Today I wish to explore that changeover through a historical look at TV market economics, and exactly how that has shifted as time passes. Tomorrow I’ll look at what heading to a la carte will mean for today’s networks/channels, multichannel marketers, and TV consumers, from a business/economics perspective. To start out, let’s look at how networks generate revenues from a historical perspective.
In the U.S., the predominant revenue source for stations, networks, and vendors comes from a variety of audience-based resources. Historically, broadcast stations who were network affiliates were paid a charge for carrying network programming also, but the amount was, again, centered generally on the station’s potential audience. Cable systems were fundamentally redistributors of Television place indicators Early, and the wire system’s income was linked with the number of subscribers it might catch the attention of (i.e. audience size).
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When cable networks and channels emerged, they followed one of two basic business models – looking to promote for profits, or a subscription-based approach. The subscription model, Pay TV, used a technique of offering new, and high-value, content not available to TV audiences on the market in any other case, and profits were directly audience-based (i.e., the number of clients).
Ad-supported cable systems were miniatures of the broadcast network business model, with revenues based on their ability to draw in and retain viewers. These soon found out that having a focused development strategy (call it target, filling a distinct segment, or branding) provided them a competitive advantage over broadcast systems for the audience segments that valued that type of content more highly.
The broadcast systems offered such content sometimes, but the cable network could be a place where viewers could find it all of that time period. Targeting also had an advantage in the sense that advertising on niche networks were more valuable for those advertisers who wanted to reach that audience segment. Revenues are just one side of the business model – the other will be the costs of the procedure. For broadcast stations, networks (broadcast and cable), and cable systems, there are two basic costs – the cost of the programming and content, and the cost of distributing that cost to audiences.
The distribution costs for stations is tied to transmission capacity and increasing sign reach is costly. For systems, they have to find a variety of broadcast channels and/or cable connection systems to disperse their content on their behalf. In the first stages of the TV, that designing paying channels or cable connection systems for carriage, with the bigger the potential audience pool the more valuable the distribution route.
Distribution costs for wire systems were significantly different – cable operators face the very high set costs of building out the physical distribution network, with suprisingly low variable costs. For them, the key had not been building fresh audience numbers, however in increasing the percentage of homes passed that subscribed. That brought the marginal costs per customer right down to affordable levels.
Turning back again to programming costs, there’s a general rule of thumb that programming costs correlate with audience recognition (i.e., will have a high value for some group of consumers). Things transformed as technology opened markets and the newer networks began to establish their value in it marketplace. As TV markets expanded in conditions of observing options, three things happened.
First, wire networks mainly went niche. They didn’t have the resources to compete head-to-head with the broadcast networks for general interest programming and audiences. Going market let them access lower-cost programming options, yet take advantage of the higher advertising value of their audience portion with some advertisers. As multiple specific niche market networks took off segments of the overall interest audience, looking at of the big broadcast networks dwindled, impacting their ability to generate advertising income.
The third result is that a few of the niche systems developed their brand identities and set up their value to the point where having those networks in your channel bundle became needed for wire systems. That let those channels switch from having to pay for coverage, to presenting cable systems purchase their network indicators. They had established such a strong expectation of value for their content among a large enough section of the audience, that carriage was obligatory.