Electronic Media Electronic Story Archive 1994 to


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Electronic Media Electronic Story Archive 1994 to

Content VS Distribution

Battle heating up

Byline:  Diane Mermigas

Electronic Media

Pub date: 02/10/03

Page:  0006






The short-term tactics that media companies are resorting to in the intensified battle between content suppliers and distributors will do more harm than good to programming economics in the long term.

At the moment, all the players are grabbing on to whatever leverage they have and squeezing hard.

Cable operators who have bulked up on subscribers are trying to force an immediate halt to automatic double-digit fee increases from some of their biggest content suppliers-sending shock waves to the balance sheets of the media conglomerates that own them.

Comcast Corp. is leading the charge, using its unprecedented 22 million cable subscriber base as leverage. It recently notified all of its content providers of its plans to uniformly reduce its payments by 10 percent beginning this month, to save roughly $400 million of its $4 billion in annual program costs. Some of the bigger suppliers are balking and contemplating legal action to protect the payment terms in their existing contracts with Comcast and other cable operators, sources said. They view this as the opening salvo in what will be a long, bloody battle for economic power.

Even one of the smaller cable operators, Cablevision Systems, has demonstrated its gatekeeper's powers by refusing to transmit New York Yankees baseball games at what it considers an unreasonable premium. Because it represents one third of the YES Networks' regional coverage area, Cablevision's stance is preventing YES from turning a profit.

What Comcast and its peers are really after is a forced a la carte system that will throw some of the more high-priced programming such as sports (which comprises more than 12 percent of the cable industry's $15 billion in annual program-related expenses) onto pay tiers where it can pay its own way through additional subscriber fees.

Sources say existing contracts with the likes of ESPN prohibit any such move, although in the case of industrywide reform (government mandated or otherwise) anything is possible.

However, industry experts say the adoption of a true a la carte pay program tier is several years off, and the emerging initial video-on-demand services are a first step in that direction.

Even with all their growing scale, cable operators say such eventual drastic measures are the only way they can offset the higher-than-expected 18 percent to 20 percent rise in their program costs last year, according to JPMorgan analyst Jason Bazinet. Cable operators are expected to face anywhere from 12 percent to 18 percent increases in program-related costs in 2003, he said.

The prospect of ESPN's not being allowed to levy an onerous 20 percent annual fee increase on operators and having to live with tiered program platforms and fees for its costly content could blow a big hole in the nearly $1 billion in annual profits ESPN delivers to its corporate parent, The Walt Disney Co.

In a recent earnings call with analysts and investors, Disney president Bob Iger acknowledged preliminary discussions with larger cable operators about long-term relationships that include such significant matters as the launch of new services, rate guarantees and retransmission consent.

"They know the value of ESPN," Mr. Iger said. "And that value more than justifies our rate structure with them."

Analysts increasingly see it as a financial risk to Disney and other content giants. "The higher-priced cable networks like ESPN could face more resistance in securing affiliate fees increases from the larger, increasingly more powerful cable operators such as Comcast," Merrill Lynch analyst Jessica Reif Cohen said. And that in turn could cause economic upset not only to Disney but also to other major cable network owners.

Observed another leading industry analyst last week, "What we're talking about here is nothing short of the upheaval of television programming economics as we know it today."

It is that industry-rattling economic power shift that has made these skirmishes-being waged more fiercely behind the scenes than is being acknowledged-part of the Federal Communications Commission's review of broadcast and cable regulations. That intense review returns almost daily to the concentration of power the FCC and Congress have created during the past decade in media conglomerates such as News Corp., Viacom and Disney.

In a deregulated environment, these media giants have learned to handily offset the failing financial fortunes of their leading broadcast networks with popular cable networks from ESPN to Fox News.

And Fox Entertainment Group has only just begun to demonstrate its savvy for using its highly rated branded sports and news cable networks, the hit series it produces and its largest TV station group in the United States to drive a hard bargain with cable and satellite providers. That clout will become even more formidable if and when its corporate parent News Corp. acquires Hughes Electronics' DirecTV, the dominant U.S. satellite provider.

With that battle-of-the-titans mentality prevailing, it's little wonder that GE-owned NBC is giving thought to fortifying its financially solid base through grand alliances or mergers with the only major content and distribution players left-Vivendi Universal and Sony Corp.-or with its peers (Viacom and AOL Time Warner, according to high-level sources).

What is fascinating about the struggle is that all of the players have ended up in the same place: grappling for financial relief and control even when they already have the support of two revenue streams, as cable operators do.

Of course, plugging this all into the bigger picture, it's difficult to feel bad for large cable companies that promise to generate $1 billion-plus windfalls this year and next, even in a weak economy that has slowed the growth of new digital services and flattened basic subscriber levels.

