Scattershooting on the Media Economy

It's been relatively slow in terms of news that deserves commentary the past couple of weeks.  Here are few random thoughts on what few things seem of interest to this blog and its readers.

The NAB Performance Royalty.  I wrote about this on October 26, and the only significant change is that most of the radio industry--make that the small and medium market station groups--are railing against the NAB for trying to reach a deal with the devil.  Radio Ink magazine and publisher Eric Rhoads called for an industry-wide vote on the issue, which seems like the reasonable thing to do. Since then, he has recanted and feels the "term sheet" negotiated is a good deal for radio.  I still don't understand how giving up a potential 1% of your revenue makes sense.  I'm also amazed the NAB jumped in to this prior to the elections, and with a Republican majority in the House the likelihood of legislation passing to enact the PRA seems unlikely.  Stay tuned for more rhetoric.

Moving way south--Nestor Kirchner's sudden death in Buenos Aires could usher in a new wave of media relationships with the government in Argentina.  While his wife Christina remains President, she is not perceived as being the hard-liner that her husband was, especially towards big media groups like Clarin.  Argentina is vital to the economy in South America, and letting the media operate on its own without government control will spur more economic growth.  The government doesn't need to be engaged in battles with the media--Argentina has plenty of other problems to solve.

Turning to the far East, former Fox executive Peter Chernin is working with a group of investors to develop a media company in Hong Kong that will be engaged in television, film, and digital entertainment.  The business-friendly Hong Kong market is the perfect place for a launch to cover the Asian region, and Chernin is a smart executive.  If successful, the new company could become a power in the region.

The Wall Street Journal on November 8 ran a very interesting infographic in the marketplace section called "When Screens Collide."  Very interesting, and illustrates how web and TV advertising are changing to resemble one another.  Pretty cool, check it out.

The Media Economy is always evolving.  Stay tuned.

The Performing Arts Battle between the Music Industry and Radio

For many months, the recording industry (music industry) has been lobbying Congress to enact legislation that would provide a performance royalty to artists (those who actually sing/play the music) from radio revenues.  The music industry has never had the votes yet to pass the legislation, but they keep trying.  There has been a lot of rhetoric on both sides about the issue, with radio claiming that the music industry benfits from free airplay and promotion, while the music industry points out that radio stations benefit from content and avoid paying a performance tax (whoops, I mean royalty) as in many other countries.

Surprisingly, the NAB Board has now brought forward a template for such a royalty, to be between .25 and 1% of radio revenues.  But there is a catch.  The royalty is tied to requiring that radio chips for FM and HD radio channels be required for mobile phones.  The radio industry has been after chips for mobile phones for some time, but the electronics industry and major phone makers are not interested.  And they probably won't be interested in this issue either.

Apparently, the NAB sees making concessions on the performance royalty critical to getting radio chips on mobile phones.  I probably don't get something, but to me these seem like mutually exclusive issues.  If I'm Apple, why do I care if there is an FM/HD chip on new versions of an iPhone?  Let the industry create an app for that (actually several already exist).  And if I am RIM or Nokia or another phone manufacturer, what do I get for putting this chip in the phone except for another cost?

And is anybody asking what consumers want?  Thousands of people are listening to Pandora and Internet radio on their phones every day instead of local radio.  They listen to these services because they have given up on radio and its repetitive, sounds the same in every market programming.  If consumers have a radio chip on their phone, how many are actually going to listen to local radio?  I get it if there is severe weather, or maybe a sporting event of a local nature I want to receive.  But just to listen to music?  That train has already left the station.

There are lots of issues here that are not resolved by this first step.  But this is a huge economic gamble for the NAB and the radio industry.  Giving away any revenue when you have been losing money for years in hopes of building more audiences online is a big risk.

Stay tuned.  This is far from over.

Former FCC Chairs Say "End the Ownership Rules"

This is an interesting item from another blog written following a C-SPAN program called "The Communicators" that brought together former Federal Communications Commission Chiefs Reed Hundt (Clinton administration), Michael Powell (G. W. Bush administration) and Kevin Martin, who took over the agency after Powell during the last years of the George W. Bush Presidency in a lively discussion on the FCC and the agency's ownership rules.

The central message from the three former Chiefs:  Throw the rules out.  But it won't happen for many reasons, with Powell citing politics as the primary reason.

It is an interesting program illustrating how policy decisions impact the media economy.

