Broadcasting, Cable, the Internet and BeyondChapter 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)

Broadcasting, Cable, the Internet and BeyondChapter 7

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

Broadcasting, Cable, the Internet and BeyondChapter 7

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

Broadcasting, Cable, the Internet and BeyondChapter 7

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

Broadcasting, Cable, the Internet and BeyondChapter 7

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

Broadcasting, Cable, the Internet and BeyondChapter 7

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

Broadcasting, Cable, the Internet and BeyondChapter 7

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

Broadcasting, Cable, the Internet and BeyondChapter 7

0 250 500 750 1000 1250 1500 1750

Hours per year

Total TV

Radio

Home Video

Recorded Music

Video Games

Consumer Internet

Daily Newspapers

Consumer Books

Consumer Magazines

Media Usage Per Year Per Person - 2002 Source: Veronis, Suhler Stevenson Communications Industry Forecast 2002

Series2

Series1

Broadcasting, Cable, the Internet and BeyondChapter 7

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

Broadcasting, Cable, the Internet and BeyondChapter 7

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

Broadcasting, Cable, the Internet and BeyondChapter 7

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

Broadcasting, Cable, the Internet and BeyondChapter 7

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)

Broadcasting, Cable, the Internet and BeyondChapter 7

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)

Broadcasting, Cable, the Internet and BeyondChapter 7

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

Broadcasting, Cable, the Internet and BeyondChapter 7

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

Broadcasting, Cable, the Internet and BeyondChapter 7

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 4361461 1980 1980 183 7792740 3702 1985 365 13354790 6490 1990 433 16266780 8839 1995 512 17417987 10240 2001 893 3036 13932 17861 Source: Universal-McCann **2001 revenue breakout is estimated

Broadcasting, Cable, the Internet and BeyondChapter 7

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

Broadcasting, Cable, the Internet and BeyondChapter 7

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.

Broadcasting, Cable, the Internet and BeyondChapter 7

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

Broadcasting, Cable, the Internet and BeyondChapter 7

The cost of advertising on network TV (30 second spot)

Friends $455,700 Survivor $418,750 Will & Grace $376,617 CSI $280,043 Good Morning, Miami $279,813 Girls Club $178,400 Boston Public $146,887 The Osbournes $100,000+ Source: Electronic Media 9/30/2002

Broadcasting, Cable, the Internet and BeyondChapter 7

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.

Broadcasting, Cable, the Internet and BeyondChapter 7

TV Sales 2001 (in billions)

Network TV ($14.3)

Local Spot ($12.2)

Syndicated TV ($3.2)

National Spot ($9.2)

Network TV ($14.3)Local Spot ($12.2)Syndicated TV ($3.2)National Spot ($9.2)

Broadcasting, Cable, the Internet and BeyondChapter 7

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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