September 1998 Update

Michael McGregor & Thomas Spann

Welcome back to BIA updates. We hope you had a relaxing and enjoyable summer.

In order to help you more quickly find the information you may be seeking in our updates, beginning with this installment we are organizing the information by categories that roughly correspond with sections in the textbook. We hope you fine this useful. Let us know what you think.

CONVERGENCE

We noted (see page 9) the failure in 1994 of a mega-merger between a large company involved in the telephone business (Bell Atlantic Corporation) and a large cable company (Tele-Communications, Inc.). This summer Tele-Communications, Inc. announced it was being acquired by long-distance telephone service provider AT&T for about $48 billion, some $15 million more than the Bell Atlantic/TCI deal. Reports suggest AT&T wants TCI because TCI provides a means for the long-distance provider to get into local telephone markets dominated by the Regional Bell Operating Companies (RBOCs). The success of the strategy depends on the ability of cable systems to handle two-way interactive telephone traffic using the same kinds of technology used to transmit Internet Web pages. Some observers note that conventional cable systems have not been highly successful handling two-way voice communication and the Internet protocols may not be easily adaptable to providing high volume voice traffic. They also note that TCI's physical plant is not as developed as several other major cable companies in terms of bandwidth capability. Initial government reaction to the merger was favorable, but the fluctuating price of AT&T and TCI stock in late August caused come concerns about the future of the deal. Both John Malone of TCI and C. Michael Armstrong of AT&T had to later "reassure" and "re-explain" to investors why the deal was mutually beneficial following their initial announcement and explanation. AT&T's press release regarding the merger is available at www.att.com/press/0698/980624.cha.html

And speaking of TCI, this summer Rupert Murdoch (see exhibit on pages 76 and 77) decided to sell TV Guide magazine to Tele-Communications, Inc. for a reported $2 million. TCI acknowledges the printed magazine is not a great property in itself, but TCI plans to use the name to promote on-line and on-screen program listings. TCI subsidiary United Video Satellite Group has an on-screen program listing product called Preview that many systems now use. United Video will rename the service the TV Guide.

Channel and consolidate several on-line program-listing websites into one. Cable operators have found the on-screen listings are very important in selling cable service upgrades and are expected to be important in selling subscribers new digital services available through cable. TCI, however, denied rumors there were plans to scrap the printed magazine and make TV Guide an exclusively electronic product. At least for now.

More on local telephone competition: In June the long distance carrier Sprint announced plans to enter the local telephone service market. The company is building a new telecommunications network that will enable subscribers to have multiple phone lines, Internet access, and video conferencing. The services should be available to large business customers by the end of this year and to residential consumers by the end of 1999.


TECHNOLOGY

TV stations, especially those in the larger markets, continued gearing up for DTV over the summer months. Stations in the largest market (New York) continue to have problems finding a spot for their DTV antennas. NBC's New York O & O (WNBC-TV) is reported to have backed off its May 1999, DTV launch date until the following November because of tower problems. Another NBC O & O (WMAQ in Chicago) has also notified the FCC it won't meet its promised November 1998, deadline because of tower problems. In late August only two New York stations (WCBS-TV and WNYW) appeared to have clear plans regarding their DTV antennas, although all stations are seeking a solution. The New York problem appears to focus on difficulty reaching agreement with officials controlling access to the World Trade Center building, the site desired for DTV antennas by the city's TV broadcasters. San Francisco broadcasters are also having DTV tower troubles. Residents near the proposed DTV tower site are concerned about tower safety in the event of an earthquake. They have take n legal action to block the addition of a 20,000-pound DTV antenna to an existing tower. At least four San Francisco stations planned to use this same DTV antenna. All broadcasters continue to worry about the effects of multipath interference to DTV signals, especially for those viewers depending on indoor receiving antennas. Some broadcast engineers say the success of DTV will depend largely on the effectiveness of the "adaptive equalizers" receiver manufacturers put into DTV sets. Adaptive equalizers are computer-like processors that reduce the effects of multipath interference.


