The Business of TV

The Beginning.

In the beginning there was radio. Broadcasting to our imaginations and senses, the magic of radio programming brought us all the news, entertainment and drama possible in its heyday. Gathering each evening, families, neighbors and friends listened to messages from the president, a mystery theater production or other news of the day. The radio industry had a sophisticated production, funding and distribution system that eventually paved the way for its entertainment successor, the mighty force of television.

The phenomenon of TV stunned post World War II era viewers. People were captivated by the moving pictures, sound and action productions delivered right into their own homes via a box, antenna and electricity. Television now offered black and white pictures that told stories and dramatized everyday life. When color was added several years later, the picture and future of the television industry was set.

From 1950 to 1975, NBC and CBS lead the pack of three networks followed by an upstart but energetic station called ABC. Together, these three stations provided the programming and competed for ratings amongst themselves garnering nearly 90 percent of the viewing audience.

It was not until the dawn of the 80s, when VCRs, cable and satellite dishes expanded TV's capabilities, that the playing field began to expand with another network joining the ranks of the big three. None of the changes displaced TV -- cable offered clearer pictures, while the largest use of VCRs was to watch recorded playback of network broadcasts. The number of cable stations increased viewing capacity from three stations to 10, 20 and 40 and more channels.

But with the closing of the 80s and the 90s almost behind us, generations are coming to a head. Baby boomers are aging and boomer children are having children of their own. Computers make information, images and sounds available to the masses in mere seconds. There are now five major networks, vying nationally to respond to a rapidly changing viewership with a growing diversity of preferences.

Today's Local TV

Southwest Florida is in the position of having five network stations that cater to the need of each age group requiring a diet of news and information as well as entertainment. These stations are:

CBS affiliate WINK TV owned by Fort Myers Broadcasting Company

NBC affiliate WBBH owned by Waterman Broadcasting,

ABC affiliate WZVN, leased by Montclair Communications from WBBH

FOX affiliate WFTX, or FOX4, owned by Emmis Broadcasting Corporation

WTVK, the WB6 and Warner Brothers affiliate

WGCU TV public television, the PBS affiliate offering public programming.

"TV is becoming more like radio, it has something to offer everyone," says Bill Scaffide, general manager for WTVK. In fact, Southwest Florida's market has grown exponentially, placing the area's television ranking at number 81 in the country according to Gary Gardner, general manager of WINK TV the CBS affiliate here. "The Southwest Florida television market was recently ranked from number 83 in the country to number 81. That is a two-position jump," he notes.

With the median age of Southwest Floridians now at 43, the new target audience is considerable. "Targeting demographics are becoming more specific based on products and lifestyles," says Donita Todd, general manager for WFTX. And it has to be. With the primordial mix of the Internet, cell phones, beepers, billboards, radio and television, magazine and newsprint, "viewers are inundated with messages," she notes.

"Today, there are so many forms of competition for viewers' attention that reach and frequency are critical," agrees Gary Gardner, general manager of WINK TV.

It's All About Targets

In the era of niche marketing, TV is no less subject to preferences, according to Steve Pontius, executive vice president and general manager for Waterman Broadcasting. "Targeting specific audience members is key," he says.

Laura Kunkler, general manager and owner of Montclair Communications, agrees. "What we can do is provide viewers with different content and different local based programming," she says.

All area stations run local and network programming for their viewers. For example, WZVN will run ABC's Good Morning America but inject its own news programming and then run network news. Many of the stations also run what is called off-net or not first-run shows (or repeats).

A good example is targeting specific age groups like the 18 to 34-year-olds. WB6 targets this group with a mix of shows like Dawson's Creek, Charmed and off-net shows such as the Nanny and X-files. WFTX reaches a little farther across the age spectrum catering to 18 to 49-year-olds with news at 10 p.m., prime time football and shows like Frasier and Ally McBeal.

WBBH TV provides what Pontius calls more traditional programming for 25 to 54-year-olds, featuring more news-based shows like The Today Show, Later Today and first run syndicated shows suck as Wheel of Fortune and Third Rock from the Sun.

