Television Broadcasting

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TELEVISION BROADCASTING

Almost everyone in the United States watches television. About 99 percent of homes have at least one television set, and, on average, the set stays on for slightly more than seven hours each day. Most viewers have favorite television programs, and they may even have favorite channels. What most viewers may not think about is how the channels and programs get to the set.

Television broadcasting is still the most prevalent form of television in the United States—compared to cable television, for example, which reaches around 70 percent of U.S. homes. Broadcasters also transmit the television programs that reach the largest audiences. Even though their share of the television audience has been decreasing since the 1980s, broadcasters still stand at the center of the television industry.

The Television Broadcasting System

About fifteen hundred television stations make up the core of the television broadcasting system. Each is licensed by the Federal Communications Commission (FCC), a U.S. government agency, to operate in a particular area. The FCC gives out licenses to operate on frequencies in one of two bands of the electromagnetic spectrum: the very-high frequency (VHF) band and the ultrahigh frequency (UHF) band. VHF stations are more valuable than UHF stations because they have a greater geographical reach and thus can be seen and heard by more people.

It is quite possible for a television station to scramble its signal so that only members of the public who pay the broadcaster for a descrambler will be able to view it. This way of getting revenue is not how television broadcasting developed in the United States. Anyone who owns a television set and lives within range of a broadcast transmitter can receive its signals without charge. As a result, stations must make money through other means.

Most stations make money by selling time on their airwaves to advertisers; these broadcasters are called "commercial" stations. "Noncommercial" stations receive support in other ways, such as viewer donations as well as donations from private foundations, government agencies, and commercial firms in return for mentions at the start and end of programs.

More than 80 percent of the local stations link up with television networks for at least part of their broadcast day. A television network is an organization that distributes programs, typically by satellite and microwave relay, to all of its linked stations so that the programs can be broadcast at the same time. The American Broadcasting Company (ABC), the Columbia Broadcasting System (CBS), the National Broadcasting Company (NBC), and Fox are the broadcast networks that regularly reach the largest number of people. Known as the "big four," they are advertiser-sup-ported networks, as are three smaller networks, the Warner Brothers (WB) network, the United Paramount Network (UPN), and Paxnet. The Public Broadcasting Service (PBS) is the network for noncommercial stations.

The commercial networks, particularly the big four, are the giants of the broadcast television business, primarily because of their role in coordinating the distribution of shows to hundreds of local stations, which then transmit the shows to viewers' homes. However, ABC, CBS, Fox, and NBC, especially, are more than distributors. Each company is also involved in production of programs and their exhibition through broadcast stations. That is, the networks produce news, sports, situation comedies, dramas, and other types of programs for use on their networks. They also own stations (sometimes called "exhibition outlets") in the largest cities.

In the television industry, the local stations are called network O&Os (i.e., owned and operated). The federal government regulates the number of O&Os that a broadcast network can own. It does this primarily by prohibiting a network from owning stations that in total reach more than 35 percent of the U.S. population. The aim of the rule is to hinder networks from gaining too much power over the entire broadcast system. Federal rules also prohibit a company from owning more than one broadcast network. In 2000, executives from the newly merged Viacom-CBS were hoping to convince lawmakers to eliminate or modify this rule, because it would force them to sell UPN. NBC, which has a station management agreement with Paxnet, was also lobbying for the law's death. Both corporations argued that strong competition from cable and the weak state of UPN and Paxnet justified their ownership of two networks.

Local stations that are not owned by broadcast networks and yet transmit the network signals are called network affiliates. A network affiliate transmits the network's program feed on a daily basis. Traditionally, the network has agreed to return the favor by giving the affiliate a portion of the revenues that are received from advertisers that buy time on the network. Many affiliates are part of station groups, which are companies that own several local television stations. In the wealthiest of the groups, such as Allbritton Communications, each station is an affiliate of one of the major networks. A broadcast station that is not affiliated with one of the big four networks is called an independent. (Industry executives often consider WB, UPN, and Paxnet affiliates to be independent because they air relatively few hours of network programming per week.) Practically speaking, independents must find all (or almost all) of their programming themselves. Actually, even network affiliates and O&Os must look to sources other than ABC, CBS, Fox, and NBC for some programming because the big four do not distribute enough shows to fill a full period of twenty-four hours. Fortunately for the local stations, the broadcast industry has no shortage of companies that produce programming to sell to the independents, affiliates, and O&Os.

Advertisers are another set of key industry players. With the help of advertising agencies, advertisers pay for time between programs and segments of programs. In return, broadcasters allow advertisers to air commercials, which call attention to their products. A lot of money changes hands in this activity. In 1998, advertisers spent approximately $37 billion on television broadcast advertising.

