As 2012 gets underway, the TV industry faces situations that can alter its economic foundation. Here’s a rundown of some of the more pressing concerns.
Will the number of cable subscribers fall?
A combination of rising rates and competition from digital alternatives is putting pressure on the number of cable subscribers; a decline would cause profound changes to the economics of the TV business. Cable networks would lose money from subscriber fees, broadcasters would lose retransmission money and, because most forms of over-the-top video distribution are not yet measured, ratings would suffer, leading to a decline in advertising revenue.
“[2012] will be a watershed year for the media industry,” says analyst Richard Greenfield of BTIG Research, arguing that the growth of online activities, including authenticated video and social games, and the growing popularity of connected TVs and tablets, will end the ever-increasing amount of time people spend watching television.
To retain subscribers, cable operators are looking into lower-priced channel packages, including some that would exclude high-priced sports networks, a move that could cut their revenue and viewership.
Will investors cash in on television company stocks in 2012?
Last year, media companies earned points with Wall Street by sharing bigger chunks of their earnings with shareholders in the forms of stock buybacks and increased dividends. That’s likely to continue in 2012.
In a year-end research note, analyst Craig Moffett of Sanford C. Bernstein & Co. said that cable stocks are cheap but are “poised to make significant increases to their dividend payouts in January.” Cablevision Systems’ dividend yield is at 4.1%. Time Warner Cable has a 3% dividend yield currently but a new increase matching last year’s 20% increase would raise the yield to 3.6%. Comcast’s yield is lower, but Moffett expects a big dividend increase there too.
Another way shareholders could benefit would be from takeovers. Most likely to go? According to BTIG analyst Greenfield, AMC Networks will be sold and Starz will be spun off or split off by Liberty Media.
Will broadcast and cable networks register more big gains in this year’s upfront?
Despite a looming economic slowdown last May, broadcasters’ upfront ad sales rose about 9% to $9.1 billion while cable networks saw a 16% increase to $9.3 billion. Since the upfront, the ad market has fluctuated. Media executives said demand softened in the fourth quarter. When earnings come out, we’ll see how that softening hurt revenue growth.
On earnings calls, the moguls were more hopeful about first-quarter revenue growth leading into the upfront. The dynamics of the upfront, in which sellers have more information and control over their inventory than the buyers do, plus the secretive nature of buyers and sellers, often make the ad market look stronger in May than it does when the year ends.
Nevertheless, with fears of a doubledip recession fading and demand keeping prices up in the scatter market, it looks to be another year of increases for the networks, although the gains probably won’t match last year’s.
Will the Olympics bring NBC gold or dross?
NBC was able to sell out the Super Bowl, but will it be able to get enough advertisers for its coverage of the Olympic Games to be held this summer in London? And even if it sells all those ads on broadcast, cable, online, mobile and any other platform it can dream up, will it be enough to make money for parent company Comcast?
NBC registered a $233 million loss on the Winter Olympics from Vancouver in 2010. That deficit came despite better than expected ad sales for the event and higher ratings. But the $829 million in rights fees NBC paid for the event resulted in ! ve rings’ worth of red ink. NBC is paying a record $1.18 billion for the London games, and last year Comcast anted up a whopping $4.38 billion to win the rights to the Olympics from 2014 to 2020, bidding far more than rivals Fox and ESPN.
Even with gold-medal ratings and a flood of green from Olympics sponsors, analysts expect Comcast and NBCU to limp home carrying losses of another $250 million from London.
WillAmerican Idolhold up, or will the talent show craze end on a sour note?
In the second half of the TV season, American Idol makes its return. Last year, Fox’s singing competition, the highest-rated program in which the contestants do not wear helmets, defied the odds by increasing viewership while losing Simon Cowell, the nasty man in black who seemed to be the show’s linchpin. Instead, buttressed by new judges J-Lo and Steven Tyler, ratings were up 4% for the season among adults 18-49, and the finale drew 29.3 million viewers, up 21%.
This year, Idol is following Cowell’s The X Factor, which performed well for Fox duering its run in the first half of the season, but nowhere near the network’s or Cowell’s expectations. Idol will also be facing competition for talent-show fans from NBC’s The Voice and America’s Got Talent, with Howard Stern in for Piers Morgan on the latter.
Fox gets huge bucks from Idol’s key sponsors—Coke, Ford and AT&T—and other advertisers paid top dollar for spots on the series during the upfront last May. But what goes up must come down, so it’s a good bet that Idol won’t be able to measure up to its 2011 performance.
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