With changes in the TV industry and technology, will it become viable for commercially supported networks to do what PBS does, and do it better? Current discussed the question with media economists for this article originally published Dec. 16, 1996. A separate article looked at the same question in classical music radio.
The armies of commerce are coming! As cable industry economics and technology change, more of the program networks are wooing the small audiences that public broadcasting was built to serve.
For more than a decade, cable networks have been moving into program genres that belonged to public TV, and making a buck where only PBS previously had been viable.
In economic terms, public TV's significant distinction has been a mandate and an economic structure that let it survive with audiences smaller than those of mass media.
NBC, the biggest commercial network, reaches twice the weekly audience of PBS in primetime, and five times as many households at any one time in the evening. The summer's hit movie Independence Day drew about eight times as many Americans as a week's worth of Morning Edition. Not surprising.
But pubcasting audiences aren't such small potatoes by the standards of most media. Its weekly audiences compare with those of major national magazines, cable TV networks, arthouse film hits, the hottest compact discs and the biggest bestselling books.
Pubcasters do have economic needs, but those needs are scaled for small markets. Public stations generally aren't paying out dividends to stockholders or interest on huge merger and buyout loans. PBS can often spend more on production, per hour, than the new commercial rivals that also aim at relatively small audiences.
Public TV and its funders are spending a total of some $291.5 million on the PBS National Program Service this year, according to the network. Its two closest competitors for adult viewers, Discovery Channel and A&E, have $125 million and $100.8 million, respectively, for production, according to a Paul Kagan Associates estimate.
Discovery reportedly spends $75,000 to $200,000 an hour to buy documentaries, according to production sources, while PBS may spend as much as $500,000 an hour.
(The cable nets do milk more airings from their programs, often buying rights for 30 broadcasts, however, while PBS now has airtime to run programs only a few times.)
Even without claiming that public TV programs benefit from greater talent, ingenuity, inspiration and public-spirited motivation, the budget advantage buys better craftwork, longer research and higher production values.
All other things being equal, when this additional production money is spent wisely, viewers can see the difference on the air.
"Clearly what public television has to do is maintain very high programming standards, and put their money into significant projects, as opposed to becoming more like a cable service," advises John Carey, a consultant with Greystone Communications. "They have to maintain something that keeps them above the fray."
But how long will public TV maintain that advantage, since its revenues are flat and the ad-supported cable networks' are growing? Those networks, as a group, are boosting their revenues 15 percent a year, by Kagan's estimate. Under competitive pressure, the big cable nets have quadrupled their production spending per rating point, according to Bortz & Co. consultants.
"The cable networks each year get stronger, and they have more resources available to them," says Kagan cable industry analyst Larry Gerbrandt. "Discovery has been particularly adept at exploiting the worldwide market" -- bringing in co-production money by selling programs in other countries.
And the commercial competition is becoming more numerous: the existing cable networks are spinning off new services like Discovery Animal Planet and A&E's History Channel, adding to the competition.
"Individually, a lion can't take on a water buffalo, but a whole pride of them can," says Gerbrandt, borrowing savannah imagery from nature films. "What we have here are the young lions constantly nipping at the heels of PBS, and they're growing stronger."
The same general idea has occurred to past and present PBS officials. It provided impetus for the PBS Station Equity Model a year ago, and it underlies Lawrence Grossman's proposal for the "P2" commercial network.
Where the cable networks are clearly outspending PBS already is in promotion. "The most important thing these cable programming groups have done over the last three or four years ... is that they've established really strong and well-recognized brands," says Jim Trautman, of Bortz & Co., a TV-industry consulting firm based in Denver.
"Discovery puts a huge amount of money into marketing," says Greystone Communications consultant John Carey. "Their image is much greater than their audience. ... They may get more audience for lower-quality programming [than PBS does] because of the way they use their marketing dollars."
Cable has indeed raised its program spending, Carey predicts, but as long as public TV can afford significant budgets for its high-end series, cable will not be able to compete.
"If there's going to be a big [audience] shift to cable, it's not going to be to Discovery and A&E," says Carey. "It's going to be to sports and movies." If the specialized cable nets recognize this and go for the ABC/CBS/NBC viewers, they'll broaden their appeal, thereby competing less with public TV.
And if the cable networks introduce new viewers to quality programming, those viewers become fair game for public TV as well, comments Robert Picard, a media economist at California State University, Fullerton.
