Media companies and investors are treating the broadcast television businesses as if they had the plague. There are rumors that Walt Disney Co. (NYSE: DIS) wants to dump ABC and that General Electric Co. (NYSE: GE) is ready to oust NBC Universal CEO Jeff Zucker. What gets lost in the all the media hoopla about the future of broadcast television is that its future is not entirely bleak.
First, a reality check — anyone who invests in media stocks solely because of a broadcast network is nuts. The floundering NBC television network is too small to make much of an impact on GE and on Comcast Corp. (NASDAQ: CMCSA) once the acquisition of NBC Universal is completed. Broadcast TV, including “American Idol’s” home Fox Television Network, produced a tiny operating profit of $40 million for News Corp. (NYSE: NWS) in the first quarter. The numbers are similarly puny for the Disney business that includes ABC ($123 million) and CBS Inc.’s (NYSE: CBS) Entertainment Division ($134.5 million), which includes the CBS television network.
So the question becomes if the business is so bad, why bother. The answer is simple — there is plenty of upside. In this age of fractured audiences, broadcast television is still the easiest way to reach a mass audience in the desirable 18-49 demographic. Here are some recent ratings for top shows: “American Idol”-8.8 million viewers; “Lost”: The finale-7.67 million viewers;”The Big Bang Theory” 7.25 million viewers and “Grey’s Anatomy” -7.14 million. Cable hits such as “WWE Raw” and “SpongeBob Squarepants” have viewership of about 5 million and 4 million. The audience for cable news shows is even smaller. Number 1 rated Fox News Channel is seen daily by about 1.3 million people every day.
Then there’s YouTube and Hulu. The wildly popular Google video site will need to strike deals with content providers if it ever hopes to make a profit. That will mean charging users at some point. Hulu, which is owned by News Corp., NBC Universal and the Walt Disney Co., generated more than $100 million in revenue from advertising, according to the Los Angeles Times. Keep in mind that Hulu has not begun charging users though that’s only a matter of time.
Although network television advertising spending fell 9.9 percent in the fourth quarter, there are signs that it is rebounding in 2010 as the economy rebounds. Of course, cable is doing better and many challenges remain. Nonetheless, the business is far from being ready for the scrap heap. Broadcast networks will survive, in one form or another, for years to come.
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