WINK TV spreads their numbers even farther targeting 35 to 64-year-old baby boomers with wholesome types of shows like CBS This Morning, Donnie and Marie, 60 Minutes and new shows like Judging Amy and Chicago Hope.

WZVN skews slightly younger, choosing the 25-49 years olds, according to Kunkler. The approach for this ABC affiliate is to provide more network news and first run entertainment like Good Morning America, Judge Judy, Dharma and Greg and Spin City.

How it All Works

TV stations receive their primary source of funding through advertising much like radio or print mediums. Todd also notes that non-traditional revenue, such as promotions or special events, contributes a small percent to a station's revenue.

According to Gardner, there are three basic revenue sources for a broadcast television station. "Television stations receive their funding from national/regional advertisers, local advertisers and network compensation," he explains.

The split on the national/regional and local advertising averages about 50 percent national and 45 percent local, Gardner says of his station. The remaining 5 percent is network compensation given to the local stations for devoting a certain percentage of their day to network programming. "In this case, during a network hour of programming, we will typically only have two minutes of advertising time to sell," he says.

Stations judge their viewership and therefore their programming based on network affiliation and local rankings, which are determined by the Nielsen rating system. "This system measures stations four times each year in November, February, May and July," explains Gardner.

Nielsen sends approximately 700 television diaries to area households in this market. "Households are asked to record the programs they view, their times and the station they watch," Gardner says.

From the ratings, a station is ranked based upon different categories. In popularity with viewers in specific age groups, for example, WB 6 is ranked number one with the 18-year-old age group, or by timing, WINK was number one for the time frame of 6 a.m. to 2 a.m.

Because advertising revenue is so critical, ratings determine a media buy. Gardner notes that ratings identify target audiences based on demographics such as age and sex as well as psycho-graphics such as lifestyles, values and occupations. "When an advertiser goes to an ad agency, they target their customers based on one of those factors and that determines which stations, programs and media buys a business or organization will make," adds Gardner.

High Capital Costs

Revenue is critical in a "revenue-intensive business," says Pontius. The cost of satellite trucks can reach into the six figures, while a new tower can be as high as $12 million. That's before the lights, camera, action, salaries and other equipment are added to the equation.

Television stations accordingly come with a hefty price tag. For example, Emmis Broadcasting Corporation purchased WFTX (or FOX4) in a deal that included the purchase of five other stations at a cost of about $397 million. The purchase price reportedly was for $257 million in cash and $50 million in either cash or Emmis common stock. This is not an unusual way to purchase television stations, according to Todd. "Generally, when a station goes on the market it can be sold a couple of ways," she says. "An investment banker may assess its value and test the market to determine a price. Then the station is either bid on or a deal is struck privately between the purchaser and seller," she says.

Kunkler says that when stock is involved, it must be the stock of a publicly traded company. The Federal Communications Commission (FCC) regulated the purchasing and selling of television stations and applications must be made to and approved by them. Late this summer, their rules were relaxed considerably in a number of areas setting off what some managers and officials believe will be a consolidation of television stations. "There is a strong appetite for purchasing stations thanks to relaxed regulations," adds Kunkler.

When WBBH leased WZVN to Montclair Communications via a Leased Marketing Agreement (LMA), the deal raised eyebrows and curiosity. But the relationship has strengthened both stations, says Pontius. "LMAs have admittedly had a bad reputation because some companies have only looked for the bottom line. We went to the FCC with our goal being to build WZVN into being the best ABC affiliate it could possibly be," he explains.

To that end, Pontius claims, the stations can pool resources such as satellite trucks and newsrooms to spread the wealth to their stations. The best example he notes is during Hurricane Floyd when WBBH sent reporter Kellie Burns to the east coast of Florida to report on the human aspect of the devastating hurricane, while WZVN sent meterologist Eric Salna to report on the meteorological aspect. The stations shared one satellite truck providing viewers with the two types of reporting they wanted during such a situation.