CBS, home to “60 Minutes,” the “CSI” franchise, “Two and a Half Men” and the new hit crime drama “The Mentalist,” is having a better year in prime time than any other network.
And yet, as at the other networks, profits have declined sharply at CBS.
For decades, the big three, now big four, networks all had the same game plan: spend many millions to develop and produce scripted shows aimed at a mass audience and national advertisers, with a shelf life of years or decades as reruns in syndication.
But that model, based on attracting enough ad dollars to cover the costs of shows like “Lost” and “ER,” no longer appears viable. Network dramas now cost about $3 million an hour.
The future for the networks, it seems, is more low-cost reality shows, more news and talk, and a greater effort to find new revenue streams, whether they be from receiving subscriber fees as cable channels do, or becoming cable networks themselves, an idea that has gained currency.
The last bastion of the big network audience is the Super Bowl and other live events like the Grammy Awards and the Academy Awards. The rub is that those have traditionally been viewed as promotional outlets for a network’s other shows, and rarely make money themselves.
Ratings over all for broadcast networks continue to decline, making it harder for them to justify their high prices for advertising. Cable channels are spending more on original shows, which bring in new viewers and dampen their appetites for buying repeats of broadcast shows.
For the networks, the crisis is twofold: cultural and financial. For viewers, the result is more low-cost reality shows, prime-time talk and news programs and sports from the institutions that once made “Hill Street Blues,” “All in the Family” and “Cheers.”
NBC’s decision to move Jay Leno to a Monday-through-Friday slot at 10 p.m. eliminates the chance of the network developing another “ER” for that hour, but it will save the network tens of millions of dollars.
The network television landscape is scattered with other examples that speak to a broken business model.
The CW, a lower-profile network owned by CBS and Time Warner, contracted out part of its prime-time schedule to an outside supplier, but shut down the deal after just three months because of low ratings and production problems. MyNetworkTV, a unit of theNews Corporation, said it would essentially stop being a broadcast network and instead be a “program service,” supplying shows, some of them reruns of series like “Law and Order: Criminal Intent,” to affiliates. The networks have already lost much of their cultural cachet to cable, which is spending more to develop original programs. For the first time, the winning drama at last year’s Emmy Awards was on basic cable: “Mad Men,” which is on AMC. (“The Sopranos” was the first cable show to receive an Emmy for best drama series, but it was shown on HBO, a premium cable channel).
Financially, the networks are on shaky ground, partly because they rely almost solely on advertising. CBS reported that for the fourth quarter of last year, as the recession deepened, operating income in its television segment declined 40 percent, even though it was by far the most-watched network. In the second week of February, CBS had 12 of the top 20 shows, according to Nielsen Media Research.
News Corporation, which owns Fox, reported operating income of $18 million in broadcast television, compared with $245 million a year ago. And Disney’s broadcasting business had a 60 percent drop in operating income.
For years the major networks raised their ad rates, despite the shrinking audience, because they still offered advertisers a larger audience than anyone else.
“More dollars are chasing fewer eyeballs,” said Gary Carr, director of broadcast services at TargetCast tcm, a media and marketing company.
Lately, the recession has forced down the cost of prime-time commercials on network television, TargetCast said. In the fourth quarter, the average cost for a 30-second prime-time spot declined 15 percent, to about $122,000, the company said.
But advertisers will still pay large premiums for a big audience, particularly for live events like Fox’s “American Idol,” which can command $700,000 for a 30-second spot, according to Adweek. A top network hit of several years ago, NBC’s “Friends,” brought in an estimated $450,000 per 30-second spot.
These circumstances upend the traditional business model of developing comedies and dramas that can live, quite lucratively, for years in syndication.
“Prime-time television has been so expensive,” said Tim Spengler, president of Initiative U.S.A., an agency that is part of Interpublic. “The price premium is getting out of whack, and I think you’ll see some pullback.”
Within the industry, the identity crisis is evident in the debate about the future of the business among network executives.
Jeff Zucker, the chief of NBC Universal, has been more pessimistic, saying, “broadcast television is in a time of tremendous transition, and if we don’t attempt to change the model now, we could be in danger of becoming the automobile industry or the newspaper industry.”
Recently, Robert A. Iger, the chief of the Walt Disney Company, surprised Wall Street when he acknowledged in a conference call with analysts and reporters that some of the company’s businesses were experiencing profound change as competition for people’s time increased and consumers were confronted with an abundance of choices. “This clearly has had an impact on broadcast television,” he said.
One dissenter is Leslie Moonves, the chief of CBS, who defended network television at a media conference in December, saying, “I’m here to tell you — the model ain’t broken.”
ABC had a bit of a resurgence with “Desperate Housewives” and “Lost,” but their ratings are not what they once were. And in the case of “Lost,” it is doubtful that the show would be scheduled today, because of its high cost — its two-episode pilot was said to cost more than $10 million — and its format as a serial, which does not do as well in reruns as self-contained shows.
Broadcast television, for decades an oligarchy of three networks, was once the locus for most of the nation’s shared cultural moments — almost 83 percent of households in the United States watched Elvis Presley’s appearance on “The Ed Sullivan Show” in September 1956, which is said to be the largest audience when measured by that metric. In terms of number of viewers, the final episode of “M*A*S*H,” in 1983, set the record with about 106 million viewers.
The networks have also had deep ties to local communities through affiliate and owned-and-operated stations. Along the way, they minted money.
“It was a license to steal,” said Fred Silverman, the former president and chief executive of NBC who as a programmer was behind the hit shows “The Waltons” and “All in the Family.”
In the last three months of 2008, broadcast networks lost nearly three million viewers, or about 7 percent of their total audience. Overall television viewing is up, however, and some big cable networks, like USA and TNT, are attracting new viewers.
Broadcast networks still bring in the largest audiences, but now they are facing a deep advertising recession that is hitting both the networks and their local stations. Cable networks have also been affected by the ad slump, but those businesses are propped up by subscriber fees.
“That’s why the architecture needs to change,” said Michael Nathanson, an analyst at Sanford C. Bernstein & Company.