Needed: Network bailout?

Bad economy slows ad sales

It’s D-Day for the broadcast networks.

They’ve been living on borrowed time for the better part of two decades, thanks to advertisers willing to toss in more cash each year even as ratings slowly trended ever lower.

But with the economy in a tailspin — and the Big Three auto manufacturers, some of TV’s best advertisers, near ruin — the biz may finally have to pull the emergency cord.

“This day was going to come,” says one conglom bigwig. “I don’t think the business can be sustained without real change at this juncture. … We have a gun to all of our heads.”

Already smarting from a writers strike-impacted season, the networks haven’t had much more to celebrate this fall. Collectively, the Big Five (including the CW) are down 13% among adults 18-49 vs. last year.

How low can they go? And at what point can the networks no longer monetize ratings that don’t look much better than cable?

NBC Entertainment/ Universal Media Studios co-chair Ben Silverman likes to point out that ratings don’t matter, profitability does. And deals with advertisers on shows such as “My Own Worst Enemy” (in which GM was heavily involved) should conceivably make a show like that still worthwhile, despite low ratings.

Yet “Enemy” was ultimately canceled because of ratings so low that it didn’t make sense to continue the show, marketing partner be damned. What next?

Now that the Nielsens have plunged to the point that it’s tougher than ever to determine what’s a hit and what’s a miss (advertisers look at C3 commercial ratings anyway), some of the radical moves long discussed inside network corridors may be closer to reality.

Among the possible scenarios: One of the traditional major nets — ABC, NBC or CBS — could mirror the Fox sked and drop an hour of primetime, airing only from 8 to 10 p.m. (or perhaps 9 to 11 p.m.) and return that extra hour to the affiliates.

With the population waking up and heading to sleep earlier, stations have been eyeing such a move for years. The idea has come up in the past: When Westinghouse acquired then-third place CBS in 1995, it mulled such a plan (but couldn’t get it done).

The networks have so far resisted; there’s danger in giving up real estate, as you’ll probably never get it back. But cutting out seven hours would level the playing field, and save in program costs (not to mention bolster what’s left by cutting out the dead programming weight).

The nets might also start looking to emulate the cable programming model: Fewer originals, more runs of those originals, and even some off-net fare. Why should the cablers capitalize on “CSI” repeats, when CBS could strip them instead?

Also, the nets may look at farming out more low-rated programming blocks (Saturday or Friday night, for example) to outside entities, be they production companies or advertisers.

Media Rights Capital’s disastrous deal this year to program the CW’s Sunday night sked (a move that was terminated last week) would seem to dissuade any similar moves. But execs familiar with that deal said the idea was sound — the execution wasn’t. What’s more, the frozen scatter ad marketplace put a wrench in MRC’s chances to actually pay for the night.

For a more instructional tale of how to farm out programming blocks the proper way, it’s already happened to a one once-vibrant daypart: Saturday morning. As youngsters fled to such cablers as Nickelodeon and Disney, and the kids TV marketplace collapsed, the nets wound up selling the time to production companies like 4Kids (Fox and CW) or programmers like Discovery Kids (NBC).

Now, get ready for an even more radical change on Saturday mornings: As Fox parts ways with 4Kids (the deal expires at the end of the year), the network is adopting an unprecedented model for the daypart: Infomercials.

In a network first, Fox has given two of its four Saturday morning hours back to affiliates. But the other two, cleared on 95% of its stations, will now be sold to advertisers — who will use the time to sell products.

Fox’s Saturday morning “Weekend Marketplace” will kick off in January with the usual infomercial fare seen latenight on cable or local TV stations. Fox hopes to eventually attract big-name advertisers to produce more network-worthy “long-form informational programming.”

Whatever it’s called, the Fox block reps the first time a broadcast network has devoted a regular block of programming for infomercials.

Meanwhile, should one of the nets decide their hefty broadcast infrastructure no longer makes sense, they could go for the most drastic idea of all, one that then-NBC honcho Bob Wright first dangled more than 10 years ago: Dump the network model entirely and turn your broadcast network into a cable one.

In the 1990s, Wright and others — then battling the affiliates on several fronts — suggested that NBC could exist as a cable network (at least in some markets) if the station model no longer made sense.

Such a move isn’t as far-fetched as you think. In the dying days of the WB, the Warner Bros. brass considered yanking the Frog off stations and launching WB Cable. The networks frequently grouse that cable’s dual-revenue stream (from both MSO sub fees and advertising dollars) gives them an upper hand, not to mention the industry’s more lax content standards.

Now that the local TV station business isn’t nearly as robust as it was a few years ago, one of the networks might even be willing to sell those outlets off and get out of that business. (Again, not so far-fetched as you think: NBC and ABC eventually got out of the radio business.)

Of course, pundits have been predicting the demise of the network model since, well, the dawn of the network model. So far, the nets have been able to weather viewer erosion, the rise of cable and the dawn of the Internet age. And they may very well survive this too.

“I’ve been doing this for 30 years now, and that same question has been asked for 30 years: At what point does the audience get so small that advertisers won’t show up?” says Fox Networks Group chairman Tony Vinciquerra. “It hasn’t gotten there yet.”

Indeed, advertisers have been willing to pay more and more each year even as ratings slowly collapsed.

That didn’t make a lot of sense on paper. The networks were, in a sense, being rewarded for viewer erosion, as marketers had to buy more time to reach the same number of eyeballs. Yet it allowed the networks to keep operating mostly within the status quo.

“I don’t think we can predict what will happen next,” Vinciquerra says. “The law of unexpected results will take place here. You’ll see things pop up and the marketplace will take a direction. It will adjust and will change as it has over time. But I have complete faith in the marketplace to solve those issues.”

Vinciquerra says he doesn’t believe the nets need to hit the panic button just yet: “Viewing patterns have changed … there are changes that we have to adjust to and make sure we’ve recognized.”

But some execs wonder if a few of the radical changes they’ve been talking about for years may actually happen.

For the nets, the timing may finally be right to make some of these sweeping shifts.

“We’ve had these conversations in the past,” says one webhead. “But as much as the writers strike constituted the perfect storm, this economic crisis constitutes the ultimate perfect storm.”

That exec (who didn’t wish to be named, as to not be seen as hastening the networks’ decline) had predicted that the day of reckoning would eventually come over the next decade due to the inevitable content shift to the Internet — and the eventual abandonment of the nets by younger demos.

“I didn’t think it would happen this fast, or that it would be from the economy,” the exec says.

Even as TV’s Chicken Littles predicted the eventual decline of the advertiser marketplace that kept the nets afloat, not much could be done while “the tires were still going 80 miles per hour,” the exec says. “But the tires are off now.”

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