The cable networks are already at odds with the general tendency of businesses to provide an oversupply of goods for the middle of the market. Harvard media scholar W. Russell Neuman says economist Harold Hotelling noted the phenomenon in the 1920s. The tendency applies to lowest-common-denominator TV programs as well as to look-alike discount stores and centrist political parties that also seek out the mainstream.
Theoretically, if a producer focuses a program sharply, to offer exactly what the niche viewers want, the grateful viewers will be willing to pay more for it, comments Waterman. "But this model doesn't seem to work very well. ... The programs that survive and do best in the market are the ones that have relatively broad appeal and that spend a great deal on production values and stars."
Programmers generally prefer to bet that they can beat their competitors in the fattest audience segments rather than settling for all of a thinner slice.
"What they have found is they do better from an audience viewpoint by moving away from quality programming rather than going toward it," says Trautman. Note the many old network series showing up on A&E.
But the cable industry also has a built-in regulatory mechanism. While the networks themselves might be tempted to go for bigger audiences, the cable system operators (which part-own many of the networks) want to maintain diverse narrow-audience programming that satisifies their subscribers, says Peter Downey, a senior vice president at PBS.
At the same time, the cable industry doesn't leave room for many money-losing channels, and much of what PBS airs would cost too much or fail to interest cable's advertisers.
Downey points to the long and so-far-fruitless search for investors in a cable network that Children's Television Workshop (producer of Sesame Street) has been trying to start up. Is quality kidvid simply not viable commercially? He suspects so.
For the near future, the limited reach of the cable nets is probably their biggest constraint, says David Waterman, a media economist at Indiana University.
However, the networks are growing without the help of cable. Direct broadcast satellite networks like DirecTV are already giving them millions of new viewers. The Discovery Channel can now be picked up in 73 percent of households and Nickelodeon in 71 percent, though newer networks may have a long wait before they have similar penetration. The two-year-old Home and Garden Network reached just 15 percent of households [in November 1996], and the year-old History Channel, 28 percent, according to Nielsen estimates.
With the help of DBS, the cable nets will have penetration rates in the mid-80s in five years, Trautman estimates.
That applies to the well-established niche networks, but not to about 100 wannabe networks are scouting for carriage. For them, cable operators have little interest in paying per-subscriber fees, which now account for more than a third of the older networks' income, by Kagan estimate.
"The new networks will have almost no chance to get license fees for a long time," Trautman observes. "They may be paying [fees to cable operators] to get on, rather than getting paid."
Yet the networks proliferate, partly as a defensive strategy, as they try to control as many of the finite number of channels as possible, Trautman says. "They figure if somebody is going to be cannibalizing their own audiences, it might as well be them."
Cable carriage of the wannabe networks, meanwhile, is limited by cable operators' slow adoption of digital transmission, which can squeeze more channels into their cables. "The way the digital marketplace is looking now, it will be real tough to make it work," says Trautman. "There won't be many digital [set-top decoding] boxes out there for several years."
"The so-called promise of the 200-500-channel environment is going to be a nightmare from the supply side," predicts Carey. "What you're going to see over the next three years is the collapse of many cable channels, just as in the '80s."
The pay wayIn theory, the surest way for TV to serve small audiences is through some pay-per-view or video-on-demand (VOD) mechanism.
Advertising sales may generate about 25 cents per viewer to support a program, Russ Neuman estimates, while viewers might be willing to pay 50 cents--which is pretty close to a negligible amount in this day and age--if that's what they have to do to get the programs they want.
But Americans are in the free-TV habit, and media companies don't know much about what programming they'll buy, except for movies. Programmers don't see the potential in low-price VOD so far, says Gerbrandt. Bandwidth is still too precious and billing costs too high. Video servers have limited capacity, and popular titles crowd out the narrow-interest ones, as Harold Hotelling would have predicted.
"For the past three years or so," says Downey, "PBS has been involved in a half-dozen video-on-demand experiments, and essentially what we conclude is there's no demand."
American consumers have doubled what they spend on communications services in the last 20 years, but that growth has to stop, says Picard. He suspects they'll start resisting when they notice that VOD has just added another $20 a month to their bills.
"If it turns out that people will be willing to pay 50 cents" per program, using VOD, Carey says, "the economics would change quite significantly."
Over the long term, if the media industry can work out a VOD mechanism with vast choice and no restricting schedules, Waterman says, that has the greatest potential for narrowcasting.
And that method of funding programs--subscriber support--is not at all foreign to pubcasters, who already operate a voluntary subscription system and have already pondered the idea of creating a first-run pay network to supplement their free service.
Web page posted April 5, 1997
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