Unlike cable or satellite television, viewers of broadcast television do not have to pay to receive the programming. As a result, there are few non-advertising revenue sources for television broadcasters. This situation suits local stations, because they are doing quite well with four sources of advertising money: their share of national network advertising, their sale of advertising time during their own programming (mostly local news), their sale of advertising time during programming that they purchase from nonnetwork sources (e.g., reruns of Seinfeld or new episodes of Oprah Winfrey), and their sale of local commercials during some pauses in network programming.

Broadcast networks have only one source of advertising revenue, national commercials. Although that source yields a lot of money—approximately $14 billion in 1998—the expenses of running a network are such that only one or two broadcast networks have typically been profitable. A major reason for this is that the cost of the programming exceeds the advertising money that the networks are able to get when they air the shows. In an important sense, then, broadcast networks have been "loss leaders" for their O&Os. That is, although they operate at a loss, they provide their company's O&Os with programming and shared advertising monies so that the stations (which do not pay for the network programming) can make huge profit margins from their four commercial revenue streams.

Network executives do not enjoy operating at a loss, however, and they have been searching for new sources of revenue. They have tried three major ways. One involves owning more of the programming that they distribute. A second involves trying to change the standard affiliate agreement, asking affiliates to share some of the network programming costs. The third involves branching into new distribution venues, most notably cable television and the Internet.

Production

From the standpoint of a broadcast executive, the word "production" actually has two meanings. Perhaps the most obvious is the creation of individual programs. The other, equally important, meaning is the creation of a lineup of programs to be aired on a broadcast channel or network.

The task of producing a channel is huge. Imagine having twenty-four hours of air time to fill every day of the year. How can it be accomplished in a way that will make money for the owners of the channel? That is the challenge that confronts programmers, the people who are in charge of operations as different as WWOR (Channel 9) in New York, an independent station; Channel 4 in Los Angeles, an NBC O&O; and the NBC-TV network.

The most basic challenge that confronts a local or network programming executive is to choose programming that attracts the intended audience. In some cities, where the FCC added several UHF stations and increased audience competition, a few stations have decided to pursue Spanish-speaking viewers, or non-English-speaking viewers generally, to maximize their profits. Because they reach virtually everyone in their area, however, broadcast stations do not generally aim at the narrow audience slices that cable or satellite networks often try to attract. They typically try to create schedules that reach large population segments that interest advertisers—men and/or women who are between eighteen and forty-nine years of age—because they tend to have families and spend a lot of money.

In the television industry, audits of people's viewing behavior (i.e., ratings) help to determine where much of the advertising money goes. The size of a program's audience helps to determine the amount of money a station or network can charge an advertiser for time during that program. Ratings are consequently always on the minds of the programmers who produce schedules for their stations or networks. Many programmers break down their work into creating discrete schedules for different parts of the day. The most prominent of these dayparts is 8 P.M. TO 11 P.M. eastern standard time, when the largest numbers of people are viewing. These are the prime-time hours when the major broadcast networks put on their most expensive programs and charge advertisers the most money for commercial time.

The building block of a television schedule is a series. A series is a set of programs that revolve around the same ideas or characters. Series are useful to programmers because they lend predictability to a schedule. Programmers can schedule a series in a particular time slot with the hope that it will solve the problem of attracting viewers to that slot on a regular basis.

Programmers generally aim to bring viewers to more than just one show on their station or network. Keeping people tuned to more than one series also means keeping them around for the commercials between the series. In television-industry lingo, the challenge is to maximize the audience flow across programs in the daypart. Over the decades, programmers have developed a number of tactics with which they try to do that.

The key to audience carryover involves finding shows that attract the desired audience in large numbers. Every spring, network programming executives meet with creators from several production companies. Based on these meetings, the executives choose a large number of program ideas that they like. These ideas are then submitted in polls to see which ones the "audiences" are most interested in seeing. Once an idea passes the polling stage, a pilot (or sample) program is created. All of the pilots are then shown to sample audiences to get reactions. The pilots that get the strongest reactions are given a place on the next season's schedule. Once this has happened, the network executives typically sign contracts with the respective production companies to create thirteen episodes of each series. The contract— called a "license"—give the network permission to air each episode a certain number of times.

One might think that with such a deal in hand, the executives of the production companies would be ecstatic, sure that the show will enrich the company. This is not necessarily the case. For one thing, the show may not last long because of low ratings. In addition, network licensing agreements typically do not agree to pay the full costs of each episode. A production company may find itself millions of dollars in debt as a result of producing thirteen episodes of a series.