Televisa and Univision Extend Partnership

The media economy received a buzz this week with the announcement that Mexican media conglomerate Televisa is investing $1.2 billion for a 5% ownership stake in Univision, and at the same time extending the critical exclusive programming contract through 2020.  And these are the same two companies that have spent millions battling each other in court the past few years?

Clearly, this is a smart strategic move for both companies.  Univision gets an influx of cash, and perhaps more importantly they can continue to count on high-quality novellas from Televisa for their prime-time schedule.  Televisa CEO Emilio Azcarrage Jean has made a lot of noise about starting a Televisa channel in the US; this deal effectively mitigates that possibility.

But Televisa wins as well.  They will continue to have a key showcase for their programming in the US through the powerhouse Univision broadcast network.  Televisa will also receive higher royalty payments for this new deal, which also resolves the question of digital (Internet) rights to broadcast the programs. 

This deal also widens the gap among competitors in the Spanish language space in the U. S., especially for second place Telemundo and the struggling Azteca America.  We can expect Univision to continue to play the dominant role in the SL market going forward.

NBC Universal and Comcast: A New Look at Valuation

This article featuring an analysis by Wunderlich Securities analyst Matthew Harrigan gives us a first-hand look in to a complicated topic in the media economy--that of valution.  Harrigan has analyzed the pending NBC Universal acquisition by Comcast, and provides some amazing insight in to the valuation process--at least how this one analyst conducts such an undertaking.

Two things caught my attention.  First, the significant value placed on the NBCU cable channels, specifically ScyFy, CNBC, MSNBCm and Bravo.  The second thing that was very interesting was the negative valuation for the NBC broadcast network, which eliminated some $600 million off the total amount.  It is the first time I have seen one of the big four broadcast networks valued negatively.  The reason?  NBC's poor performance since 2007 in prime-time, finishing most seasons in either third or fourth place.

This is a very interesting article for a topic that we find too few stories about.  BTW, in case you don't want to read the article in the link, Harrigan values the merged Comcast-NBCU company at just a little over $38.6 billion, making it the world's largest media company.

Mobile Advertising and Future Projections

With the rapid adoption of smart phones and other mobile devices, the projections for mobile advertising is going through the roof.  According to the latest estimates by BIA/Kelsey, mobile advertising is expected to top $2 billion by 2014.  That may not sound like a lot, but for a category that didn't exist just a few years ago, these are impressive numbers.

With all of the apps being developed for smart phones and tablet devices, more and more consumers are moving to adopt these technologies as their budgets allow.  Advertisers recognize this trend and are following suit.

The $2 billion estimate for 2014 is only about 1.4% of the total projected ad pie for that year, according to RBR.  But that's still a lot of money.  We can expect double-digit growth in mobile advertising for the next decade at least.

Just illustrates the need for any media company operating in the 21st century to have a mobile strategy.  It is just too important to ignore mobile in the media economy.

Passing of Ward Quaal

One of the true leaders of broadcasting has passed away.  Ward Quaal was identified with Chicago's WGN for much of his career, but also was a big part of the Broadcast Pioneers now Broadcasters Foundation.

What is not being reported in many of the obits being released the last couple of days is that Ward Quaal was also an author of one of the first books on management.  Aptly titled "Broadcast Management," the book was published by Hastings House in 1976 with a second edition following a few years later.  The book was co-authored with former Alabama professor James Brown. 

It was a classic text, and I was introduced to the book when I took "Broadcast Management and Economics" at Marshall University in a class taught by my late mentor, Dr. C. A.  "Ace" Kellner. 

Many management texts have followed, including my own (Management of Electronic Media published by Cengage), but Quall's book was the standard by which the rest of us followed.

Ward Quaal was 91 years old.  

Zucker, Klein on way out at NBCU and CNN. Implications?

On Friday we learned that Jeff Zucker will soon be leaving NBC Universal and that Jon Klein is departing from CNN.  This follows on the not-too-distant announcement that David Westin was leaving ABC News.  It has been a long time since this many big network jobs have had vacancies.

Zucker's departure is probably not as surprising with Comcast about to take over the company once the merger is approved in Washington.  The NBCU cable nets have done great, but NBC as a network has performed poorly the last several years.  NBC News has done well, but most of that is attributed to Brian Williams.

Klein's departure at CNN is really interesting.  CNN's ratings have been awful for some time, and their prime-time lineup is about to change this fall as the new Elliot Spitzer-Kathleen Parker is set to replace Rick Sanchez who replaced Campbell Brown.  And then at year's end Piers Morgan will take over for Larry King.  Klein was responsible for both of those changes, but now he is gone.

