• The economy is gaining some legs after three very long years
• Young male viewers seem to be abandoning network TV in record numbers
• The NBC/Universal completes the alignment of each network with a studio
• News Corp's acquisition of DIRECTV could push PVRs into over 10 million homes in the next year, up from the current 2 million homes
• Broadband is now in 20 million homes
• The price of some HD television sets has fallen below $1000
• Video On Demand is currently in about 12 million homes

Each of these events are big stories in their own right, but as they come together simultaneously, they will set in motion a chain of events that will forever alter the television landscape.

The Big Boy Model In the Near Term

In 1980, the Big Three Networks commanded 80% of the television audience. 20 years later, (now the Big Four) the networks overall audience has now fallen below 50% and continues to slide with each passing year. On the surface, this is not exactly encouraging when your business model is purely dependent on advertising, which requires the largest amount of eyeballs possible. This has lead of course to the evolution of new models as media conglomerates gobble up cable properties and have aligned themselves with studios. David Poltrack, Executive Vice President of Research at Viacom noted that Viacom's current 26% share of the audience, is very close to the 30% share CBS enjoyed in the 80s, "The synergy of the Viacom networks have brought back the power of networks in the 80s, now we have to learn how to manage all these assets."

Television has moved from the network model to the conglomerate model to reduce programming costs, increase promotions of content and to attract new audiences. Television has traditionally been a mass marketing vehicle for advertisers, but is slowly becoming a direct marketing medium as well. Cable has already begun that process be segmenting the audience. "We can pretty much reach anyone we want to reach," says Jeff Bader, Executive Vice Presdient, Program Planning, Scheduling & Synergy at ABC, citing Disney's diverse array of assets.

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One of the greatest benefits of this new model has been the symbiotic relationship between the networks and cable in terms of promotions. As audiences become more fragmented, the networks are better able to target their programs by promoting them on their cable properties. For example, CBS built a buzz among younger audiences for Survivor by promoting it on MTV.

"It works both ways and it works well," says Dan Harrison, VP of Strategic Programming at Bravo. NBC has an intra-company promo bank where a network may get a debit one month to promote one of its shows on another NBC network and a credit the next month for promoting another NBC asset. NBC was able to build buzz for Queer Eye for the Straight Guy by airing it on the NBC network and then telling people to watch it regularly on Bravo. In fact, Bravo is now in an additional 5 million homes since NBC acquired it.

Customers, Not Just Viewers or Subscribers

Synergies help promote growth in the short term, but what about over the long term? "The better perceived service will win in the end. People only care about content and access to it," argues Kevin Carton, Global Leader, Entertainment & Media Practice, PricewaterhouseCoopers. Lets be honest, television for the most part has been organized as a monopoly. For decades, most Americans had only three choices, so the networks just watched the money roll in without too much effort. When cable came along, they organized themselves as regional monopolies. Poor service by cable operators has been a national joke. "It all comes down to subscriber management. How do you make them all happy? If you get customer service right, it will lower churn and will increase cash flows," says Sean Badding, President & Senior Analyst at The Carmel Group. Satellite has forced cable to rethink how it treats customers and the proliferation of channels and the threat of PVRs is shifting control from the networks to viewers. At the end of the day, sophisticated marketing programs and the very concept of service is completely foreign to television, but will eventually become its mainstay.

Wall Street has also helped fuel this "mass view" of the television world says Bruce Leichtman, President & Principal Analyst of the Leichtman Research Group, "Wall Street is driving subscriber numbers that are truly unprofitable." Currently, it costs cable about $200 to acquire each customer and satellite about $500. In the cable world more subscribers isn't necessarily the best route to take anymore, but rather understanding how to increase the profitability of their existing subscribers. Cable is slowly realizing that it now sells a suite of different services and needs to stop looking for a silver bullet. Currently, consumers are being bombarded by HDTV, PVRs, digital cable, VOD, broadband and soon VoIP, voice data technologies. Each new technology will more than likely have its place and cable needs to learn how to market them more like the consumer products industry says Carton.