BUSINESS AND OPERATIONS

The concentration of radio ownership in the U.S. (page 156) continues. On September 2 of this year Chancellor Media Corp. announced it would purchase Capstar Broadcasting Corp. in a deal valued at over $4 billion. Chancellor would then regain its lead (which it lost to CBS) as the largest radio group owner in the U.S. After the purchase Chancellor will control 463 stations in 105 markets with revenues around $2.3 billion annually.

Although FM radio stations outnumber AM stations (see page 37) and collectively attract a much larger audience, AM continues to draw a significant number of listeners in spite of defections to competing media. It is estimated that about half the adults 18 and older in the top 25 markets still tune to AM at least once a week and that AM stations account for about one-fifth of all radio listening. AM's audience is significantly older than that of FM stations, but more than half are in the 25-54 age group prized by advertisers.

Even though some women have found great success as electronic media journalists (page 185), there are very few women in top management positions. Broadcasting & Cable reports that all of the top 25 media groups in the U.S. are headed by men; no woman leads a top 25 TV group, a broadcast network, or a major cable programming company. One of the top 25 cable operators is headed by a woman.

For updated information on the job scene, the 1997 Annual Survey of Journalism and Mass Communications Graduates has been released. The survey looks at the job market for recent mass comm graduates and includes information on salary and benefits. You can view the survey online at: http://www.grady.uga.edu/annualsurveys/


PROGRAMMING

We noted (page 253) that Rupert Murdoch's News Corporation had acquired control of The Family Channel and planned to alter its programming. In mid-August the company launched the new Fox Family.

Channel. Initial ratings indicated the revised programming attracted a slightly larger total audience, but Fox officials noted that the number of viewers in the targeted 2-11 and 18-49 demographic groups increased significantly in spite of counterprogramming efforts by competitors. Media observers say it's too soon to tell how successful the revised Fox programming may be over the longer term, considering.

Fox may have artificially increased the initial ratings by spending an estimated $100 million plus promoting the launch.

The controversial "V-chip" (page 254) is back in the news. TV set manufacturers recently announced that the v-chips installed in new TV sets will allow viewers to block unrated programs such as news and sports. Angry broadcasters and cable programmers argue that this development could jeopardize the entire program rating system; they believe that the v-chip should only be used to block rated programs and that all unrated programs should not be "blockable."

We noted NBC's difficulty establishing a successful prime-time newsmagazine (pages 258-259) but added that they found such a hit in Dateline that they offer it four times a week. This fall NBC will add Wednesdays to the Dateline schedule, making it a fixture five nights each week. NBC's decision was based on Dateline's ability to generate strong ratings, to attract advertisers wanting to reach older, wealthier viewers, and the fact that the show is relatively cheap to produce. The format's flexibility also allows the producers to react almost instantly to dramatic or controversial issues, capitalizing on the quickly changing interests of today's audience. The continuing success of Dateline and other weeknight programs like it prompted CBS to announce an expansion of its highly regarded 60 Minutes (see page 258). Rumors of an expanded version of 60 Minutes have circulated for years. CBS has indicated the second edition of 60 Minutes likely will air on Tuesdays starting sometime early next year. There are reports that several persons associated with 60 Minutes fear the expanded version of the program may not maintain the high standards of the original. There also are reports that ABC plans to revise its prime-time news magazine programs and offer them all under the 20/20 banner this fall.

Controversial shock jock Howard Stern (see page 267) expanded his exposure on TV in late August by launching The Howard Stern Radio show in syndication. Stern claimed his new offering would air in 75 percent of U.S. markets and be carried, at least initially, by 12 of the 14 CBS owned-and-operated (O & O) stations. The show is intended to go head-to-head with NBC's Saturday Night Live and Fox's Mad TV. Stern promised to maintain the same level of raunchiness in his new broadcast TV product as in his syndicated radio show, parts of which have been available on cable's E! Stern says he hopes some sponsors boycott the new show because that would increase interest and improve his ratings.