Why would any company want to create shows while losing money? The answer is that production companies see network broadcasts as only the first step of a series of television domains in which they can make money from their series. They can make it from local stations, from cable networks, and from broadcasters outside the United States.

Distribution

As suggested earlier, not all television programs are distributed through networks. The reason is that not all broadcast television stations affiliate with networks, and these independents need to get their programming from somewhere. Another reason is that even network stations do not broadcast the network feed all of the time. Certain hours in the morning, afternoon, earlier evening, and late night (past 1:00 A.M.) belong to the stations. Therefore, they can take for themselves all the advertising revenue that they bring in during those periods. However, they must first find programs that attract an audience at a reasonable price.

Many nonnetwork distributors are very willing to help local stations find attractive shows. Their business, syndication, involves licensing programs to individual outlets on a market-by-market basis. One way to attract audiences "off network" is with programs that are newly created for syndication. Examples include the talk show Oprah Winfrey, the entertainment news program Entertainment Tonight, the game show Wheel of Fortune, and the action-adventure series Xena, Warrior Princess. Another major method through which stations get programming is off-network syndication. In off-network syndication, a distributor takes a program that has already been shown on network television and rents episodes to television stations for local airing. Off-network syndication enables the distributor to make back money that it lost when it delivered the program to the network at a deficit.

If producers fail to place their reruns on local stations, there are other venues. Cable and satellite networks have become voracious users of programs that have already been seen on broadcast networks. This interest results in part because such programs are less expensive than new shows and in part because they have shown (in their network run) that they can reliably attract certain categories of viewers. Foreign countries have also been useful markets for certain types of reruns. Broadcasters around the world purchase U.S.-made series as components for their schedules, though in most cases homegrown programming gets better ratings than the U.S. material.

Broadcast network executives, suffering from monetary losses even when the license fees they pay do not fully cover the costs of program production, have been looking at these postbroadcast network distribution venues with envy. From 1970 to 1996, federal law prohibited broadcast networks from owning or distributing most of the programming that they aired. Government regulators feared that allowing them to both own and distribute programming would give them too much power over the television system. With the rise of a new spectrum of program distribution routes beginning the 1980s—cable, satellite, videocassette recorders, and even the Internet—the broadcast networks were able to convince the U.S. Congress that the prohibition had outlived its usefulness.

The new right to own and syndicate the programs that they air has meant that broadcast network executives have placed great emphasis on trying to improve their bottom line by making money through more than advertising. By licensing their own made-for-broadcast series and their own made-for-television movies to local stations, cable networks, and foreign television firms, executives hope to make their broadcast networks more predictably profitable. Another part of their plan for increasing revenues goes beyond new sources of distribution to new ideas about exhibition.

Exhibition

Local stations act as exhibitors when they broadcast material directly to viewers. However, the broadcast television exhibition system is in the midst of a major upheaval. Local broadcasters, the bedrock of the medium since its commercial introduction in the late 1940s, face ever-escalating competition from cable, satellite, and even telephone businesses. Local stations still make money, but observers wonder how the situation will change in the twenty-first century, as hundreds of channels race into American homes.

For the near term, network executives would like Congress to change the rule that prevents them from reaching 35 percent of U.S. homes. They reason that more revenues from local stations would flow back to their companies, rather than to affiliates that they do not own, thus better justifying the expenses of program creation. At the same time, the broadcast affiliates that are not owned and operated by the networks have begun to worry that the networks may at times be acting against their interests. Local television executives are concerned about the strong, increasing participation that the networks have in the cable, satellite, and Internet worlds. Disney-owned ABC, for example, controls cable/satellite networks ESPN, ESPN2, The Disney Channel, Lifetime, and A&E. NBC participates in MSNBC and CNBC, as well as other channels. Viacom-CBS runs MTV, Nickelodeon, Country Music Television, and The Nashville Network. Local broadcast affiliates worry that these channels chip away at the audiences that might otherwise be viewing their stations.

Some local station executives also worry that huge growth in the number of video channels in cable or broadband Internet will encourage the networks to send their feeds directly to homes, instead of, or in addition to, local stations. Or, even if they continue to send local stations the daily feed, the networks will give people the opportunity to view (for a small fee) previous network programming that they missed on their local stations. That might still lead substantial numbers of viewers away from local stations.

Another impending change in exhibition involves the conversion to digital television. This conversion essentially will give every network and broadcast station the capability of sending out either one high-definition television signal or a number of regular-definition signals. What will the stations broadcast on the extra channels if they choose to go the regular-definition route? Will some of the channels require a decoder to allow the local stations to tap into subscription as well as advertising revenue? What will be the relationship between local and network broadcasters in this environment? Only time will tell. What seems clear, though, is that the broadcast television system will change dramatically in the twenty-first century.