Tuesday, September 23, 2003

Media power and cable channels Increasingly, the big media companies (GE, Disney, Viacom, Time-Warner, etc.) are depending on their cable TV networks to prop up otherwise hit-and-miss collection of assets. That's the convincing theory of Martin Peers, in his Wall Street Journal article, "How Media Giants Are Reassembling The Old Oligopoly" (9/15/2003). As Peers puts it: Viacom and its big media peers have been snapping up cable channels because they're one of the few entertainment outlets generating strong revenue growth these days. More broadly, the media giants have discovered that owning both broadcast and cable outlets provides powerful new leverage over advertisers and cable- and satellite-TV operators. The goliaths are using this advantage to wring better fees out of the operators that carry their channels and are pressuring those operators into carrying new and untried channels. They're also finding ways to coordinate promotions across their different holdings. As he points out, the old oligopoly of the big three networks has been recreated anew, with cable and local combinations giving balance to the media giants, with their sinking music divisions, dull publishing holdings, and wildly fluctuating film businesses. That explains their eagerness to push FCC rules to allow them to own more local stations, and it may explain the real prize of the GE-Vivendi deal, namely the seemingly insignificant Universal cable holdings (USA Network, Sci-Fi). Other media powers have gobbled up such seeming insignificant cable stations as Comedy Central, Bravo, Country Music Network, and the Food Channel. Cable channels are far more profitable than networks; with relatively low production costs and burgeoning ad revenues and per-viewer fees. But the key issue is power at the bargaining table. Peers recounts a great story of toy giant Mattel making threats to pull its ads from Nickelodeon, unless Nickelodeon parent Viacom ran a Mattel-produced piece of advertainment programming called "Barbie in the Nutcracker" (!) on prime time on CBS. Unflinching, Viacom threatened massive retaliation by refusing Mattel access to any of its properties, from MTV to Viacom's vast radio holdings to billboards. The media giant trumped the toy giant, and Mattel backed down and compromised. Peers quotes a Viacom executive as saying "You find it very difficult to go to war with one piece of Viacom without going to war with all of Viacom." The other area where the negotiations get tough is with the cable companies. Getting Comcast or Cox or any other cable provider to carry your lesser cable networks is a struggle, but not if you start with a stacked deck. To quote Peers: Joint ownership of cable and broadcast is particularly valuable in negotiations with cable operators. A 1992 law allows broadcasters to regularly renegotiate the price for carrying TV stations' signal on cable. While broadcasters could charge a cash fee, they usually offer the broadcast stations free in exchange for carrying a new cable channel they've launched. Few viewers would subscribe to cable if ABC, CBS or NBC weren't on the channel line-up, so the cable operators have little leverage. The strategy lets broadcasters add more cable channels, including many narrowly focused networks. Since 1993, big media companies have launched at least 35 new cable channels by bartering the right to carry their broadcast stations. It's not the usual "synergy" of shared content and/or cross-marketing that is propelling the media giants; those are relatively minor plusses. The big advantage of owning several media businesses is the ability to deal from strength and bargain with muscle. 8:22:55 PM

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