“How do you guys make money on that?” a European TV Media Consultant asked his American fellow. They have the right to say that as the US linear television business is far from being user-friendly. Let’s drill down to find out who makes money off of the TV industry in the USA and how.
More than 30 years ago, three major television networks shared unchallenged supremacy over the entire industry. They were ABC (the American Broadcasting Company), CBS (the Columbia Broadcasting System), and NBC (the National Broadcasting Company). Those companies controlled the vast majority of television broadcasting back then and had many TV channels to provide their programming through. It was tough enough for a new-comer to make it into the business.
However, Fox managed to make it. The network was launched on October 6, 1986, and was growing rapidly in popularity in the 1990s. In 1993 Fox finally surpassed its main competitors, ABC and NBC, in terms of popularity. It heralded a revolution in the US television that opened up the gates for yet more new networks, such as the WB Television Network and the United Paramount Network, to step into the light.
The industry has grown up dramatically since then. Large players such as CBS, Fox, ABC, etc. own oceans of smaller networks and by that acquire massive sources to produce and distribute content. Huge companies that control a number of television networks are called Television Network Families.
Let’s go deeper to reveal the industry hierarchy. Take Viacom Media Networks, or VMN for short. It is a division of Viacom, a mass media conglomerate company, the former CBS division and large TV Network Family that operates many smaller television networks and individual channels nowadays. One of those networks is BET Networks. BET also has a number of channels in stock though it isn’t a Family due to its moderate size. The BET Networks division comprises several music and gospel channels that broadcast not only across the United States, but also across Europe and South Africa. But they don’t provide programming directly to your house. There are local television networks to do that. They buy content from the larger networks and then distribute it across their regions.
In other words, when a person wants to relax and enjoy some soul music via BET Soul, they receive content that has made a long way from Viacom that produced it, to local networks that distributed it. Almost every company in that sphere belongs to a large conglomerate and a lone independent TV network would be as obsolete as a fly in amber.
Once we’ve covered the television network hierarchy, now let’s see how the companies actually provide their content. There are 4 means to do so, but only 3 refer to the traditional linear TV. They are:
- Terrestrial or over-the-air/OTA television
- Cable television
- Satellite television
- Internet television (non-linear).
Let’s stop here for a moment and scrutinise those three systems. Terrestrial, or over-the-air television of 1941, was the very first type to emerge. It allowed TV signals to be transmitted by radio waves from a terrestrial transmitter (hence the name) to a TV receiver equipped with an aerial. The networks that still use that method are NBC, CBS, BBC, FOX, CW and some others. As of 2019, over-the-air TV is about to reach 16 million US households, which means 14% of all the American homes, according to Nielsen.
In 1950 Cable television came into business. It delivered programming through radio frequency signals transmitted via coaxial cable. It provided more stable and better video quality as compared to OTA. Telephone services and Internet were provided that way, too. In this case paid subscription was the main source of revenue for companies. The networks that utilize cable television are Comcast, Time Warner Cable, ESPN, Fox News, TBS and others. In 2019, only 44% of American households have a cable subscription, says Statista.
The third linear TV broadcasting system was Satellite television that appeared in 1962. The method allowed programs to be delivered using an earth orbital communication satellite. In that case viewers received programs by means of a satellite dish or a low noise downconverter block. Satellite companies also used subscription as the main revenue source. The companies that provide satellite television are DirecTV, DISH Network, Shaw Direct and some others. PR Newswire says that in terms of popularity cable and satellite TV may fall by 26% in 2030.
Large conglomerates don’t consist of content distributors solely as they need to produce that content as well. That is why there are programming producers and distributors that are sometimes separate companies. Nonetheless, content is one of the main sources of revenue for most companies, so let’s cover that topic in detail.
Take a large content maker, e.g. Warner Brothers. They create a show and then license it to a TV network in order to make their profit. The network is allowed to broadcast the show for a certain period of time, e.g. a year. Warner Brothers remains the show owner, so when the license expires, they will find someone else to broadcast their content through.
The show may bounce from one network to another multiple times. That action is called “windowing”, whereby every “window” is the process of licensing the show to a new network. In the US, almost no show receives positive return on investment during the first “window”, so the producer has to issue multiple licences one by one in order to make profit. The network, in its turn, raises money on the ad spots that are obviously more profitable within a popular show.
Advertising is another revenue source for TV networks, but it’s a somewhat trickier point. Local television networks don’t always show their own advertising. They mostly buy programming from large television networks with advertising included. For example, a local network that operates in a particular region receives content from NBC with preset advertising. That network doesn’t get anything off of those preset ads but it can’t cut them out due to their agreement. NBC, as well as almost all other big players in the US, is an ad supported network and it pokes its advertising into all its content.
Let’s check the numbers. There appears to be only 42 minutes of actual show and 18 minutes of advertising per one hour of broadcasting, according to the television standards. 16 out of 18 advertising minutes contain ads from the programming provider (NBC in our case). Local broadcasters have only 2 minutes of local advertising to sell.
Still, local networks may have yet another source of revenue. They may create local news, which means 30 minutes of content with 21 minutes of news proper and 9 minutes of local advertising. This is a very important revenue source as they have a lot of news programs, such as news in the morning, news at noon, news at early evening, and late night news. Local networks make more money on the news programs than on the purchased content due to their own advertising time.
In terms of statistics, the TV advertising budget in the USA has declined to nearly $70 billion in 2019, which amounts to a 2.2% decline as compared to the 2018 indexes. And TV advertising will only continue to lose its budget according to the forecasts.
Total TV advertising spends in the USA (in billion dollars) according to Statista
So, what’s the current state of linear TV? As of 2019, it is falling from grace. The amount of cable and satellite aficionados is not sufficient; only 44% of US households have a cable subscription. Not even a half. Almost 1.1 million people “cut the cord” in the third quarter of 2018 together with 726,000 who gave up on their satellite subscription.
The forecasts are even more scary. eMarketer says the number of cord cutters may reach over 50 million people in 2021 and PR Newswire states that the number of cable and satellite TV subscribers is likely to fall by 26% by 2030. OTA feels itself somewhat better: it is about to reach 16 million US households, which means 14% of all the homes, according to Nielsen. It may be related to high subscription prices; people prefer to pay only once for an antenna and watch basic channels instead of paying a monthly subscription.
The numbers are unpromising and they make it explicit that linear TV should change. Streaming is one solution, and some major companies, e.g. Disney, are already eyeing it. Another route is ATSC 3.0 but it mostly applies to OTA. Other linear TV branches have to look out for something new to survive. Still, the future is unknown and no precise forecasts can be made yet.