Broadcast network officials worry about profits as programming costs continue to increase while ratings fall and advertisers balk at paying more for network spots. Broadcasting & Cable magazine cites network sources as saying a new half-hour sitcom now costs about $900,000 per episode to produce, with the network paying $500,000 to $600,000 per show for first year broadcast rights. A new drama costs approximately $1.5 million per episode, of which the network pays two thirds. The cost per episode for established, successful programs runs much higher, such as NBC's ER at $13 million. Sports programming costs have increased dramatically, with NFL football, for example, at $18 billion for the next eight years compared to $4 billion for the previous four years. The networks say these program costs make traditional network payments to affiliates for carrying their programming unrealistic. Accordingly, CBS, ABC and Fox approached their affiliates this summer requesting each group of affiliates to contribute about $50 million toward paying for this season's football costs. To make up for the loss of network compensation and for money paid to help offset programming expenses, the affiliates want network promises of program exclusivity in return. The networks, of course, want the freedom to "repurpose" their programs and distribute them again through other media channels such as cable.


RATINGS

It looks like Nielsen may have some competition for its national television audience ratings service. In August ABC, CBS, Fox, and NBC announced plans to back the new ratings service being developed by Statistical Research, Inc. (page 278). Several advertising agencies have also pledged to support the new service. SRI officials indicate it might still be several years before the service can be rolled out across the country.

Basic cable channels' ability to attract larger audiences than the broadcast networks was reflected in the summer ratings. In early August basic cable reached a new industry high in competition with NBC, CBS, ABC and Fox. During one week in August basic cable channels attracted more than 24 million households compared to about 23 million for the broadcast networks. Cable officials say these figures indicate cable will continue to increase its domination of the broadcast networks going into the fall season. Network spokespersons note that many network programs during the summer are reruns and that cable offered some exceptional programming during the week cable attracted its record numbers. The loss of broadcast network viewers to cable has been a continuing trend for many years. Network viewing during prime-time has decreased almost 50 percent during the last two decades.


EFFECTS

Several recent studies provide more insights into Internet use in America. One survey of online use reports that one-third of Americans over 16óover 70 million people--use the Internet. A second study found that all this Internet use means people are spending less time watching TV, working, sleeping, and exercising. Of the 500 net users surveyed, nearly 65 percent indicated their Net time had come at the expense of television viewing. Yet another study indicates that heavy Internet users may become withdrawn, less sociable, and even more depressed than non- or light users. What's your experience?


REGULATION

This is a good time for Congress watching, especially if you are interested in telecommunications legislation. Over the next several months Congress could consider many proposals for changing the law of electronic media, including bills that would provide free air time for political candidates, delay the date on which cable television rates would be deregulated, amend the copyright laws, and impose content restrictions on internet communications. In fact, over 300 bills involving the Internet alone are now pending in Congress. Most of the proposed legislation will not be enacted, but Congress will likely make some changes in the law of the media. Stay tuned.

We alerted our readers in our last update that a U.S. Court of Appeals had declared the FCC equal employment opportunity rules (pp. 341-42) unconstitutional. Since that time FCC Chairman William Kennard has been urging broadcasters and cable operators to commit themselves to seeking out qualified minority and female employees. Several major companies indicate they will continue to abide by the principles embodied in the FCC's rules even if the court's ruling stands. The FCC has announced it will appeal the court's decision.

On a related note, the FCC is investigating allegations that some advertisers may discriminate against radio and TV stations that are either owned by minorities or attract significant minority audiences. Minority broadcasters have long argued that advertisers pay them less for airtime because they do not value minority consumers as highly as non-minorities. The FCC investigation was prompted by the disclosure of an advertising agency memorandum suggesting that advertisers avoid minority stations.

Even though government cannot regulate indecent programming on the Internet (page 374), more serious offenses can be punished. In early September of this year law enforcement agents in the U.S. and 13 other countries moved against members of an online internet club who allegedly distributed and traded child pornography. The pornographic material included scenes of child abuse and rapes of children, some as young as two years old.