NEW YORK -- Like mainframe computers and gas guzzlers, television networks were supposed to be extinct by now. Dogged by aggressive cable companies for most of the 1980s, (( networks were said to be spiraling toward broadcast oblivion.
But an afternoon stroll past the renovated Ed Sullivan Theater on Broadway offers another view of the networks' prospects. The area, once a decrepit strip of shops north of Times Square, has been transformed -- thanks largely to the theater's new tenant, late-night television celebrity David Letterman, and the hundreds fans he attracts.
At noon, when standby tickets become available, and again before the 5:30 p.m. taping, long lines snake along the sidewalk as natives and tourists wait for a peek at the popular variety show host. Delis, gift shops and even a tuxedo-rental shop have benefited from the show's wild popularity.
"We're doing better business than ever," said Bart Dadon, owner of Academy Clothes. "People stop in from all over the country."
Network executives are also thanking the likes of Mr. Letterman for having halted a decade-long slide in their ratings. Buoyed by steady ratings for the third year in a row, the big networks have attracted increased ad revenue and plaudits from investors. Both Madison Avenue and Wall Street seem to believe that the networks hold the key to survival in tomorrow's entertainment world: programming that appeals to mass audiences instead of ultra-specialized niches.
"The networks' death had been very much hyped," said Audrey Steele, a researcher of television trends for Saatchi & Saatchi Advertising Inc. "They're still the only medium that can deliver a mass audience. They're still the one unifying force in broadcast media."
The networks are also victims of the sincerest form of flattery: imitation. Warner Bros. and Paramount Communications recently announced plans to start networks within 15 months. Although both have links to cable television -- Paramount owns the USA Network, and Warner's parent, Time Warner Inc., owns HBO -- they want some of the viewers and ad dollars that the big networks still command.
Even interactive television -- which would allow viewers to order shows and movies -- now seems a little less threatening to the broadcast networks. Many analysts believe that interactive television might not be widespread for another decade. And when it does come, networks could serve as oases of popular programming in a confusing 500-channel world.
Bolstered by popular shows like Mr. Letterman's, the networks have stabilized their "share" -- their percentage of the televisions turned on -- during prime time. Since the season began Sept. 20, the three largest networks -- ABC, CBS and NBC -- gained a point over last year, for a combined share of 62 percent, according to Nielsen Media Research. Fox, the 7-year-old upstart, slipped a notch, to 12 percent. But together, the four broadcast networks retained a 74 percent share -- or about 68 million TV sets each evening.
The remaining 24 million television sets -- were split among 32 basic-cable stations -- including ESPN, CNN, TNT, USA and Arts & Entertainment -- and a myriad of small cable stations.
The gap between cable and broadcast is huge. The hottest network show, "Home Improvement," has a 30.8 percent share. Cable's top show, TNT's "NFL Football," had an average 5.8 percent share over the season's first 11 weeks.
The networks' ratings dominance translates into big advertising dollars. According to Adweek, advertisers will spend nearly $11 billion buying air time on the Big Four in the 1993-94 season, compared with $2.7 billion on cable. For a 30-second spot, that works out to $325,000 for "Home Improvement" vs. $40,000 for TNT's football game.
The prospect of skimming ad dollars from cable and the Big Four spurred Warner and Paramount to form their own networks, said Ken Auletta, an author who writes about the networks. Each could spend about $50 million to put the new networks in place, he said.
Warner Bros. and Paramount announced their plans last month; Warner intends to start broadcasting next fall, Paramount in January 1995. Both companies plan to start with just a few hours of prime-time programming a week -- compared with 22 hours for the major networks. And they will initially be carried on about 40 television stations around the nation -- compared with 200 each for ABC, CBS and NBC, and 140 for Fox.
The new networks' challenge, analysts say, will be to sign up some of the 280 stations that are not affiliated with the Big Four. This will allow them to reach homes without cable, says Paul Bortz, a television expert at Bortz & Co. Inc., a consultancy in Denver. Paramount, for example, will use Washington-based WDCA, which it owns, as one of the first 10 stations in its network.
WDCA already runs Paramount-produced shows, including the popular "Star Trek: Deep Space Nine." WDCA now must bid for the shows like any other station, but come January 1995, it will automatically receive them.
"We're delighted to be part of this venture, because it gives us access to shows from one of the most successful studios in the business," said Sandra Pastoor, director of WDCA's programming. "It's a definite plus for an independent station."
The scramble for stations to carry the new networks' programs has also caught the attention of investors. One example: Silver King Communications, a Florida-based operator of 12 independent stations that carry the Home Shopping Network, including WHSW in Baltimore. The company's stock price rose from $2.68 in April to a high of $20 in late September. It closed Friday at $12.
Alan Snyder of San Francisco-based Snyder Capital Management has been buying stock in Silver King because the chain could form the backbone of a new network. Besides the 12 full-power stations, it also owns or has options on 49 low-power stations. Although their broadcast range is limited, a recent ruling that requires local cable companies to carry home shopping networks could expand the stations' reach by putting them on cable.
Even if the new networks rely on cable to reach some viewers, WDCA's experiences with the "Star Trek" series highlights a major advantage that the networks will have over their cable competitors: original programming that appeals to a mass audience.
Cable networks can't break into the big time, Mr. Bortz says, because their shows are either very specialized or are re-runs. Court TV, for example, runs a steady stream of trials; CNBC focuses on business programs. Even the strongest of the cable networks, like USA, rely on second-run shows, like "Major Dad," "Wings" and "Murder, She Wrote."
The existing networks, by contrast, spend $2 billion a year on producing new shows like Mr. Letterman's -- a figure that exceeds the programming budget for all cable networks put together.
And while USA, for example, rents a few floors of a Manhattan sky-rise for most of its needs, Paramount and Warner have vast studio complexes that crank out popular movies and series. Besides the endless "Star Trek" spinoffs, Paramount has produced hit movies like "The Godfather," and Warner has the rights to the Looney Tunes cartoons and popular series like "Kung Fu."
"Except for viewers looking for specialized programs, people typically flip to the [major broadcast] networks to see what's on, and if they don't like it, they look to cable," said Ms. Steele of Saatchi & Saatchi. "If the shows are good, they stay."
Compared with major cable networks, which are lucky to get a 1 percent share of the audience, the two new networks are aiming for the 6 percent to 8 percent range, Mr. Bortz said. That could translate into an extra $50,000 to $100,000 per 30-second commercial that the new networks could command over cable.
One threat to the Big Four: They might lose their programming edge if the new networks skim the cream off their studios' production. They could, however, offset this loss by producing more shows of their own. The Federal Communications Commission allows networks to produce only a limited number of the programs they show, but it is expected to relax this rule.
Fight for ad dollars
Meanwhile, cable's ad dollars are growing faster than the networks'. Ad revenue grew 10.3 percent for cable networks and only 3 percent for the Big Four networks. Still, it was the first time that advertisers had increased their spending on the Big Four since the 1990-91 recession.
An even bigger challenge could come when interactive television becomes a reality. Viewers will be able to call up individual programs and movies whenever they wish, rather than waiting for a network to air a program.
But if viewers find interactive television too complicated or the choices too overwhelming, -- and some studies show this is already the case -- they may retreat to the familiar big network offerings, Mr. Auletta says.
"If you have all these channel choices, will consumers want to program their televisions, or will it all be too confusing?"