TV networks may be past their prime, experts say Shrinking audience, ad revenues take toll

THE BALTIMORE SUN

NEW YORK -- Last week, the three major networks told the American public what it has presumably been waiting all summer to hear: Murphy is pregnant, Rebecca would like to be pregnant (but Sam's having problems), and power tools have become a male fixation worthy of a weekly series.

America shrugged.

Ratings for these widely publicized programs, "Murphy Brown," "Cheers," and "Home Improvement," were as good as anyone could have expected. But these days, even the hottest show claims only one-third of the television audience. Remember when the entire country wondered who shot J. R?

Since 1980 (when J. R. bit the bullet), the major networks' share of the television audience has dropped from more than 90 percent to 63 percent. Cable television's revenues are nearly twice as large as the networks'. And for the first time since television's early days, the networks will cumulatively lose money, said Ken Auletta, author of a new book on the industry, "Three Blind Mice."

Pessimism abounds for 1992. Asked for a forecast, Alan Gottesman, a longtime industry analyst for PaineWebber, replied: "I don't do autopsies."

Could it be that bad?

"Used to be," he said. "Then it got worse."

To be sure, the networks remain big business. Each has revenues exceeding $3 billion. Their product -- news, entertainment and education -- goes out to 172 million television sets in 95 million U.S. homes. Because networks' costs are largely fixed, even small shifts in income could boost profits substantially.

But a two-season recession, combined with the decade-long dilution in viewership, has badly undermined the sole source of network sustenance: advertising. Overall broadcast revenues were down 4.9 percent in the first half of 1991, according to the Television Bureau of Advertising Inc.

If the networks are to rebound when the economy recovers, they must overcome non-traditional obstacles. To hawk products, companies have been shifting resources to junk mail, in-store promotions and -- tightly targeted cable audiences.

The heart of network profitability is the advertising run on prime-time shows. When all works according to script, prime time shows become part of the national psyche. Companies selling everything from diapers to beer pay hundreds of thousands of dollars to piggyback on that appeal.

Daily viewership declining

The last time any semblance of this normalcy occurred was in the mid-1980s. In 1984, combined network profits reached $800 million, Mr. Auletta says. The next year, average daily viewership by individuals topped out at seven hours, 10 minutes a day, according to Nielsen Media Research. The leading program, "The Cosby Show," was on the screen of more than half the TV sets turned on during its time slot.

The picture then became grim. Costs have risen and competition increased. Perhaps most remarkably of all, viewership has declined.

Nielsen reckons average daily viewership has shrunk by 15 minutes since 1985. The change is significant in terms of direction, if not in scope. People now have an increasing array of programs to watch, and are choosing to watch less.

Perversely, ebbing appeal has increased the price for successful programming. "Cheers" illustrates the new gloom. Though it was last season's hottest show, the rating was the lowest for any winner in the past 40 years. Cosby's share six years ago was 50 percent larger. Nonetheless, after intense negotiations last fall, NBC agreed to double the price it paid for a new season of "Cheers," to about $70 million. Hits -- at almost any price -- are critical.

"When I started researching my book six years ago, the heads of the networks were talking about their share stabilizing at about 65 percent," said Mr. Auletta. "Clearly we are going below 60, and no one has any idea how low it may go. When will the advertising community decide the networks don't reach a mass audience?"

Advertisers are hedging already. NBC may have agreed to pay more for "Cheers" but sponsors won't. Rates for a 30-second spot are down 9 percent, Nielsen says. Higher costs, lower revenues -- it's an awful combination. "If you can't make profits on your hits, where can you?" Mr. Auletta asks.

For lower-rated shows, the decline in advertising prices is even more precipitous. Rates for the cult hit "The Simpsons," whose viewership is limited by the Fox Network's small group of affiliated stations, are down by one-third.

Adjusting for inflation, network ad revenues have been almost flat since 1985. At the same time, ad revenues for cable have been growing at double digit rates and cable has been able to mine far larger amounts of money from its second source of income, subscriber fees. Total revenues for cable exceeded revenues for the networks in 1983 and should be approximately double by the end of this year.

Facing balky advertisers on one side and rising prices for programs on another, the major networks have scrambled to cut costs. Research departments and corporate dining rooms have been cut back or eliminated. Two of the networks privately acknowledge thousands of layoffs and say they have occurred at all three. Highly publicized reductions in news divisions have stirred up the most controversy: Bureaus have been closed, correspondents fired and arrangements made with other organizations for shared coverage.

News operation cutbacks

Some pieces of the network news operations are highly profitable -- such as CBS' "60 Minutes" and ABC's "Nightline." But the core nightly news show is not. Mr. Auletta believes continued cutbacks in news operation budgets are inevitable and, within the near future, one network might abandon news altogether.

Complicating the case is the role that news plays in the overall structure of a network. A network is actually a patchwork structure held together by common interests, rather than common stock. ABC, NBC and CBS, which each own some TV stations, generate programming that is aired by independently owned affiliates. In return, they retain most of the advertising revenue on the shows they distribute. News may be critical in binding the affiliates to a parent and in lending the glamour needed to draw viewers a station, said Paul Bortz, a Denver-based media consultant. As a result, its importance to both may exceed direct profitability.

Pressed to continue costly services and unable to raise income, do the networks have a future? Mr. Auletta contends they are trapped .

Mr. Bortz, along with some other industry analysts, is more optimistic. "Can you still make money in this environment? My answer is absolutely." Even a poorly watched network show still typically gets 10 times the audience of a cable show. Where else will mass advertisers go?

Some current owners might not wait around for an answer. Since the beginning of the year, rumors have are that both NBC and CBS are on the block. Owners of the networks -- GE and Loews -- vehemently deny any intention to sell.

Lobbying over television legislation is an annual event in Washington and the only recent results have been confusion. Still, the networks seem to have found a friend in the new chairman of the Federal Communications Commission, Alfred Sikes, who last week indicated a willingness to revise many of the "outmoded rules and laws" crimping the networks. Fees for programs now carried without charge by cable systems and more permissiveness about joint productions are being considered.

"Broadcasters remain television's lifeline," he said. "The broadcast industry and its future must not be held hostage to myths of pre-eminence or predominance." He might be able to do for the networks what pregnancy and power tools cannot.

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