hand, broadcast networks are adapting to
this by coordinating with other program distributors to compete more effectively when bidding
for programming rights and to generate more revenues when they win the rights. At a minimum,
broadcast networks are seeking a share of the fees their affiliates are able to command from cable
and satellite operators for the retransmission of intensely demanded network-produced major
sports programming. In addition, broadcast networks are collaborating with affiliated or
independent cable and Internet outlets to develop multi-platform distribution strategies that
generate greater revenues from the programming rights. These strategies cede a greater portion of
sports programming to cable networks than in the past, but allow broadcasters to retain a share of
that programming.
Sports Programming: Issues for Congress
Given that the entities that control major sports events have much greater control over the
production and distribution of major sports programming than do broadcasters, existing
regulatory rules that are directed at broadcasters—whether retained or modified—are unlikely to
have much impact on broadcast provision of major sports programming. If Congress is concerned
about how the public can access major sports programming—for example, if it is concerned that
such programming be available over the air without subscription or that cable subscribers not be
114
For example, James Robbins, chief executive of Cox Cable, reportedly stated at a Goldman Sachs investors
conference in 2003 that ESPN accounted for 4% of Cox subscribers’ viewing, but 18% of Cox programming costs.
(See David D. Kirkpatrick and Geraldine Fabrikant, “Sports Fan Is the Prize, or the Victim, in Cable Fight,” The New
York Times, October 6, 2003, at pp. C1 and C4.
115
This has not been the case for sports leagues that do not have a mass fan base, such as the National Hockey League.
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Changes in the Economics of Broadcast Television
required to pay for such programming even if they do not view it—then it will need to examine
sports entities as well as the broadcast and cable networks. Issues might include the program
blackout policies of the sports entities, the antitrust laws as they apply to sports entities, and the
FCC’s program carriage rules applicable to impasses in negotiations between sports entities that
own cable networks and multichannel video programming distributors.
116
•
Blackouts. Some National Football League teams are not selling out tickets to
their home games. They often would prefer to televise those games to hometown
fans in order to foster broad-based interest in and support for the team, but league
rules impose a blackout on games when tickets are not sold out 72 hours in
advance of the game. The NFL has made the determination that it is beneficial to
the league to black out those games, even if the home team and its fans are
harmed. NFL officials are concerned that if a stadium is only half full, it also
harms the quality of the televised program because viewers prefer to see the
frenzy of a full stadium of fans cheering on their team.116 In many cases, the
team’s stadium was directly or indirectly funded by a governmental entity, and
taxpayers may feel deceived if they have borne some of the costs of the stadium
but are denied television access to the games. If blackouts were prohibited and as
a result stadium attendance fell because some fans chose to watch the games on
television rather than at the stadium, team revenues and local tax revenues from
ticket sales and food and parking concessions could fall. In the extreme case, a
team’s ability to make lease payments to the stadium owner could be impaired. In
most situations, however, the fall in stadium attendance would be too small for
the impact on team revenues and tax revenues to be substantial. Is market
intervention justified if a league’s joint profit maximizing behavior is harmful to
a team and that team’s community and, if so, can an intervention be devised that
is not itself harmful?
•
Bundling. Consider a major sports entity with programming that is so intensely
valued by a sufficiently large minority of households (who would threaten to
abandon a multichannel video provider that does not carry that programming)
that the sports entity can insist that all multichannel video providers carry that
programming on their tier with the largest subscriber base, even if the
multichannel video provider would prefer to carry it on a special sports tier. This
may maximize revenues for the sports entity but at the expense of a majority of
multichannel video subscribers who do not watch that programming but must
bear some of its cost. Is market intervention justified if it can be shown that there
is significant loss in consumer welfare as a result and, if so, can an intervention
be devised that is not itself harmful?117
•
“Free” broadcasts. With more than 85% of all U.S. households subscribing to a
multichannel video provider, and more than 90% of those households purchasing
more than just a basic package of programming, is there any public policy basis
for market intervention to keep sports programming on “free” broadcast
television? If so, can intervention be devised that is not itself harmful?
See Mark Maske, “The NFL’s business conundrum,” The Washington Post, September 19, 2010, at p. D1.
117
This is a unique subset of the larger issue of tiered vs. a la carte pricing of cable networks. See CRS Report
RL32398, Cable and Satellite Television Network Tiering and “a la Carte” Options for Consumers: Issues for
Congress, by (name redacted).
Congressional Research Service
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Author Contact Information
(name redacted)
Specialist in Telecommunications Policy
[redacted]@crs.loc.gov, 7-....
Congressional Research Service
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