« Googles Expands TV Biz with NBC | Main | Weekend Box Office Finally Up - Start of A Trend? »

September 12, 2008

Important Fall TV Season For Networks Set To Launch

With the conventions and the Olympics over, the next big event in the TV world is the launch of the fall TV season. Things have been kind of quiet on this front which I had thought was due to the poor advertising environment. However, a recent preview by Goldman Sachs may have a better explanation: only 12 new shows will debut on the big four broadcast networks this season(Disney/ABC, CBS, General Electric/NBC, and News Corp/FOX), down by almost half from last year.

I suspect that the writer's strike is why fewer new shows are on the docket this season. During the program development season last winter and spring, the writer's were not doing any work. Fewer new shows this fall and a higher number of mid-season offerings this coming January is the result.

This season is particularly important for the networks. For the first time in several years, the year-over-year ratings comparisons will be on an apple-to-apples basis. Last year saw a huge decline in viewers, down double digits, well above the low single digit drip that had been going on for years. Changes in the ratings measure and the strike might have been at fault for the excessive decline. I suspect that is not fully the case and that the secular challenges from cable networks, online video, DVRs, and alternative entertainment will lead to another above trend viewing decline. The strike's legacy is likely to be that it permanently drove viewers away.

....Here is a preview of the new TV season from the perspective of the network owners....

Disney/ABC had a very successful turnaround over the last few years starting with Desperate Housewives and Lost. Last season the turnaround stalled and ratings fell sharply. New shows did not work particularly well and recent ratings stalwarts lost viewers at double digit rates. With the economy possibly biting Disney's theme parks and a cooling of the hot streak in new content from the movie studio and cable networks, another weak year by ABC would hurt Disney more than usual. It is worth noting that ABC is a relatively small part of Disney, producing just 10% of trailing four quarters operating income.

CBS is primarily a TV company, getting over half its revenue from its broadcast network and local stations. The network has been the leader in prime time for several years, likely making several hundred million dollars. The last few years have seen dents in its #1 position which can now only be claimed if you really slice and dice the data. CBS had the largest loss of viewers last year with some of its leading shows particularly hard hit. The swing from the top network to the bottom network can be $300-500 million, something CBS can not afford given the poor state of its radio business and dramatically slowing growth in the previously strong outdoor business.

Results at NBC prime time have little impact on GE. The best that can be said for NBC is that last year saw stabilization as the last place network. Ratings were down in line with overall network TV. A few bright spots have appeared on the network in recent years but NBC has not been able to build a schedule that works across many nights of the week. Heavy promotion of new and returning shows during the Olympics should give NBC a boost but right after the Olympics studies of awareness of the network's new shows were disappointing.

News Corp/FOX became the number one network last year which appears to have helped during the upfront ad sales season when the company sold more ads at higher prices than in the prior year. There was one potential problem last season: American Idol ratings fell sharply for the first time ever. Idol was still easily the #1 series, however. This year FOX will benefit from the return of 24 in January and some inroads it made on Thursday, previously a major weakness and the most heavily watched and expensively advertised night on TV. Like Disney, News Corp can ill afford a shortfall at FOX as it also faces dramatic slowing in other growth engines.

One other thing to watch (besides the new TV season!) is cancellations of upfront commitments. There has been some noise about elevated cancellations according to reports from Wall Street.

Presently Northlake does not have any long positions in the broadcast networks except a few low cost core positions in GE. I do not expect to get long any of these stocks in the near future. I prefer fundamentals in cable networks where Time Warner is a more direct play among diversified entertainment and Scripps Interactive and Discovery Communications are pure plays. Cable network stocks provide resiliency if advertising continues to sputter and will offer aggressive growth if advertising picks up.

Posted by Steve Birenberg at September 12, 2008 09:37 AM in Media