March 1998 Update

Michael McGregor & Thomas Spann

Jerry Seinfeld's decision to end his highly-rated NBC Thursday night program after the current season sent shock waves through the industry. Reports indicate NBC was prepared to pay Seinfeld $5 million per episode for another season, up from an estimated $1 million per episode he is thought to be receiving. Various reports suggest NBC was already paying around $6 million per episode for the show, before the offer to increase Seinfeld's personal take by a factor of five.

Seinfeld's refusal of the offer placed even greater pressure on NBC to retain top-rated programs, especially after NBC lost NFL football following record-breaking deals by ABC/ESPN, Fox, and CBS announced in January, 1998, for the 1998-2005 seasons (discussed below). In an almost desperation effort, NBC retained top-rated ER by signing a three year contract calling for a reported $13 million per episode. This is an enormous increase from the $2 to $2.5 million analysts estimate NBC was paying at the time the new contract was signed. It is an even more dramatic increase compared to the estimates analysts were making (about $1 million per episode) when the text went to press. At that time, cost of production estimates were about $1.2 million per episode (Chapter 8, page 217). Current production costs are not available, but they are likely to increase dramatically in response to the new fee paid by the network to Warner Brothers. Although it is hard to imagine how a producer being paid $13 million per episode could produce the show at a deficit, it may happen if ER's stars can demand (and receive) the kinds of increases offered Jerry Seinfeld.

We noted (Chapter 9, page 250) that CBS "...vowed to bid aggressively for NFL games when the broadcast contract expired following the 1997 season." Did it ever! CBS agreed to pay a reported $500 million per year for AFC games and two Super Bowls over the next eight seasons, although the NFL can reopen the contract in 2003. Disney meanwhile signed an eight-year $9 million plus deal with the NFL to secure "Monday Night Football" and three Super Bowls on ABC, and the entire Sunday night cable package for ESPN. Fox is reported to have signed at $550 million a year for NFC games and three Super Bowls. For the first time in 33 years, NBC will carry no NFL games. TNT also balked at paying almost $300 million per year (more than twice what it had paid previously) to retain its rights to half the Sunday night package. The total NFL TV rights package amounts to more than $17.5 billion, an increase of more than 100 percent compared to the previous contract.

Although stations continue adoption of Panasonic's DVCPRO digital tape format for electronic news gathering (Chapter 5, page 138), the trend clearly is not universal. Late in 1997 Tribune Broadcasting, an influential group station owner, announced its stations would use Sony's Betacam SX format for ENG.

Digital Video Disc (Chapter 5, page 140) sales remain sluggish going into 1998. Increasingly called digital versatile disc, consumers seemed concerned about the technology's lack of recording capability and the rather restricted list of titles available on DVD compared to other media. They also worry that the DVDs they buy now may not be compatible with the recording DVD-video units when they become available. DVD is also challenged by a new development called DIVX, Digital Video Express. DIVX is a throwaway version of DVD. Discount electronics products merchandiser Circuit City is promoting sales of movies on DIVX for about five dollars. DIVX allows only a few plays and then the consumer tosses the disc away. Releases on conventional DVD cost about six times as much but provide unlimited playback. DIVX uses enhanced DVD-type players that also play DVD discs, but ordinary DVD players will not play the DIVX discs. Some DVD supporters fear consumers may confuse DVD and DIVX, further impeding widespread sales of DVD players and discs.

Computer chipmaker Intel says it will build personal computer processors supporting all 18 digital TV formats (Chapter 5, page 142). In spring 1997 the computer industry claimed that supporting all 18 formats would be too complex and expensive. Intel's announcement appears to be signaling a break between Intel and the major personal computer manufacturers regarding the delivery of DTV programming on a PC. Intel says its current generation of Pentium II processors can display DTV with 480 lines of resolution using progressive scanning. The company says future generations of its processors will provide increasingly higher levels of resolution.

We noted in Chapter 6 (page 156) the growing competition among broadcast networks with the inauguration of The WB and UPN. In November television broadcaster Bud Paxson announced the formation of a seventh national broadcast network, dubbed Pax Net. Paxon's network will focus on family oriented programming, featuring off-network syndicated shows such as "Touched by an Angel," "Dave's World," "I'll Fly Away," and "Dr. Quinn, Medicine Woman". Paxson hopes to launch the new network in August and is presently seeking affiliates.

On the DBS front, Rupert Murdoch's plans to begin service in the U.S. have been delayed due to regulatory snags. But Echostar, with just over 1,000,000 subscribers, became the first DBS operator to beam local broadcast signals into discrete local markets--an action becoming known as "local into local." The ABC, CBS, Fox, and NBC affiliates in New York, Chicago, Boston, Washington, Atlanta, and Dallas are now being carried by Echostar and can be delivered to subscribers in those cities who cannot receive a good signal over the air. Echostar plans to deliver local signals in Detroit, Philadelphia, Baltimore, and Miami beginning in February.

1997 was a very good year for broadcasting and cable stocks (Section 6.12). According to Broadcasting & Cable magazine (Jan. 5, page 16), radio stocks rose 107 percent during the year, followed by a 59 percent rise in cable stocks and 41 percent growth in television stocks. By contrast, the Dow Jones Industrial average rose 23 percent during the year.

Since the text went to press, four of the five FCC Commissioners pictured on page 328 have been replaced. Only Susan Ness (far left in the picture) remained. She was joined in November by new appointees William Kennard (chairman),Gloria Tristani, Michael Powell, and Harold Furchtgott-Roth, who quickly attracted the attention of broadcasters when he stated that he didn't even own a television! For pictures of the current Commissioners, and lots more, check out the FCC's web site, www.fcc.gov.

Cable television subscription rates continued to rise above inflation levels in 1997, much to the dismay of regulators who hoped increased competition would keep prices down. But the competition hasn't developed, and rates keep going up. The FCC reported that cable rates rose between 8 and 10 percent in 1997 and that the cable business still claimed around 87 percent of all multi-channel subscribers. This information led both the Commission and Congress to question whether cable rates should really be deregulated in 1999, as required by the Telecommunications Act of 1996 (pages 178, 348)