Sources estimate the broadcast networks should get a $1 billion bump this year in advertising revenues from the reality series that have boosted their ratings and dominated their prime-time schedules.

Long-term, industry executives complain the reality craze will only skew broadcast networks' expectations for the cost of talent and production as it applies to more expensive, traditional series comedies and dramas.

But for now, reality programming is an instant and welcome fix to what the broadcast networks otherwise see as a long, drawn-out battle to develop a second revenue stream. Their only hope is to force cable operators to pay cash for retransmission consent, or for programming that broadcast networks are providing free to new video-on-demand services.

One major media chief executive this week told me that he and his peers will have to stop bludgeoning each other long enough in the heat of battle for revenues and profits to devise some meaningful business alternatives. Pay for play, a la carte pricing, revenue sharing and extended duopoly TV station models could be among them.

"But we'll never know what they can be unless we try sitting down and hammering these things out ourselves without the government getting involved. And I just don't know if we're going to get that chance," the veteran media CEO told me. "Right now, everyone is too caught up in costs and clout.''










Bob Wright

SECTION: Pg. 1A

LENGTH: 363 words

HEADLINE: GE shines bigger light on Wright

BYLINE: DIANE MERMIGAS

BODY:
Bob Wright, NBC's longtime president and CEO, will play a more weighty role in shaping the future of NBC and its corporate parent, General Electric Co., as newly appointed vice chairman of GE.

''I was very surprised,'' Mr. Wright told Electronic Media Friday following a GE board meeting at corporate headquarters in Fairfield, Conn.

Since Mr. Wright also continues as president and CEO of NBC, analysts said he will be in a more lofty position to shape NBC in ways that, until now, have not been possible.

Industry analysts say Mr. Wright's appointment further entrenches NBC into GE and will abate speculation that GE might sell the media giant.

In fact, at some point after current GE Chairman and CEO Jack Welch retires next year, Mr. Wright may be in a better position to convince GE to spin off NBC to create a stock that could be used to expand the network's scope and scale. Such a move would need to preserve GE's majority ownership in NBC, according to GE insiders. Mr. Wright declined comment on that possibility as well as the possibility that NBC may resume talks with USA Networks about an alliance, merger or acquisition.

Mr. Wright played down analysts expectations of his new role.

''I'm staying in New York with NBC,'' he said. ''I'm not moving to Fairfield, so right now my focus is still at NBC. There will be other assignments and duties I'm going to have to get involved in. But those are not meant to take away from NBC at all.'' he said.

NBC is an 11 percent contributor to GE's annual revenues and a major driver of GE's $13 billion in annual earnings.

''One of the reasons NBC and GE are so successful is that they have become growth companies,'' Mr. Wright said. ''That's my agenda.''

Mr. Wright has been frustrated in his efforts to align NBC-the only broadcast network without studio ties-with larger players because any major acquisition or merger would have a diluting impact on GE stock. Instead, Mr. Wright has grown NBC organically by leveraging off its existing broadcasting and cable assets. He has been aggressively pushing internally for NBC units to extend and build their businesses for the interactive age.

LOAD-DATE: August 03, 2000

Top of Form

SECTION: News; Pg. 1A

LENGTH: 471 words

HEADLINE: WRIGHT ROILS NBC AFFILIATES WITH CABLE TALK  

BYLINE: JON LAFAYETTE, New York Bureau Chief  

BODY:
New York

NBC President Bob Wright last week restated the possibility of taking the network to cable in markets where it cannot reach ''sensible'' deals when affiliate contracts expire.

NBC is seeking to stop paying affiliates compensation for carrying its programming, but most of its affiliates are operating under long-term contracts negotiated when Fox was threatening to poach stations from the older networks.

Without over-the-air distribution, cable operators might be willing to pay for exclusive carriage of NBC programming, said Mr. Wright, speaking at the Variety/Schroders Big Picture Media Conference.

Though Mr. Wright said that moving to cable was ''not an objective,'' affiliates were unhappy with the comments.

''It's totally destructive, and I have no idea why he does it,'' said NBC affiliate board chairman Alan Frank, general manager of WDIV-TV, Detroit.

Mr. Frank said private discussion with NBC has been positive but comments like Mr. Wright's erode trust between the two sides.

''We are not a group of powerless folks here. There are options we have as well,'' Mr. Frank said. ''We're trying to devote all our energies to solve a problem. There has to be an agreement as to what's in our mutual benefit.''

Mr. Wright's attitude appears quite different from that of CBS President and CEO Mel Karmazin, who said relations with affiliates were ''first rate.''

But while Mr. Karmazin called the network's current $170 million in compensation a good bargain compared to the value of the commercials it can sell nationwide, CBS executives have begun to devise ways to shift cash now paid to affiliates into other things affiliates find valuable.

