Transcript Broadcasting, Cable, the Internet and Beyond The Business of

Broadcasting, Cable, the Internet and Beyond
Chapter 7
Quick Facts
 Most expensive advertising time slots: 1999 Super Bowl
 Amount of money spent on radio for prescription drug
advertising: $82.9 million (2001)
 Most profitable television station in the U.S.: WNBC-TV
 Cost of a 30 second advertisement time slot during “Ally
McBeal”: 177,000 (1999)
 Ratio of advertising dollars spend on TV versus
billboards: 10 to 1
 Total cable advertising revenue: $15.5 billion (2001)
 Number of DBS subscribers: 16 million (2001)
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What is the Business of Broadcasting?
 Broadcasting and cable are ways of linking viewers with
advertisers while entertaining and informing an
audience.
 Stations attract audiences because of their programming
 Advertising revenue generates the profits that make
programming possible
 Television and cable have different revenue streams
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The Business of Broadcasting
 Mass media technology - an economical way to link
large numbers of peoples with advertisers
 In electronic media there is an interplay between
 technology
 the consumer
 economics of each medium
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Economic Models for Electronic Media
 Television and Radio model - Single Revenue Stream
The audience is the product that media delivers to an advertiser.
 Cable model - Dual Revenue Stream
Like broadcasting cable delivers an audience to an advertiser
Cable charges a monthly subscription fee for receiving the
program
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Competition and Electronic Media
 Electronic media all face competition
 Government oversight is tied to how competitive the
media
Radio - 11,000 commercial stations - fewer regulations
Television - 1,300 commercial stations - more regulations
Cable - Local franchise - local mandates for serving the
community
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Competition and Electronic Media
 MONOPOLY - where there is no practical competition
 OLIGOPOLY - there are a limited number of competitors
 PURE COMPETITION - few market barriers allow many
players to enter
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Competition among Different Media Types
 People use various forms of media differently
 Competition for radio listeners - radio is personal
Other portable devices (Walkman’s, CDs) compete with radio
Radio programs music, news, and talk
 Competition for television viewers TV competes with cable, movie rentals, etc
Television programs dramas, stories, news and talk
 Advertisers will buy different media to reach
listeners/viewers during different times of the day
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Media Usage Per Year Per Person - 2002
Source: Veronis, Suhler Stevenson Communications Industry Forecast 2002
Consumer Magazines
Consumer Books
Daily Newspapers
Consumer Internet
Video Games
Series2
Series1
Recorded Music
Home Video
Radio
Total TV
0
250
500
750
1000
Hours per year
1250
1500
1750
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Determining a Medium to Buy
 The triangular relationship in the media business
between
Programmers
Media sellers
Media buyers
 Successful programs develop audiences
 Media buyers buy time from sellers within or near those
programs
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Determining a Medium to Buy
 Marketers and advertisers develop a buying plan based
on
Population or market size
Effective buying income
Retail sales for the market (geographical area)
 Buying Power Index - data related to expenditures of
classifications of products for the specific market
BPI tells the advertiser how much the competition is spending
on similar or competing products
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Determining a Medium to Buy (continued)
 Media Buyers use various formula for determining the
effectiveness of ad placement
 Gross Ratings Points - evaluates a run of x number of
commercials over a specific time period that has a
consistent rating for the target audiences.
 Gross Impressions - reflects total of all persons
reached by each commercial in an ad campaign
 Buyers use data to calculate how much money to spend
to achieve their goals
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 Media Buyers buy specific audiences for their products
based on several criteria:
 Demographics
Age
Sex
Education
Income
 Psychographics
values and lifestyles of the audience (likes, dislikes, style, other
cultural factors)
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Placing the Ad
 Advertising Time Purchases
 Rate Cards - the cost of advertising on specific stations
 Packages - a specific number of spots to run on one or
more stations
 Specific Times Advertisers can buy specific time periods (e.g. primetime on
television, drivetime for radio)
Advertisers can buy time throughout the broadcast day (run of
schedule)
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CPM - Measuring Advertising Costs
 Media Buyers use standard formulas to figure out the
actual cost of a commercial spot
 COST PER THOUSAND (CPM) is used to express the
cost of reaching 1,000 members (M) of the audience
 Calculating the CPM - you need to know the cost of the
spot and the size of the audience. (look at the examples in
the book - 157)
 CPM is a good way of expressing ‘efficiency’ of the
media buy
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Broadcasting Sales Practices
 Station ad rates - pegged to share and make-up of the
audience
 Radio Sales - Dayparts
Morning Drivetime - most important time
Afternoon Drivetime - second in importance
Mid-day and Evening - next in importance
 Cooperative advertising - cost of ad is shared between
manufacturer and local store
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Radio Advertising Volume, 1965-2002 (in $ millions)
Year
Network National Spot Local
Total
1965 60
275 582
917
1970 56
371 881
1308
1975 83
436 1461
1980
1980183
779 2740
3702
1985365
1335 4790
6490
1990433
1626 6780
8839
1995512
1741 7987
10240
2001893
3036
13932
17861
Source: Universal-McCann
**2001 revenue breakout is estimated
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Broadcasting Sales Practices
 Radio and television sales are divided into several
categories:
 Local Spot Sales - local commercials purchased to run
on local stations (local appliance store)
 Network Sales - time purchased within a television
network program or on a radio network
 National Spot Sales - buying time at various local
stations using a national sales representative
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Television Sales
 Network Television is purchased in several ways:
 Upfront Market - media purchases made before the
television season actually begins
 Scatter Markets - four ‘seasons’ where advertisers
purchase time.
 Purchasing time upfront or in the scatter markets each
have advantages.
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Economics of Networking
 Television Programming
Dramas - most expensive to produce
Comedies - less expensive
Reality - least expensive
 Some first run programming loses money until
syndication
Advertising revenue is NOT sufficient to pay the cost of the
television series, particularly dramas
 CPM for network television is consistent with other
national ad venues
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The cost of advertising on network TV
(30 second spot)
Friends
Survivor
Will & Grace
CSI
Good Morning, Miami
Girls Club
Boston Public
The Osbournes
$455,700
$418,750
$376,617
$280,043
$279,813
$178,400
$146,887
$100,000+
Source: Electronic Media 9/30/2002
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Syndications
 Local television programming is usually built around
local news and syndicated programming
 Syndication
First Run - New non-network produced programming (e.g.
Wheel of Fortune)
Off Network - network reruns (e.g. Will and Grace)
 Local Stations may purchase syndication rights or barter
time for the program
Barter syndication has commercials embedded within the
programs.
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TV Sales 2001 (in billions)
Network TV
($14.3)
Local Spot
($12.2)
National Spot
($9.2)
Syndicated TV
($3.2)
Network TV ($14.3)
Local Spot ($12.2)
Syndicated TV ($3.2)
National Spot ($9.2)
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Public Television
 Public radio and television stations do not have
commercials
 Corporations provide underwriting
 Underwriting usually airs at the beginning of the program
 Membership drives usually occur twice a year
 Federal funding for public television works out to about
$1 per person per year
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