Saturday, August 06, 2005

The tortoise and the hare

Viacom’s P&L is a perfect metaphor for the difference between the prospects of the legacy media and the new media of limitless choice that increasingly are becoming, well, the new media of choice for consumers.

The legacy part of Viacom, of course, is the CBS broadcast network, which is to be spun off as a separate company in early 2006 from the hotter, newer, faster growing and staggeringly more profitable MTV, Comedy Channel, BET, Nickelodeon, CMT and other cable assets.

In the second quarter of this year, revenues for both Viacom divisions were almost identical at $2 billion, give or take. After that, they are as different as the tortoise and the hare.

Second-quarter sales for cable were 14% higher than they were a year ago, while revenues for broadcast were down by 1% in the same period. In the first half of the year, cable revenues were up 17% at $3.7 billion and broadcast volume was down 3% at $4.2 billion.

The cable business was fully 62% more profitable than the broadcast division in the second quarter, delivering $711 million in operating income vs. $439 for the broadcasting unit. In the first half of the year, results were similar, with cable reporting 58% higher profits than broadcast, or, respectively, $1.3 billion vs. $744 million.

CBS falls squarely into the one-size-fits all, mass media broadcast paradigm. Its TV and radio stations depend on gathering the largest possible audience with programming that appeals to the broadest, if not to say the lowest, common denominators.

The cable channels have much smaller audiences, but their programming is aimed at viewers who fall rather neatly into the predictable segments prized by advertisers eager to efficiently target their message.

The cable networks are capable of producing much higher profits, because they spend far less on programming than their broadcast cousins. As any insomniac knows, much of cable programming is filled with comparatively low cost repeats of repeats of repeats of old cable, or even older, broadcast shows.

Broadcasters, on the other hand, shell out considerably more for first-run shows, access to major sporting events and their in-house news divisions, though the latter lately have been in the cost-cutting crosshairs.

To its credit, CBS is trying new stuff to turn things around. For one, it is planning to turn the CBS News website into some sort of CNN-style affair, updated continuously with news, video and such.

But the most intriguing online breakthrough is Big Brother. For only $29.99, you can spy via 24/7 webcam for three months on a household of self-absorbed, twenty-something exhibitionists doing whatever it is that they do.

My question is this: While you are watching them, will they be watching MTV?


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