October 1998 Update

Michael McGregor & Thomas Spann

CONVERGENCE/DIVERGENCE

The New York Times reports that more and more telephone customers are opting to use their cellular telephones for all of their telephone needs. Approximately one million people sign up for cellular service per month. Some analysts predict that wireless will displace 25-35% of wireline phones by the year 2005.

Cox Communications now provides cable telephone service in four of its cable television markets. So far, Cox reports having around 10,000 telephone subscribers. Cox entices its customers with "bundled" services and lowered prices. For example, existing cable subscribers get a lower price on Cox telephone service. On the other side of the coin, Ameritech recently announced that it had obtained its 30th cable television franchise in its Midwest service area. Ameritech also uses bundling strategies in marketing its various services. On another front, Bell Atlantic announced that it will begin marketing DBS service in the Washington, DC area.

ESPN is revving up its website for the fall football season. ESPN says use of its website is increasing at more than 60 percent annually. ESPN will move this fall to better integrate and coordinate its website offering with those of NFL.com, NBA.com and similar sports-oriented sites. Some reports indicate websites are critical to keeping sports fans involved with the broadcast itself by providing more extensive player and game statistics. It appears a significant number of people watch the game on TV while simultaneously logged on to a sports-related website. Another goal of the on-line sports sites is to get fans involved in pre-game activities earlier in the day, before the broadcast begins, and to hold viewers after the broadcast with postgame video clips of game highlights, player interviews, and updates on team standings, including college teams competing for bowl bids. An increasingly popular feature of some sports-oriented websites is fantasy football and baseball.

NBC is moving to enhance its leadership position among major broadcast networks in promoting on-line services. The network is helping affiliates move up to video and audio streaming on their own sites by arranging for the stations to get the needed technology at favorable prices. NBC says it is important that both its O&O stations and affiliates move forward on-line in a somewhat unified and cohesive manner rather than moving in different directions. NBC is already heavily involved in providing streamed content at the network level for such NBC programs as The Tonight Show with Jay Leno.


TECHNOLOGY

PBS will offer special programming next month during what it calls "Digital Week." A special part of the programming will be the November 12th broadcast of a Ken Burns documentary on architect Frank Lloyd Wright that will air in high definition in six markets (Washington, Seattle, Harrisburg, Pa., Portland, Ore., Milwaukee, and Miami). TV Technology says the program will provide video plus data: the broadcast signal will provide viewers equipped with special PCs both the video program in high definition plus a great deal of downloadable data, perhaps including high definition video footage that didn't make it into the main program. Intel is assisting in developing the required hardware and software. PBS and Intel say the November broadcast is both a test and a demonstration of the extremely high data transfer capabilities of a broadcast signal.


BUSINESS OPERATIONS

The turmoil in stocks continued into September with the S&P 500 index down more than 17 percent at times from its mid-summer high. Stocks of TV station group owners generally are suffering even larger declines than the S&P 500 with some companies losing more than 25 percent of their stock value. The highly volatile DBS stocks have taken even larger hits, with loses running from 30 to more than 40 percent. Cable companies have so far held on to much of their gains acquired during the past year. Some investment analysts say cable stocks may benefit from the fact cable revenues depend more on subscriptions than advertising. If the economy is headed for recession, they say, the advertising supported TV stations will suffer more than will relatively recession-resistant cable system operators.

We reported earlier that a new commercial network--Pax Net--was in development. It's now operational and renamed Pax TV. In its first week of operation, the network scored an average rating of 1.4 in 31 metered markets, surpassing the network's own predictions on early viewership.

In its September 7th issue, Broadcasting & Cable presented its annual report on the top media groups in the United States. This year's top 5, ranked by amount of annual revenue, include Time Warner, The Walt Disney Co., Sony Corp., Viacom, and News Corp.

The merger of Capstar Broadcasting into Chancellor Media makes Chancellor the largest radio group owner in the nation in terms of both revenues and stations owned. Chancellor will own more than 450 radio stations, far more than any other group. In terms of revenue, however, Radio World places Chancellor's 1997 revenue at about $1.6 billion and the second place CBS radio group at around $1.5 billion, although CBS owns fewer than 200 stations. About half the CBS stations are in the top twenty markets. But CBS radio stations are also in transition with CBS Corp. spinning off its radio stations to be operated under a new banner, Infinity Broadcasting. This is the same name CBS executive Mel Karmazin used for his broadcast holdings before coming to CBS/Westinghouse several years ago.

Spending on political broadcast advertising this fall could match or exceed that spent in 1996, even though this is an off-year election. Broadcasting & Cable cites the Television Bureau of Advertising as saying advocacy advertising for and against a variety of issues could account for the increase over the last off-year election in 1994 when spending reached $355 million. Unlike advertising for candidates, advocacy ads can be paid for from "soft money" funds that do not have limits on contributions nor public disclosure requirements regarding sources or amounts of contributions. Another factor that may account for the high level of spending on political advertising this fall is the fact that broadcasters do not have to follow the lowest unit charge rule for issue ads as they do for spots for political candidates. Broadcasters must be especially careful when accepting advocacy advertising, however, because they are not protected against libel suits as they are when airing ads for candidates.

