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Television's Fatal Dose Of Reality

By Eugene Bukoveczky

Tickers in this Article: DIS, CBS, NWS, GE

Back in 2005, comedian Chris Rock caused a bit of a ruckus when he said straight men don't watch the Academy Awards. Fast forward to 2008, and that quote may have to be updated to include all genders and sexual orientations.

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Due to the ongoing writers' strike, it's looking increasingly likely that this year's Oscar broadcast could come in the form of a decidedly unwatchable press conference lacking all the glitz and glamor of previous years' shows. The question is: when the strike is finally over, and the Oscar awards show is back to it's usual, gaudy self, will anyone be watching? (For related reading, see Demographic Trends And The Implications For Investment.)

Oscar Cancellation a Dark Omen
Walt Disney's (NYSE:DIS) ABC network, which holds the rights to cover the Oscar ceremony, will be the most immediate casualty of an Oscar cancellation.

The ongoing writers' strike, which has dragged on for more than eight weeks now, could potentially impart a more lasting degree of damage on the entire television industry. This would involve all the major networks including CBS (NYSE:CBS), Fox, which is owned by Newscorp (NYSE:NWS) and NBC, which is majority owned by General Electric (NYSE:GE).

Viewership Sinking Before The Strike
Even before the writers' strike, television viewer numbers were dropping, down by about 10% year-over-year as reported by Reuters in late December. These viewership numbers are now at risk of sinking even further, perhaps by as much a one-fifth, as widely followed prime-time dramatic shows and sitcoms have been replaced by reality TV shows.

The networks were already compensating advertisers with extra commercial time, and in the case of NBC, with direct cash rebates. This suggests that this decline has been underway for some time. The real nightmare scenario for the networks is if these declines wind up being permanent. (To read about the compensation and rebates, see the Reuters story "Networks pay back advertisers as ratings drop".)

TV Advertising is Dying
For advertisers that are still spending more than $70 billion on TV, a permanent slide in TV viewership levels could be the catalyst prompting a major spending shift away from TV in favor of newer media channels like the internet and multimedia cellphones. Given the ability of these new digital media forms to deliver vastly more personalized entertainment experience in tandem with a highly targeted advertising message, television's indiscriminate mass media message looks decidedly dated, and increasingly ineffective from the perspective of the advertiser.

That said, perhaps because they see the writing on the wall, the television networks have recently begun cutting deals designed to allow their entertainment content to be bought directly by subscribers, in much the same way Apple's (Nasdaq:AAPL) iTunes service sells music. These efforts are obviously on the right track and not surprisingly, form the core of the current disagreement between the industry and the striking writers, who want a bigger piece of this pie.

The Bottom Line
While the writers' strike may be dominating the headlines, it serves to obscure the more fundamental issue for the television industry - whether its mass market appeal is still viable in the brave new world of digital media. The effects of this strike has only hastened the fade out of network television that was already well underway before the strike happened. You need only look at the stocks charts of these companies to confirm this. Their downtrends started well before the strike began.

To learn more, see Taking Global Macro Trends To The Bank.

By Eugene Bukoveczky

Eugene Bukoveczky is a freelance writer and investment researcher. He holds a CFA designation and has spent several decades working in the investment business in places like Toronto, New York, London and Dubai. He currently resides in Nova Scotia, where, when not writing, he devotes his time to chopping wood, growing his own vegetables, riding his bike to the store, and thinking about other ways to reduce his carbon footprint.

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