Old Media's New Financial Story
NEW YORK ( TheStreet) -- Skim a glossy trade publication about the TV business and you may see that Fox Broadcasting's coverage of Sunday's NFC Championship football game drew the industry's largest audience last week, while Fox's "American Idol" took the crown for non-sports programming and CBS's "The Big Bang Theory" was the top scripted show.
Interesting, perhaps, but this information has little value for investors. The real financial story about TV if you step back and look at the big picture is that audience and advertising revenue growth is fizzling out. Overall TV viewership is still increasing, according to TVbyTheNumbers.com co-founder Bill Gorman, but primetime audiences for broadcast networks have been shrinking by roughly 5% for years now. Viewers have largely been migrating to cable, where there are many more channels, resulting generally in smaller audiences.
In the current TV programming season that got under way last fall, overall ratings are down almost across the board for major cable networks and the overall prime-time audience for broadcast is also down a bit. This shrinkage in TV is a story we don't often hear from the media, which is dominated by a handful of large conglomerates that rely on TV networks as their largest source of profits.
But it's an important story for investors because the healthy profit growth enjoyed by many TV networks for some time now may soon be facing cancellation.
CBS(CBS) , the most advertising-dependent company in big media, is expected to report overall advertising revenue of about $9.1 billion for 2011, according to a sell-side analyst (the company will report its latest annual results on Feb. 15). That would mark a decline from the company's high-water mark of $10.49 billion reached in 2007, before the financial crisis -- four years ago.
Most of the decline comes from the company's portfolio of local TV and radio businesses, where it sold several stations. But at the national level, including its broadcast network, CBS's ad revenue from last year is expected to be about flat -- at best -- in comparison to 2007 when you exclude some distorting factors like Super Bowl revenue and the addition of CNET, the Internet company it acquired in 2008.
The company's overall revenue for 2011 is expected to show growth over 2007 in the neighborhood of 2.2%, but that reflects non-advertising revenue growth. CBS has a healthy syndication business, and it has successfully garnered more subscription revenue in return for its content from pay-TV operators, like cable and satellite companies, as well as online video distributors, like Netflix(NFLX) .
This reflects a growing trend in traditional media -- companies are seeking more subscription revenue from audiences as their advertising business loses ground to new media competitors, like Google(GOOG) . In the case of TV, subscription revenue ultimately comes from the monthly pay-TV bills paid by consumers. And not surprisingly, Sanford Bernstein analyst Craig Moffett recently noted that pay-TV operators announced new annual price increases over the last few months that are well above the inflation rate. This continues a trend of rising prices that has been in place for over a decade in pay-TV while real income growth for the average American household has stagnated.