LAS VEGAS — Westinghouse CEO Michael Jordan on Monday said that the rising cost of broadcasting in the Information Age is outstripping revenue growth, which is forcing industry consolidation and is creating a “dramatic” need for reforms in advertiser media buying.
Rising business costs are spread evenly throughout the industry, Jordan told thousands of media execs at the six-day National Assn. of Broadcasters convention, which is meeting here through Thursday.
The booming expenses are hitting both cable operators (who have to upgrade their systems) and broadcasters (who have to make the switch to digital as programming costs and affiliates compensation continue to rise).
“I believe the total cost structure in the industry will rise at a rate of 10% to 15% annually,” Jordan said. “Even in good years, advertisers cannot be expected to increase media revenue by more than 6% to 7%.”
Jordan warned that creating new revenue streams through startups is becoming an even more risky business: “The past tendency to overshoot financial and competitive realities with the expectation that values will increase in a hot market will no longer work,” Jordan said.
The exec is familiar with the cost of startups, since CBS is finally launching its own cable network in a market where ABC, CBS and Fox all have a foothold.
Without referring directly to CBS Eye on People, Jordan noted that there is still room for a successful new entrant on the crowded cable dial. “There will still be public market support for new ventures like cable channels if they fill an immediate consumer need and have the prospect of positive cash flow in the not too distant future,” Jordan said.
Broadcast networks will be doing everything they can to stem rising primetime programming costs and buck the trend of decreasing web profit margins, he continued.
For large companies like CBS, continued success in the broadcasting business is vertical integration, with an emphasis on gaining control of programming and distribution costs. “We can expect to see a greater effort by the networks to own programming for later syndication and foreign distribution,” Jordan said.
In addition to restructuring his own company, Jordan said he also anticipates “a dramatic evolution of the media-buying system.” Like other broadcasters, Jordan would like Nielsen to decrease its emphasis on age-based demographic categories. “The almost total reliance on age to the exclusion of other market factors like lifestyle, income, education, loyalties and affinities distorts the picture,” Jordan said.
CBS and Nielsen are conducting research that focuses on the “principal shopper” in television homes. In Jordan’s rating system of the future, research would focus on programming’s ability to reach a specific individual in the home, not just anyone in the household.
“It simply makes good sense to pay a premium for those programs that reach the viewer within each household who spends the most money on advertiser products,” Jordan said.