Sources said that CBS was considering offering stations longer-term deals that would guarantee they'd continue as the primary outlet for network programming in return for the five years or less remaining on many current affiliation agreements.

The new deals would offer stations ''other things they'd find valuable'' other than cash as compensation, said one executive familiar with the idea. For station owners who suspect that compensation may disappear when current contracts expire, getting something over the long term might be better than cash in the short term.

CBS has only just begun scheduling meetings to sound out key affiliate groups and officially declined to discuss details of its thinking.

''We are always interested in reviewing the network-affiliate relationship with the cooperation of affiliates,'' said Peter Schruth, president of affiliate relations at CBS.

Affiliate sources said they were not familiar with the notions being floated by CBS officials but said that they believed that Mr. Karmazin was not interested in doing anything that would distract them from helping to strengthen the network.

LOAD-DATE: March 29, 1999

Bottom of Form

Top of Form


SECTION: Pg. 1

LENGTH: 1731 words

HEADLINE: Wright, NBC plan for uncertainty

BYLINE: DIANE MERMIGAS

BODY:
The broadcast networks have lost hundreds of millions of dollars covering the terrorist attacks on the World Trade Center and the Pentagon, and its volatile, uncertain aftermath. But there is more at stake than purely bottom line considerations, according to NBC Chairman and CEO Bob Wright, 58, who also is vice chairman of corporate parent General Electric.

For 15 years he has led NBC through periods of economic turbulence and military conflict. As an architect of industry reform-from affiliate relations to broad deregulation-he brings a unique perspective to these troubled times.

EM: What will be the ultimate earnings damage by a weakened ad market, the terrorist attacks and any ongoing conflict?

Mr. Wright: Analyst reports I have seen in the last couple days have attempted to bracket the industry at down 10 percent to 15 percent in revenue this year. It's purely speculative beyond the next few weeks. If there is a war atmosphere with events to cover every day, that will take its toll. If it's more clandestine, with not a lot of pre-emptions, it won't have as much an impact on advertising revenues. Pre-emptions are really the principal issue.

EM: How much did NBC lose?

Mr. Wright: This was costing us as a group probably about $100 million a day the week of the attacks.

EM: How much might be lost the second or subsequent weeks when things slow down?

Mr. Wright: Maybe half of what was lost the first week. I don't think we're going to get any aid for dealing with that. But it may give more credibility to the argument for consolidation of one kind or another with some companies having poorer forecasts going forward.

EM: Could it speed up NBC's consideration to merge or acquire?

Mr. Wright: It's hard to tell. (New GE Chairman) Jeff Immelt has been very positive about NBC and very supportive and is not looking to reduce his ownership in it at this time. But there could be opportunities to get bigger, merge and create more size. Having four major news operations gives us a lot of strength economically. Other companies have done that in the entertainment area, like Viacom and Time Warner.

One thing we all may be faced with is whether we want to further align our interests through mergers and acquisitions so we can be less vulnerable to short cycle problems. But right now there is nothing imminent.

EM: Some industry experts say there is no way to offset these initial losses with cost cuts, that they just will fall to the bottom line.

Mr. Wright: I would agree with it as a general principle. But we have an advantage over most of our competitors because we got in the cost reduction mode almost a year ago. We put into place many problems to reduce our cost structure-some of them permanent. And we're getting the benefit of some of those cost reductions now, including digitizing our operations. So we have more room to deal with increased expenses from more news coverage and the decreased ad revenue that goes with that. We also have three news networks with big news budgets that don't need to increase costs so dramatically right now. They can just shift one level of coverage to another. So we may not be as impacted as others.

EM: Some analysts estimated that sustained news coverage and loss of ad revenues added up to as much as $10 million in daily losses for each network initially. What will it be going forward?

Mr. Wright: It's impossible to say. It depends on what happens. When you get outside the U.S., you have different kinds of incremental costs-higher telecommunications costs and restricted access to satellites and communications. There's the cost of housing and moving people around.

The biggest issue is revenue. It's been hard even to schedule advertising when you have so many interruptions because of the emergency nature of the coverage. Advertisers are not anxious to get into certain kinds of news coverage. Right now we're OK with that. But if you have to constantly jump to special announcements and speeches, you just lose a lot of units. We just do the best we can.

EM: How much could sustained news coverage of this conflict cost you?

Mr. Wright: We have no idea because we don't know what it is. Analysts are basically saying the industry will be impacted 10 percent to 20 percent next year in earnings. We already reported that for the first half of 2001, before all of this, we were down 10 (percent) to 15 percent. The rest of the year could be substantially impacted by the fourth quarter.

