Broadcasting Revenue Decline seen in 2005

Network programmers are putting on a happy face, but serious issues beneath the surface must have them thinking about treatment for some sort of anxiety disorder. NBC’s Jeff Zucker told The New York Times that if the early season ratings for the network continue, it’ll be a cause for alarm.

“It’s still early,” said Jeff Zucker, the president of NBC Universal Television. “If we look back in three weeks, and these are still the numbers, then I think everybody is going to be concerned.”

But he added, “I have been saying to people that we may have to recalibrate what success is.”

But poor ratings are just the beginning of problems for broadcasters. Stock analyst James Marsh, S.G.Cowen’s broadcast stock guru, continues to believe 2005 will be a year of great difficulty.

2005 should be a difficult year for TV stations for a number of reasons.

From an operating fundamental standpoint, difficult comparisons related to political advertising and Olympic ad spending will dampen growth rates. In addition, economic growth seems to be moderating as we move closer to 2005.

Accordingly, we are looking for decline in national advertising of -3% and only 1.5% growth in local advertising, for an overall decline of -0.5% in 2005. Beyond near-term fundamentals, we see a number of long term issues for TV broadcasters, including local cable advertising competition, cable audience fragmentation and, the most troublesome threat, DVRs. We view DVRs as effectively Napster for TV, enabling viewers to watch TV without watching the ads. By 2005 we expect DVR penetration to exceed 10%, finally catching the attention of advertisers.

Unless and until broadcast companies restructure themselves to become multimedia production and distribution companies, these types of reports will continue to drag them down. The broadcasting industry is ripe for new leadership that’s based in reality, not some irrelevant 50-year old business model.

Stay tuned.

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