Put the financial geniuses in charge of the asylum, and they will invariably come up with the worst of ideas that favor short-term, bottom-line results. Of course, this all comes at the risk of the long-term fiscal health of the enterprise. Still in the process of swallowing the one-time financial elephant that the DTV transition has been for local stations, the financial wizards at one major network now want to wreak utter havoc on their affiliates by levying a new fee on them for programming.
Fix what needs to be fixed
Such unthinking reminds me of a meeting I had some years ago with a then new senior network exec who was a financial manager, brought in from outside the industry and placed in complete charge of a major network's engineering and operations groups. At that first meeting, he explained he couldn't understand why master control had to spend thousands of dollars for monitors when they could simply go out and buy television sets that were so much cheaper. Responsible at the time for a major manufacturer's broadcast equipment business, I knew we now had an important new challenge to tackle!
I am also reminded of what was the now extraordinary destruction of an iconic American company, Pan Am. When the company got into financial difficulties, it began to sell off assets. It sold its half interest in Falcon Jets, its landmark Pan Am building headquarters in New York City and its luxury InterContinental Hotels chain. Ultimately, it began to sell off routes and then aircraft. Each asset sale brought an inflow of cash, and each inflow of cash was squandered on areas other than fixing structural problems. The outcome was a sadly predictable, ever decreasing, downward spiral into oblivion. The simplistic moral from that classic business disaster is to recognize what it is that really needs to be fixed, and fix it.
Deliver the content, and they will come
But back to the issue at hand. Where would the affiliates be expected to find the funds to all of the sudden begin paying this network programming fee? By increasing advertising rates in the middle of an economic downturn? I don't think so. More likely would be a discussion of seeing how much more can be cut out of engineering's budget — along with everyone else's budget — and cutting head count at the station.
The life blood of a broadcast enterprise, station or network is advertising revenue. Advertising revenue rises or falls with the numbers of eyeballs that are confirmed as having viewed the message. Clearly, the number of delivered viewers is a function of two things: the desirability of the content within which the messages are interspersed and maximizing the distribution coverage for that content.
The partnership equation between network and affiliate is content on one side and distribution on the other. It would seem that the network's part of this bargain is to try to produce programming that generates ratings better than fourth place out of the four big networks. Several years' worth of consistent last-place ratings do not make for robust ad revenue generation. So, instead of looking to affiliates to make up any perceived revenue shortfall, perhaps the focus of the network needs to be a bit more introspective.
At this writing, NBC has just come off one of its most successful Olympics ever. NBC's ad revenue for the Olympics telecasts soared well beyond $1 billion. Ratings were at record levels; in excess of 200 million viewers watched the network's coverage of Beijing's closing ceremony. And, despite a major commitment to alternative distribution, NBC's own audience measurement activity determined that 90 percent of Olympics coverage viewing was television viewing.
This all proves the tried and true adage that content is king. Deliver the content, and they will come — a lesson learned long ago by any programming department. No amount of reverse compensation will overcome the shortcomings and inadequacies of ineffective programming. If you are on the content side of the equation, improving ratings by fixing the content — rather than imposing fiscally punitive actions against your distribution partners — will help the bottom-line problem.
The affiliates have certainly lived up to their side of the partnership by providing their part of the bargain — distribution. More recently, maintaining that side of that bargain has placed incredible strains on the engineering and capital budgets of the stations' community. If reverse compensation is going to be added to the financial equation that includes network compensation fees and affiliate fees, then how about another new one? Time for a distribution fee?
Anthony R. Gargano is a consultant and former industry executive.
Send questions and comments to:anthony.gargano@penton.com