EM: What are you expecting from the fourth-quarter advertising market?

Mr. Wright: I think the fourth quarter, absent a war, will be pretty strong because there are lots of advertisers who lost a couple of weeks of reaching their largest audience. So they need to get their marketing plans going. There will be a carryover of money that would have been spent in the third quarter. These are marketing companies, so advertising is not a luxury.

EM: Are you trying to special-package or special-price the fourth quarter?

Mr. Wright: It's not a price issue. Pricing is down anyway. The issue now is just getting them on the air. There are some advertisers who are quite anxious to get on but who think their creative needs a little change. Starting this week, I think you are going to see very heavy advertising blocks, and pricing will be strong because of the demand.

EM: So make-goods and placement are issues that will iron out over time?

Mr. Wright: The problem is you just don't know how long it goes. If you're carrying tremendous make-goods into 2002, that's not very positive.

A lot of advertisers don't want to be in certain kinds of news material, but that doesn't necessarily work for the entertainment people because if there is heavy news going on and we're running it, we're going to get big numbers in the news.

EM: So are you trying to get some advertisers to consider news programming placement?

Mr. Wright: Yes. I remember we had this exact problem with coverage of the Gulf War. We have relatively solid evidence from that period that the audience reaction was quite positive to the presence of advertising after the initial breaking news was reported.

We are trying to get our message to the agencies and buying groups to make the point that we've been through this before.

EM: Which advertisers are buying into news?

Mr. Wright: The foreign automotives seem to be taking advantage of this, and that was also the case in 1991.

EM: Do you think your programming costs will rise if you and other networks decide to shed less costly reality programming for more costly, feel-good family dramas and comedies?

Mr. Wright: The biggest cost issue potentially will be the fact that we have some programming that we own that we can't run when we want to because of these sensitive times. We have the added cost of pre-empting our own programming with news programming. If you don't run an episode of 'Friends,' you run the risk of losing all the revenue that went with it-and having too many episodes to shove out later into the year. And then you have the pocket cost of producing the news.

I do not believe we will change the mix of entertainment programming that we already planned.

EM: Would this be a time for broadcast networks to shift their evening news to an hour in prime time, which has periodically been considered?

Mr. Wright: I don't think so. I think that time is past. We have regular newscasts on two of our networks that reach over 70 million homes.

EM: Are you concerned the February Olympic Games you televise might be jeopardized from a security or promotion standpoint?

Mr. Wright: No. I think just the opposite. That's why I was disappointed to see the Ryder Cup canceled. I think those kinds of events are bonding, and they are very valuable to the viewer's list of options. I think they will be extremely well supported. People don't want to be depressed on a 24-hour basis by television or anything else.

EM: How could the industry be forever changed by all of this?

Mr. Wright: I think we're all going to be more security-conscious, and that will help and hurt our business. It will give our employees a greater sense of protection, but it also will have the unintended impact of reducing our ability to cover news, or make it more expensive or awkward to do that.

EM: How concerned are you that major affiliated TV station groups are warning they will miss earlier earnings forecasts?

Mr. Wright: Don't forget, many of them have very high margins and are not in any economic danger. But it depends on the company.

EM: I understand you were on the West Coast when the World Trade Center was attacked and that upon returning, you and your wife Suzanne visited all the East Coast news operations.

Mr. Wright: It was one of the hardest times since I've been with NBC. I was in Long Beach, California, meeting with a group of customers, which I do periodically. We were stuck because of the travel ban. I finally got a ride with a group of oncology specialists who chartered a DC-9 to take them back East in the first available window on that Thursday.

So Suzanne and I, Friday through Sunday, visited the various NBC News, WNBC, MSNBC and CNBC operations. It's one of the more reassuring things you get to do. They (the news staffs) are tired but energized. They really rise to the occasion.

One of the more gratifying things was to learn that within 24 hours of the attack, Jeff Immelt called New York Mayor Giuliani and pledged $10 million to support the families of the uniformed firefighters, policemen and emergency services workers who have died. That gave all of us a great sense of pride. GE was the first company in the nation to make a donation, and it set the bar.

EM: How are you and others getting through this?

Mr. Wright: It's very hard being in New York. And it's very sad for New York. The city is all tangled up, and most of the tourists have left. People are concerned to fly. The fire, police and emergency workers have done an incredible job. The city has been hit hard by disaster on one hand and the economic impact on the other. Everyone has a relative, a friend, a business associate or someone they know who was lost. It's a very difficult period emotionally.

I think the way you go on is to just keep looking forward. I think we'll all get through this.
Bottom of Form


 Bob Wright, NBC weigh M&A risks

Byline:  Diane Mermigas

Electronic Media

Pub date: 02/03/03

Page:  0016
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