Chpt 6, Commercial Operations (pt 2)

“You're television incarnate, Diana: Indifferent to suffering; insensitive to joy. All of life is reduced to the common rubble of banality. War, murder, death are all the same to you as bottles of beer.” --Max Schumacher in Network.

Basic Cable Networks

• The 1992 cable act requires cable operators to offer a “basic service tier.”

• This minimally includes local TV stations and public, educational and government access (PEG)

• This minimum service is also called “lifeline” service. Cable providers can provide more services if they wish.

• Cable providers pay a “per-subscriber fee” to each network that it carries.

Basic Cable Networks

• Business model is essentially the opposite of traditional over-the-air broadcasting.

• Networks have historically paid fees to affiliated station for program carriage.

Tiers

• Cable provides tiered service• Aside from the basic service tier, there are expanded

service tiers and digital tiers.• Channels on the basic tier are received by most and

digital received by least.• For example, everyone in NYC gets WNBC,

expanded or better gets you MTV and digital gets you more. But that also means if you are a new cable station, higher tiers are undesirable because it has a smaller pool of potential viewers.

Superstations

• Remember what a superstation is?• Superstations are licensed for only one market by

the FCC, but reach many through domsats.• Superstations are often included in one of the basic

tiers because they are inexpensive to carry. The superstation gets most of its revenue from increased advertising rates.

• Remember that this created problems with program exclusivity.

• In 1988, the FCC started reemploying syndex, its syndicated exclusivity rule.

Syndication Exclusivity/ Syndex

• Syndex basically guarantees the exclusive rights to a program in a local market.

• This means that a local station can request the local cable company to block a particular program.

• Usually doesn’t apply to sports since multiple sports coverage are usually different productions. The league for that sport, however, can request a blackout (MLB could make the request that only WPIX/CW 11 carry a Mets game, but WPIX can’t request it if other stations are producing it).

Syndex

• Companies were set up to distribute programming that can be inserted during a blackout.

• WTBS came up with a “blackout proof” schedule with no programs that violate syndex rules.

• “radio superstation” are sometimes carried by cable. Cable providers sometimes provide special audio services, including radio superstations, but this only makes up about 3% of cable households.

Pay-Cable

• Pay-cable (also called premium networks) don’t have commercials.

• The cable operator and the program supplier negotiate how to split fee, which normally is 50/50.

• Pay-per-view (ppv) falls under pay-cable.• Used to rely on multiplexing (carrying the

same program on different channels at different times), but pay video on demand (VOD) now available.

Advertising Basics

• This is what makes commercial broadcasting commercial.

• It colors everything.• The top advertising mediums

– Direct mail– Television (national)– Radio (total $$$)– Magazines – Newspapers beat TV in local markets, but not

nationally

Two Targets

• Business strategies in the US have two distinct targets:– Audience. This is the first “phase”– Advertisers. This is the second “phase”

A bunch of lingo

• Spots- commercials• Avails- short for availability. These are the

slots of times. 30 seconds most common for TV, 60 seconds for radio.

• Inventory- Total number of avails per program.

• Breaks/Pods- A pod is the cluster of avails. In other words, commercial breaks.

• Yield Management- coordinating price and inventory. This is a general business term.

Commercials are like cheese…

• Inventory in broadcast is both limited and perishable. • This is the same as other commodities- milk, eggs

bread etc..• Inventory is limited because of logical constraints (you

need to show the program, you can’t interrupt it too much etc…)

• It is perishable because programming is time-bound by air time.

• So if you want to advertise on a first run episode of 24 (my new favorite show. Jack Bauer kicks ass), it will only be on once (after that it isn’t a first run).

Niche marketing

• An explosion in supply (a million cable channels, internet, etc…) has led lessened mass audiences.

• Mass audiences still exist, but the more channels there are, the less people are watching one thing (which also puts downward pressure on advertising prices, which leads to more advertising which causes a potential loop)

• So since the audience is is breaking off into niches advertisers are more willing to focus in on a smaller market that matches their product. (pet food is better off on Animal Planet than Food Network…unless they have an Iron Chef doggie edition)

Brand differentiation

• A teacher once explained it to me this way- in the old USSR and other Eastern European communist countries, you would go to the super market and see one brand of shampoo. In the US and other capitalist countries, you would see a dozen or a hundred brands of shampoo each with its own benefits. The ingredients, however, are more or less the same. Do 4 out of 5 dentists REALLY prefer Crest?

Brand Differentiation

• If products aren’t sufficiently differentiated, you have a situation of equivalent substitutes. This means a consumer might like two products ore or less equally.

• So Secret and Old Spice are differentiated so that its consumers aren’t likely to be the same, but Crest and Colgate aren’t. This could lead to price wars.

• Works the same way in broadcasting.

Broadcast vs Cable

• So since broadcasting is trying to reach everyone (remember the seeds being spread all over), broadcast TV programming (and superstation shows) resembles other programming.

• Radio pioneered niche marketing (Adult Contemporary audience not the same as Active Rock)

• Cable audiences often resemble radio audiences more than broadcast.

Readings

• We may or may not return to this chapter next week since we also have to cover non-commercial broadcast before the quiz. Read and study the entire chapter. Pay special attention to:– Pricing and inventory control– Managing Spot Placement– Relationship between commercials and content– Alternate ad buys (trade-outs etc…)– Unit Pricing– Unethical Practices