TV Cable, Pay & Broadcast Networks
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Industry Overview
The TV cable, pay, and broadcast network industry ("TV broadcasting") in the US includes about 2,600 networks and stations with combined annual revenue of $57 billion. Major broadcast TV networks are ABC, CBS, FOX, and NBC; major TV cable networks are Discovery Channel, ESPN, CNN, and TNT. Large non-network station groups include Sinclair Broadcast Group, Hearst-Argyle Television, and Clear Channel TV. The industry is highly concentrated: the top 50 companies account for over 80 percent of industry revenue. Annual revenue for an independent midsized TV station is under $5 million.
The industry includes almost 2,000 broadcast TV firms and over 600 cable/subscription firms; broadcast TV accounts for slightly over half of industry revenue and cable TV, for slightly less than half. The industry doesn't include companies that broadcast primarily on the Internet, produce and sell taped TV programs, distribute cable and other TV programs, or use TV as a retail outlet.
Competitive Landscape
Business advertising, program popularity, and consumer demographics drive demand. The profitability of individual companies depends on advertising volume, programming mix, and efficient operations. Large companies have advantages of market dominance, often owning the only TV stations in a geography. Small companies can compete effectively with special programming that attracts a targeted audience. Average annual industry revenue per employee is $350,000: broadcast TV averages $257,000 per worker and cable TV about $651,000.
Products, Operations & Technology
Major industry product lines are broadcasts (air time) and programming, production, and post-production services. Other products include program rights, merchandise sales, and sales of website advertising space. In the for-free broadcast TV segment, air time provides about 90 percent of revenue: national and regional advertising accounts for over 55 percent; local ads, over 30 percent; and network compensation, 4 percent. Programming services account for 4 percent and other services, less than 2 percent.
In the fee-based cable/subscription segment, air time provides only 60 percent of revenue: national and regional advertising accounts for 45 percent; network compensation, 14 percent; and local ads, 1 percent. Fees from cable and satellite systems (wholesale programming fees) bring 28 percent of segment revenue. Additional revenue sources include sales of program rights, merchandise, and other services.
TV stations comprise the majority of industry firms. A national network may own dozens of TV stations and have hundreds of affiliate stations that use the network's branding and primarily buy its programming. A large independent broadcast group (non-network-owned) often owns multiple TV stations and, like a national network, achieves advantages of scale in negotiating advertising and programming contracts and in centralizing backoffice operations. Broadcast companies are small compared to firms in other industries. Most large independent groups have annual revenue less than $1 billion.
Industry companies produce or acquire TV programs and/or operate TV broadcasting studios and transmission facilities. TV networks and stations provide a variety of programs and sell advertising time ("inventory") to businesses and organizations. Ad sales and audience size are major industry metrics. Stations attract advertisers' targeted audiences by airing programs that appeal to them. A station earns a reputation for the type of programs ("format") it typically broadcasts. TV stations sell air time directly to advertisers or to brokers under Time Brokerage Agreements. The broker finds programming and sells advertising slots. Ad rates generally depend on the size of a station's audience, as measured by ratings firm Nielsen. Funding for public TV stations comes mainly from the Corporation for Public Broadcasting and donations from foundations, companies, and individuals, but many stations also run subtle advertising.
Program sources include local productions and syndicated and network shows. Stations often produce local news, sports, "talk," and local-interest programs, but may also buy shows from local sources. Stations buy syndicated programs from owners or independent producers or through brokers. TV networks often produce their own shows for distribution to stations they own and for syndication to affiliates or other stations. Syndicated shows are available for cash or for "cash-plus-barter," which includes commercials the syndicator sells.
Cable TV programming typically is "narrowcast," with a limited format, such as mostly news, sports, or education, or a narrowly targeted audience, such as youth, Latinos, or women. Cable programming generally goes to third-party cable systems or direct-to-home satellite systems for transmission to consumers. In addition to programming, TV personalities are a major draw for stations, especially during early evening ("prime time"), when the largest number of viewers is watching.
A TV station becomes an affiliate of a national network by signing an exclusive agreement that grants the station the right to air network programs, and allows the network to sell a significant amount of advertising to appear with its programs. The network pays network compensation fees to the TV station for broadcasting network programs and advertising; the station pays an affiliate fee. Affiliation agreements typically cover five to 10 years initially and are eligible for renewal every three to five years. Unaffiliated stations may incur higher relative costs to acquire current programs, but don't have to relinquish ad revenue to a network.
Technology and equipment are changing rapidly, enabling TV networks and stations to convert from analog to digital production and broadcasting by 2009 to meet US government mandates. Analog TV signals historically transmitted at either very high frequency (VHF) for wider coverage or ultra high frequency (UHF) for shorter distance, but the categories have blurred and even HDTV uses UHF in most US cities. Digital signals are higher quality, easier to edit and to enhance with special effects, and use less broadcast spectrum (frequency bandwidth) than do analog signals. The major categories of digital resolution, in order of increasing clarity, are standard, enhanced, and high definition. The conversion to digital broadcasting makes available more spectrum, which is a public resource the government manages and auctions to raise revenue.