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Posted: 31 Dec 09, 12:13 Edit this post Reply to this post Reply with Quote

* I knew I should've held onto that ATI TV tuner - in card of mine! - W. K.

Cable model mulled as free TV struggles
December 30, 2009
NEW YORK - For more than 60 years, TV stations have broadcast news, sports
and entertainment for free and made their money by showing commercials. That
might not work much longer.

The business model is unraveling at ABC, CBS, NBC and Fox and the local
stations that carry the networks' programming. Cable TV and the Web have
fractured the audience for free TV and siphoned its ad dollars. The
recession has squeezed advertising further, forcing broadcasters to
accelerate their push for new revenue to pay for programming.

That will play out in living rooms across the country. The changes could
mean higher cable or satellite TV bills, as the networks and local stations
squeeze more fees from pay-TV providers such as Comcast and DirecTV for the
right to show broadcast TV channels in their lineups. The networks might
even ditch free broadcast signals in the next few years. Instead, they could
operate as cable channels - a move that could spell the end of free TV as
Americans have known it since the 1940s.

"Good programing is expensive," Rupert Murdoch, whose News Corp. owns Fox,
told a shareholder meeting this fall. "It can no longer be supported solely
by advertising revenues."

Fox is pursuing its strategy in public, warning that its broadcasts -
including college football bowl games - could go dark Friday for subscribers
of Time Warner Cable, unless the pay-TV operator gives Fox higher fees. For
its part, Time Warner Cable is asking customers whether it should "roll
over" or "get tough" in negotiations.

The future of free TV also could be altered as the biggest pay-TV provider,
Comcast Corp., prepares to take control of NBC. Comcast has not signaled
plans to end NBC's free broadcasts. But Jeff Zucker, who runs NBC and its
sister cable channels such as CNBC and Bravo, told investors this month that
"the cable model is just superior to the broadcast model."

The traditional broadcast model works like this: CBS, NBC, ABC and Fox
distribute shows through a network of local stations. The networks own a few
stations in big markets, but most are "affiliates," owned by separate

Traditionally networks paid affiliates to broadcast their shows, though
those fees have dwindled to near nothing.

Cable channels make most of their money by charging pay-TV providers a
monthly fee per subscriber for their programing. On average, the pay-TV
providers pay about 26 cents per subscriber for each channel they carry,
according to research firm SNL Kagan.

With both advertising and fees, ESPN's revenue has grown to $6.3 billion in
2009 from $1.8 billion a decade ago, according to SNL Kagan estimates.

In 1998, cable channels drew 24 percent of total TV ad spending, according
to the Television Bureau of Advertising. By 2008, they were getting 39

Having two revenue streams - advertising and fees from pay-TV providers -
has insulated cable channels from the recession. Over-the-air stations have
been forced to cut staff.

Fox illustrates the trend: Its broadcast operations reported a 54 percent
drop in operating income for the quarter that ended in September. Its cable
channels, which include Fox News and FX, grew their operating income 41

A small chunk of declining ad revenue is being recouped online, where the
networks sell episodes for a few dollars each or run ads alongside shows on
sites such as Hulu. Media economist Jack Myers projects online video
advertising will grow into a $2 billion business by 2012, from just $350
million to $400 million in 2009.

Rather than wait for the Internet to become a bigger source of income, the
networks and local stations are mimicking cable channels: They're charging
pay-TV companies a monthly fee per subscriber.

Since 1994, the Federal Communications Commission has let networks and
affiliates seek payments for including their programming in the pay-TV
lineup. Over time more networks began demanding payments for stations they
own. Affiliates already receiving the fees have bargained for more money.

The American Cable Association says its members - mainly small cable TV
providers - have seen their costs for carrying local TV stations more than
triple in the past three years. The group's head, Matt Polka, says those
fees have gone "straight to consumers' pocketbooks" through higher cable

Over time, the networks might be able to get even more money by abandoning
the affiliate structure. If a network operated purely as a cable channel and
cut the affiliates out, the network could get the fees for the entire pay-TV

If forced to go independent, affiliates would have to air their own
programming, including local news and shows.

Fitch Ratings analyst Jamie Rizzo predicts that at least one of the four
broadcast networks "could explore" becoming a cable channel as early as

W. K. Mahler
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W. K. Mahler

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