Short essay on A Premature “Demise”

The US broadcast television industry’s argument that it needed relief from “onerous” governmental regulation was persuasive in a political climate predisposed to economic deregulation. Ironically, this was the impetus for the rise of alternative distribution outlets like cable which led to a new level of competition for the attention of the television viewer.

By the late 1980s, the Big Three networks were consistently losing audience to cable services and the new Fox network. It was not uncommon at this time to hear arguments that the Big Three were “dinosaurs” unable and unequipped to compete in the new multichannel environment (Reith, 1991).

One of the reasons these arguments were given credence was the increased amount of desirable programming cable was able to acquire.

Sports product provided one of the better examples of this as the upscale demographics of cable subscribers were seen as a more efficient match for the desired demographics of sports entities and advertisers (Hofmeister, 1995; “Regional, ” 1994).

Although little sports programming was actually diverted from broadcast to cable (“Sports programming, ” 1993), there is no question that cable provided an amenable outlet for the proliferation of sports product that previously would have been confined to local stations or, in most cases, not telecast at all.

The cable industry’s dual revenue stream of advertising and subscriber fees enabled it to develop services that concentrated solely on sports product (i.e., ESPN, RSNs). By 1990, cable was a major or even essential revenue source for sports entities.

The increased presence of sports on cable can also be attributed to changes within the sports industry. With the ability to effectively control the salaries of players constrained by the advent of free agency, professional sports leagues and franchise owners sought new ways to generate revenues to pay for the now increasingly expensive players.

Enhanced television exposure was a primary means of doing so, a strategy that would have been problematic in the pre-cable limited channel environment.

The combination of what many believed was a declining broadcast industry, the rise of alternative television outlets, and the perceived need of sports entities to maximize television revenues led to a fissure in the traditional big television/big sports partnership that seemingly reached its apex in the early 1990s.

The Big Three networks vowed that they would not pay any more for sports rights due to the losses they were taking on their current contracts.

They adopted a position that all programming was subject to the cost scrutiny and cutbacks then being implemented in all other areas of their operations as part of corporate “restructuring.”

The major results of this posture occurred in 1994 with the dramatic reduction in national television money for MLB and the end of the NFL’s 30-plus year contractual relationship with CBS.

With CBS claiming at least a $500 million loss on its 1990- 93 nearly $1.1 billion contract with MLB, the baseball owners entered into an agreement with ABC and NBC that generated almost $8 million less per team per year in 1994-95.

Even that amount was not guaranteed as the new arrangement established “The Baseball Network” (TBN), an explicit partnership of MLB, NBC, and ABC with no minimum rights fee guarantee (Bellamy & Walker, 1995).

TBN sold advertising time and was fully responsible for revenue generation. Ultimately, the MLB players’ strike of 1994-95 prevented TBN from reaching its revenue projections. This led to its abandonment in favor of traditional rights fee contracts with Fox, NBC, and ESPN after the 1995 season.

The huge value of this deal ($1.7 billion over five years) can be attributed to the mid-1990s sellers market for all sports and, more specifically, to the value that Fox places on the acquisition of sports product to expand its power in both domestic and international television markets (Wendel, 1996).

Fox previously had acquired a major portion of NFL television rights when CBS declined to pay a major increase for its traditional share of the rights. Although CBS’s refusal to enter into another potential “loss leader” contract could be seen as fiscally prudent in the short run, it turned out to have serious public relations and financial consequences for the network.

A key point here is that the value of sports product to television is different from that of most other program forms. Its value is directly tied to program suppliers’ market reputation and legitimacy. The supply of major live sports product is limited in comparison to series-based entertainment programming.

But unlike most other major television events such as the “Academy Awards” or certain mini-series that can attract large audiences, major sports programming provides predictable, consistent, and demographically desirable audiences that culminate in “mega-events” such as the Super Bowl or World Series. For CBS, there was no appropriate substitute for NFL football.

The best evidence of this was the network’s 1998 reacquisition of an NFL package for $4.0 billion over eight years, or $500 million per year. This figure is 150 percent higher than the amount NBC had been paying for the same package (Lafayette, 1998).

Despite CBS’s problems, talk of the demise of network television had for the most part ceased by the mid-1990s. A resurgent advertising market helped the networks recover from previous financial losses, while network television was subject to a re-evaluation by the advertising industry.

It was seen as having no equal in generating the large heterogeneous audience that remained highly-desired by major advertisers (Bellamy & Walker, 1996).

Most importantly, the networks increasingly were seen as valuable for their well-established “brand identities.” The NBC brand name, for example, is used by General Electric for both domestic and international cable operations (CNBC, NBC Europe), Internet/World Wide Web ventures (NBC and Microsoft’s MSNBC), and local stations owned and operated by the network, such as “NBC5” (WMAQ-TV) in Chicago.’