News

The (Pay) Envelope, Please

January 18, 2008

Jon Fine reports for Business Week:

 

Like the Republicans in the early part of this decade, network TV's power has enjoyed more than a touch of Teflon. I This is true particularly where advertisers are concerned. Ratings steadily declining? Funny, TV's share of ad spending isn't. TiVo (TIVO) users skip ads? Whatever, buddy. Be sure to cough up $2 million-plus for that Super Bowl ad on the way out.

But then came this writers' strike, which began Nov. 5 and, at the time of this writing, shows no sign of ending. Many top-rated scripted shows, among them Grey's Anatomy and CSI, are about to run out of new episodes. This will change everything, right? Well...not yet. So far it hasn't hurt the lucrative advertiser-television love match that, judging from all the evidence, both parties still cherish. There is, of course, an enormous hedge in the word "yet." But some potential heavy weather has hit with all the force of a lamb. Late Show with David Letterman-which forged a separate peace with its writers, since Letterman's company, not CBS (CBS), owns the show-has narrowed the gap with perennial late-night leader Jay Leno. Still, the latter's initial (writer-less) ratings remain decent, if not world-beating, as do those for NBC's (GE) Late Night with Conan O'Brien. Meanwhile, the next season of (the unscripted) American Idol, which premiered to 33.2 million viewers, will quiet some story lines about how bad it is that non-reality programming is disappearing.

GUT-CHECK TIME

Network types insist the strike is saving them money thus far-no unairable scripted pilots to waste millions on!-and beat their chests over how well some reality shows, like the newly revived American Gladiators, are performing. TV producers are axing deals with writers. In sum: gut-check time for the strikers. Adding to the pressure is that the Directors Guild began negotiating in mid-January for its upcoming contract with the producers.

So-advantage, networks? It's not that easy. (Nothing about this strike is easy.) At best, the networks are playing a dangerous game of chicken; they're hurtling toward an invisible line that divides "saving money" from "destroying the business." I shouldn't have to mention the gajillions of media options now available for both consumers and advertisers since the last strike, in 1988-hundreds of cable channels instead of 30, and innumerable online options, video and otherwise.

But those looking to fleeing viewers to make the networks cave are looking in the wrong place. The perversity of network economics keeps ad revenues steady while around 5% of the audience diminishes annually. The networks are insulated, somewhat, against disappearing viewers. They are not at all insulated from disappearing advertisers. Which is why the first real looming threat to the networks isn't some New Media option but rather a geriatric ritual: the Oscars.

Should the strike swallow the Oscars on Feb. 24, the biggest loser is not ABC (DIS), which is set to air them. It's the movie studios, which lose their biggest spectacle and promotional platform-that overlong orgy of self-congratulation and glitz that, for good or ill, tens of millions of people still watch. (Next to the Super Bowl, it's the biggest annual event on TV.) Bear in mind that the studios are pretty big TV advertisers. In the first 10 months of 2007, they spent $943.9 million to advertise movie and DVD releases on broadcast TV.

After the studios took a hit by losing a telecast of the Golden Globes-one with movie stars, anyway-on Jan. 13, how happy would an Oscars ceremony without any ceremony make them? Would they be thrilled to shell out millions each week to the networks that just thwarted them, or will they move more dollars into online media? (Movie ads have migrated online faster than many other ad categories, so this is neither a far-fetched notion nor an idle threat.) Don't forget, too, that every major network's owner also counts movie assets among its holdings-and that the movie studios face strike issues of their own with writers. So losing the Oscars means angering both a major advertiser and an important ally in a strike.

Does that sound to you like a constituency the networks can afford to tick off?