HDTV

Cable's silver bullet du jour is HDTV. For the consumer, HDTV means the best quality picture available. For the industry it is another headache to be sorted out. It's been a tough sell among broadcasters, who believe they will see little benefit to their bottom line. Mark Cuban, Founder of HD Net, was on hand to share his predictions about the impact of HD on television. He believes it will reverse the dilution of television audiences because there will be limited bandwidth to support all of today's networks. He says those who are laggards, will be kicked off the spectrum because there won't be enough room for them. He also points to the falling price of HD sets and says once consumers experience 1080i, the highest resolution commercially available, they'll never look back. Finally, he believes HD will offer protection against piracy because it takes up to 90 minutes to download just 1 minute of HD content, "I'm not worried about the Internet. I'm not going to get Napsterized." The challenge of HD is, who is going to pay to further upgrade cable systems and who is willing to bear the higher cost of producing in HD?

The Evolving Role of Television News

The evolution of television over the last decade has been particularly challenging for news. "Everything we do is changing," said Reese Schonfeld, founder of CNN in regard to the television news industry. With the average age of the television news viewer now over 55, Schonfeld argued that younger generations just don't consume news like they use to. Max Robbins, Senior Editor of TV Guide, countered, "Younger people are getting their news from somewhere else." Where are they going to get their news? The Internet. "There is an audience that felt it hasn't been spoken to by television," says Scott Fedewa, COO and Executive Producer of BillOReilly.com (which is not part of Fox he noted). In terms of revenue he added, "It enables broadcasters to continue to create revenue beyond the broadcast."

The closure of bureaus and slashed budgets have forced television news operations to reformulate themselves. "I think they have become news packagers rather than news gathers," says Robbins. News audiences use to gather around personalities, now they are gravitating toward viewpoints. "People will go to the package with a viewpoint similar to theirs," says Fedewa. Critics of the Fox News Channel will chastise it for courting more conservative viewers, while some argue it found an audience that was being underserved. Next year, the BBC is slated to launch its BBC World Service in the U.S., offering yet another viewpoint of news. Robbins says he still thinks CNN will eventually ally itself with CBS or ABC.

The 30-Second Spot: Television's Core

"30-second spots are not going away," says Barbara Bacci Mirque, Senior Vice President of the Association of National Advertisers. Like every other aspect of television, the 30-second spot, the economic core of television, will evolve. While TiVo is closely associated with ad-skipping, the audience has been doing it for years with their remotes or heading to the fridge for a snack. Brad Heureux, Director of Interactive Sales at Comcast sees the 30-second spot as becoming empowered by new interactive technologies, "The 30-second ad could be used as a means to direct viewers to more information on a particular product." Heureux sees a day when a product or brand has their own "network" and it will be up to them to program it. He says agencies need to move beyond the pitch, "Agencies need to develop more creative ads that are relevant to the viewer."

Some Truths

As General MacArthur once said, "Old generals never die, they just fade away." In the case of television, the evening news or the 30-second spot won't die, but will rather evolve. One could argue that the network system is finally dead with the merger of NBC and Universal, but the consolidation of networks, studios and cable channels is more of an evolutionary step. One fundamental change television can no longer avoid is its relationship with the audience. The simplistic model of the most eyeballs won't be the sole driver of value anymore, it's about how to drive more value from each of your viewers or subscribers and how to better target them. As the line blurs between programmers and advertisers as sources of content, both need to learn how to manage the various layers of their audience or customers, rather than the one-size fits all approach that has prevailed over the last 50 years.

Related Articles:

VOD: The Road to Mass Personalized TV

On the Rise: Broadband Programming

Making Traditional Advertising More Accountable

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About the Authors

Stephen Warley has made a career out of assessing the future direction of television. From producing for CBS News and CNBC to working as a project manager for interactive media agencies like ThirdAge and Osprey Communications, he has gained an insider's view as to where tomorrow's content and business opportunities lie in the video media industries. Currently, he is the General Manager of TVSpy.com and is pursuing his MBA at Fordham University with concentrations in media management and finance. He can be contacted at swarley@tvspy.com

James Sheridan has worked in video production for CBS Sports, Miramax Films and a new media startup company specializing in corporate webcasting. His freelance clients have included The NewsHour with Jim Lehrer, CBS News, the History Channel, A&E and Bravo. He is currently the founder and executive producer of InterPositive Media, a documentary/public service announcement/corporate video production company. James is also an MBA candidate at Fordham University Graduate School of Business Administration with concentrations in media management and finance. He can be contacted at jsheridan@fordham.edu