Following the trend among networks, ABC announced it will stop compensating affiliates in the 100-plus markets for carrying Monday Night Football. The high cost of broadcast rights for popular professional sports is altering the traditional network-affiliate financial arrangement. As noted in last month's newsletter, networks are starting to demand that affiliates contribute to the network to help offset the higher costs of broadcasting popular sports.

The large increases for broadcast and cable rights to sports such as football and basketball are also occurring in less popular professional sports. Although ratings for hockey are down this year, ABC and ESPN will pay an estimated $120 million annually for five years to carry the NHL. That compares to an estimated $45 million a year paid by ESPN and Fox under the previous contract.

Westwood One, Inc. is another broadcast organization trying to reduce costs and increase efficiency. Westwood One recently cut 50 positions at its NBC/Mutual News operation in Arlington, Virginia. More than thirty of those laid off were members of the American Federation of Television and Radio Artists (AFTRA). AFTRA says this is the largest single lay off in the Washington. D. C. market in 25 years. Radio World says NBC and Mutual newscasts will now originate only in New York with CBS Radio News providing the anchors. CBS Corp. owns about a quarter of Westwood One. The Arlington operation will continue to function as a newsgathering and reporting bureau covering the nation's capitol for the Westwood One networks. Radio World reports that Westwood One spokespersons say the cuts are not expected to affect NBC or Mutual's programming, including popular talk shows hosted by Larry King and Bruce Williams.

The National Telecommunications and Information Administration (NTIA) released its annual Minority Broadcast Ownership Report which finds that while the number of minority owned commercial radio and television stations increased slightly last year, overall minority broadcast ownership is at near-record lows. The report notes that in the last 5 years 503 new broadcast stations have gone on the air, but only 15 of those stations were owned by minorities. You can see the report on NTIA's web pages at http://www.ntia.doc.gov/ntiahome/press/minown98.htm

The FCC's hope that its minority recruitment rules would be reinstated was dashed last month. Last April the U.S. Court of Appeals for the D.C. Circuit ruled that the FCC's policy requiring broadcasters to actively recruit minorities and women is unconstitutional. In rejecting the FCC's request for a new hearing, the Court effectively squashed rules strongly supported by FCC Chairman Bill Kennard. It is likely the FCC will appeal to the U.S. Supreme court, given Kennard's feelings and those of several other FCC commissioners. In spite of the Court's decision, however, the broadcast and cable industries have publicly said they will continue their voluntary efforts to recruit minorities and women.


PROGRAMMING

The TV Program Rating System (p. 255) has been formally approved by the FCC and television manufacturers are moving ahead with plans to include V-chip technology in their new sets. But a new study done by the Kaiser Family Foundation indicates most television programs do not include the content portion of the ratings. For example, 92% of the programs with sexual content did not carry the "S" code and 79% of shows with violence did not carry the "V" code. Most programs did carry the age-based ratings.

Shock jock Howard Stern's syndicated TV program mentioned in last month's newsletter earned a respectable rating for a new program its first week on air, but has yet to challenge seriously its major competition, Saturday Night Live and Mad TV. Stern has also seen some defection among stations originally signed to carry the show, even when the show attracts larger audiences than the programs it replaced. Stations dropping Stern after the first show say ratings are not the only criteria used in selecting programming.

NBC's reputation as the top-rated broadcast network received additional confirmation at this year's Emmy awards. The network won 18 awards, four of them for Frasier. ABC was only slightly behind with 16 awards, up dramatically from the previous year. CBS won six, Fox took home four, and The WB claimed two. Premium cable channel HBO continued its winning ways with 14 Emmys.

ABC's perennial rating powerhouse, Monday Night Football continues to attract viewers. Perhaps due in part to the new 8 p.m. (Eastern) start time, MNF kicked off the season with ratings among adults up more than 20 percent compared to last year. The September 7^th broadcast of the New England Patriots-Denver Broncos game pulled a rating of 14.8 and share of 24 to easily win the night for ABC. The next closest competing program was NBC's Dateline with a rating of less than 10 and a share of 17.

A number of AM radio stations are attracting males with all-sports formats. Industry reports show the number of AM stations broadcasting all-sports has more than doubled in the last four years. Although still a relatively small percentage of total AM stations, the format is now provided by more than 200 stations. Like other talk-based formats, the all-sports format attracts a predominantly male audience typically ranging in age from mid-20s to mid-50s. The most successful all-sports stations are in large markets that can more easily support such a specialized format.


EFFECTS

It is still true that most Americans depend primarily on television for news (p.309). But do people trust television news? Broadcasting & Cable commissioned a survey, conducted by Frank N. Magid Associates, that suggests the answer may be "not much." When respondents were asked what entities they had "great trust" in, only 29% said "local television stations" and television networks were mentioned by a mere 14% of the respondents. By contrast, the group eliciting the highest "trust quotient" at 46% was local police and law enforcement officials. Only 23% had a "great deal" of trust in the President, 22% in newspapers, and 12% in Congress. We reported last month about several studies on Internet use, and they just keep rolling in. A study by Discovery Communications on Internet use and TV viewing indicates that teenagers who use the Internet watch less television. For other age groups, however, as Internet use increases, time spent watching television also rises.