Unformatted text preview: CHAPTER ELEVEN Cable, Satellite, and Internet Television The television industry is presently experiencing a second age of maturity centered around the thirdparty distribution of programming to households by cable, communications satellite, and broadband Internet. Defining characteristics of TV programming distributed by third parties In addition to a TV set, most viewers require at least one extra piece of equipment (settop box or smart card, receiver and dish, computer and modem). Some new HD TV sets allow viewers to stream shows and movies from the Web without additional equipment. Most audience members pay to access programming. Most channels appeal to niche or narrow audience segments. Thirdparty distribution systems offer a combination of viewing choices "by appointment" and "ondemand." The transformation of TV from an overthe air broadcast medium to the related industries and delivery platforms we now take for granted occurred gradually, but accelerated during the 1980s. In retrospect, the TV industry had changed sufficiently by 1987 to make that year a watershed in the history of the medium. Why 1987?
By 1987, most U.S. households had video recording technology had TV sets with remote controls received television programming via thirdparty distribution systems The multichannel cable era: 1987 present
The 1980s were a transitional decade for TV. The mass audiences of the terrestrialstation and broadcast network era (ABC, CBS, NBC; FOX in 1986) were gradually eroded by a wide range of niche programming targeted at smaller audience segments and delivered to households by cable or communications satellite in a process that became known as narrowcasting. Technological developments that made it possible for audience members to view "on demand" gradually changed the "by appointment" viewing habits established during the terrestrial era. How thirdparty distribution of TV programming began
Recall that television was originally envisioned as a medium to be received by viewers directly over the air from terrestrial stations. TV station air waves viewer's TV set Nevertheless, from the very beginning of TV broadcasting to the pubic, reception for some viewers was hampered by distance from transmitting stations hilly or mountainous terrain Between 1948 and 1964, entrepreneurs extended the signals of terrestrial TV stations over distances into valleys by cable. Companies that provided television programming by cable were known as Community Antenna Television (CATV) systems.
TV station air waves CATV system cable TV set How TV programming enters a household by cable:
cable company cable TV set About 58 percent of U.S. households receive TV programming via cable. All but a few of the nation's cable systems are monopolies in their cities. Thirdparty distribution of TV programming also enters households via direct broadcasts from communications satellites (DBS). satellite antenna TV set About 25 percent of U.S. households receive TV programming via DBS. Most early TV broadcasters did not oppose having the reach of their stations extended by cable. On the other hand, when entrepreneurs saw the potential of wiring metropolitan areas with cable for the purpose of providing original programming not otherwise available over the air, terrestrial TV broadcasters objected to the potential competition for viewers--and advertising dollars. The FCC ruled in favor of terrestrial TV broadcasters, and limited the growth of the emerging cable industry from 19651980. Instead of promoting cable distribution of distant TV programming, the FCC encouraged the licensing of additional local terrestrial TV stations. The cable TV industry as we know it today took shape after the FCC reversed course in the 1980s and allowed urban areas to be wired for broadband cable. Another major change during the 1980s--video recording at home
Between 1980 and 2005, adoption of analogue video cassette recorders (VCRs) skyrocketed from 5% to 92% of households. Television industry managers and advertisers accustomed to a "by appointment" business model were faced with viewers who time shifted programs and "zipped" through commercials (or "zapped" them completely). Today, digital video recorders (DVRs) such as TiVo have replaced VCRs and are now commonplace. A related and developing technology permits place shifting of live and recorded programming via broadband Internet access (e.g., Slingbox). Programming on cable systems local origination (e.g., high school football) carriage of local terrestrial TV stations (e.g., WLFI) imported "super" terrestrial TV stations (e.g., WGN) cableonly networks (e.g., MTV) premium services (e.g., HBO) pay per view (PPV) Revenues at networks that provide programming specifically for thirdparty distribution
(1) sale of commercial time to advertisers Cableonly networks capture about 60 percent of dollars spent on TV advertising in 2010. (2) transmission fees paid by operators of cable systems to carry programming (carriage fees) households subscribing to premium programming such as movie channels (e.g., HBO) Carriage fees average 26 cents per subscriber. Highly rated programming (e.g., ESPN) can cost $4 per subscriber. Some programming costs only a few cents per subscriber. Revenues at local cable systems that distribute TV programming to subscribers
(1) subscription fees for basic and premium programming (with portions passed along to program providers) (2) sale of commercial time local and spot advertisers proportions of perinquiry sales (e.g., shopping networks) In 2008, cable channels captured a record 20% of the money spent on TV by presidential candidates. Main differences between cable and satellite distribution systems Although the same national programming is available via cable and satellite, satellite distributors do not originate local programming. Likewise, local advertising is not a revenue stream for satellite distributors. Industry concentration Comcast and Time Warner provide cable service to more than half of all U.S. subscribers. Comcast recently acquired 51 percent of NBC Universal. DirecTV and Dish Network dominate the TV DBS industry. Speculation: A possible merger? Audience feedback Nielsen measures programming distributed by cable and satellite. Methodology is the same as for terrestrial TV. Ratings for individual networks distributed only by cable and satellite tend to be smaller than for individual networks distributed both by terrestrial TV stations and thirdparty systems. Nielsen and other companies have recently developed measurement services for Internet TV. An emerging era: Internet video Although the cable and satellite TV industries are capital intensive, almost anybody can originate video on the Internet. Professionally produced video is available online, but the future of Internet video may be dominated by original clips generated by amateurs. Although online video viewing rose 35 percent in 2009, 99 percent of all TV viewers still watch a traditional TV. Why do we need terrestrial TV stations and broadcast networks in 2010? Why not "all cable" (i.e., all third party) distribution? 17% of U.S. households are not subscribers to thirdparty TV distribution services, and hence do not view cableonly networks. Broadcast networks, on the other hand, reach virtually all U.S. households; advertisers are willing to pay a premium for commercial time on broadcast networks. Broadcast networks have complex, multiyear contractual agreements to provide programming to their affiliated terrestrial stations. Because these agreements do not expire at the same time, no easy way exists for broadcast networks to switch over to cableonly distribution. Moreover, most broadcast networks (e.g., ABC, CBS, NBC) own and operate strong terrestrial affiliates in the largest markets that reach 30 percent of U.S. households. Speculation
The next technological TV innovation: 3D The next major change in industry structure: One of the four major broadcast networks could become cableonly by 2011. Stay tuned . . . CAREER OUTLOOK
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