Cable and Broadcast Networks Looking More Alike

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The four major broadcast TV networks in the US are CBS ( CBS ), NBC, News Corp's ( NWSA ) Fox and Disney's ( DIS ) ABC. These networks reach a wide audience and have traditionally relied on advertisement based revenue models. On the other hand cable networks, like Time Warner's ( TWX ) Turner Broadcasting (which includes TBS, TNT, and CNN) typically rely on both subscription and advertisement based revenue models. Over the recent years, broadcasters have been losing audience to cable networks and have struggled to sustain revenues.

However, the traditional features that have differentiated broadcast and cable networks are beginning to vanish. How might this impact broadcasters and cable networks? Below we examine this transition and the potential long-term impacts on these companies.

Is Content Beginning to Merge?

Cable networks have been able to grab rights to sports broadcasting, a traditional broadcast stalwart, and add late night shows to their offerings while increasing reliance on top broadcast shows, like Law & Order on TNT .

Moves by Time Warner's Turner Broadcasting are making cable stations look very similar to broadcast networks like CBS and NBC. TNT appears to be more aggressively pursuing broadcast content, in addition to building its own. The cable network has infused life into the police drama Southland that was previously dropped by NBC in 2009. TBS also signed Conan O'Brien to host a late night TV show following a break down in negotiations between O'Brien and the Fox broadcasting network. Going forward, other cable networks could be compelled to follow this approach.

Business Model Convergence

Broadcast networks are increasingly pushing for retransmission fees in addition to the traditional advertisement based revenue. Reliance on an advertisement based model exposes these broadcasters to fluctuations in weak economic times, evident from the past few years. Thus, a dual revenue stream of advertisement and subscriptions offers a lot more stability to the broadcasters.

Fox's move to charge Time Warner Cable to carry its programming is a prime example of changing economics of broadcast networks. Analysts also anticipate a jump in retransmission fees for broadcasters like CBS.

These developments could indicate a trend towards greater convergence of business models between broadcast and cable networks.

Our Takeā€¦ With Expanded Content, Cable Might Fill Empty Spots and Challenge Broadcasters

Cable networks are known for their original programming and typically produce fewer series than broadcasters. If they can complement their targeted programming with content that fills empty spots, like morning and late night shows, as well as increased coverage of major sporting events, they could increase their edge over broadcasters and gain greater audience share. Currently, no individual cable channels comes close to the reach of broadcasting networks, although cable tends to do well in terms of profit margins. Complementing programming with content typically associated with broadcast networks could further advance cable's scale and reach.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: CBS , DIS , NWS , NWSA , TWX

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