ABC News has done well under Westin, but the network has suffered so many cutbacks and closings of bureaus that it is now a shell of the powerhouse news organization Peter Jennings led just a few years ago.

What does all of this mean?  A few thoughts.  These are traditional media jobs, and they must change like the traditional media content to remain viable in the 21st century.  They come at a time when audiences are more fragmented than ever, technology and digital platforms are booming, and the economics are even tighter.

This also is a chance to rethink and move in new directions.  Perhaps now is the time for CNN and CBS to finally form a partnership that they have danced around ever since Dan Rather was managing editor at CBS.  I've said for years it makes no sense to have three networks doing a nightly news show, as well as 4-6 cable news channels.  People don't need or want that much information.  The economics don't make sense in the 21st century. 

Who knows what direction ABC will move in, but a partnership with another network or cable player would make economic sense for their operation as well.  Bloomberg might be an interesting option for ABC, despite its heavy business orientation.

All of these moves are further indicative of change and evolution in the media economy.  Stay tuned.

Blockbuster Files Chapter 11

If ever there was an example of changing media markets Blockbuster and the market for home video represents a classic case study. Early Thursday morning, September 23, 2010, Blockbuster filed for bankruptcy protection or Chapter 11. Once-mighty Blockbuster, which had at its peak somewhere near 4,000 stores, had ruled the home rental market for years after driving out most of the family-owned rental houses and competitors like Hollywood Video and Movie Gallery.

But then the digital revolution hit, and everything came unglued. Rather than recognize the massive technology shifts and changes in consumer tastes, Blockbuster ignored what was happening across society and stayed the course. Only after upstart Netflix started seriously crimping their business model did the company start to make changes. By then it was too little too late.

The revamped Blockbuster that emerges from Chapter 11 will be a shell of its former self. In a world where broadband wireless distribution is becoming the way most people will access content, Blockbuster's brick and mortar stores are irrelevant. The company will try to compete with Netflix via online and mail distribution, but they won't catch the leader. Redbox is also growing across the US for those users who rent on the spur of the moment for $1 a pop.

There's a lot to learn in the media economy about Blockbuster and its demise. For some more information, see today's Wall Street Journal story:

The Retransmission Fee Mess

The economics of the broadcast television industry has been under stress since the US rolled in to recession in 2008. That horrible year saw a perfect storm of negative activity as the financial, automotive, and retail sectors all were hit hard by layoffs and tightening of consumer spending, resulting in millions of dollars in lost TV advertising at the local level.

TV stations held on, thanks to the 2008 political races. In 2009 the recovery began, but most GMs will tell you that the situation is nowhere back to 2007 levels. A bright spot in all of this has been an increase in retransmission fee negotiations with cable and satellite operators.

Now, the networks, led by CBS CEO Les Moonves, and Disney CEO Bob Iger, wants a big chunk of that change. (see http://www.broadcastingcable.com/article/457399-Iger_Affiliates_Retrans_Payments_Will_Grow.php for the latest on this story). The networks point is a valid one--their programming is probably one of the main reasons people watch local TV.

But the networks are also discounting the importance of local news and other local programming which of coures is where the value is at in local television. So now, local affiliates have grinding negotiations to deal with at the local level, knowing full well that the networks are going to want a big piece of the action. This is playing out locally in my market as I write this, as Belo is in heavy negotiations with Time Warner regarding carriage of Belo's 18 TV stations. If no deal is reached by Saturday, Belo will pull their signals from TW's cable lineups (see http://www.dallasnews.com/sharedcontent/dws/bus/stories/DN-timewarner_21bus.ART.State.Edition1.270af23.html)

Of course, much of this money being swapped between affiliates, cable/satellite/IPTV providers and now the networks will raise costs for programming that will ultimately be paid for by the consumer. So our bills will rise, with few looking out for the consumer and social policy. Can't afford cable? Too bad. Get an antennae.

It's a lousy system for everyone. It's a system built on greed. Right in line with the return this week of Gordon Gekko, who coined the phrase "greed is good" in the original Wall Street movie starring Michael Douglas.

Publication Date: June 17, 2010

The Media Economy is the latest book by one of the world's internationally known media economists Dr. Alan B. Albarran. The Media Economy will be published on June 17, 2010. You can pre-order the book at the Routledge web site by clicking on the image of the book at right.