TV Networks Evolve From Dinosaurs to Darlings

Has the future been postponed? It may seem like old times with television networks pulling in massive advertising dollars--along with takeover feelers from Time Warner, Disney, Turner Broadcasting and ITT Corp., all of which are looking at a price tag of $5 billion and more for NBC.

The new movie, “Quiz Show,” looks back to the golden 1950s, when folks gathered round the family TV set. And many analysts today are looking in the same direction, saying there’s nothing like a network--NBC, CBS, ABC or Fox--for delivering advertising to a mass market.

Only yesterday, the same networks were regarded as dinosaurs in the age of new media. Now, the new age itself is not so sure. At a digital media conference organized by Technologic Computer Letter last week, the talk was that interactive, 500-channel, do-it-yourself cyberspace will take longer to arrive.

Meanwhile, advertisers this summer put up $4.4 billion in advance to buy time on network TV in the new season. A 30-second spot on “Home Improvement”--if you could buy a spot on that sold-out show--would cost you $225,000. The numbers are so attractive that Paramount and Warner Bros. are trying to organize networks of their own.

Has the future been delayed? No. Technology is moving forward as fast as ever. But what has not been recognized is that it may favor TV networks. You have to know what to watch for and how to interpret it.

Think, for example, about the implications of personal computers hooking into television sets, as a new Compaq model and IBM’s forthcoming Activa home computers can. No great technical advance yet; you can watch CNN while working on your spreadsheet. But in the future, you’ll be able to store programs and manipulate televised information in your home computer.

What about advertising? Everybody is speculating about the future of television, but a far more immediate question is the future of advertising, a $300-billion worldwide industry. Computerized TV may favor direct marketing, which is now a mail and phone-call business, or an adaptation of newspaper classified advertising.

Most surprising, the networks may be technology’s darling. Signal compression, a feature of digital television which is coming in the next four years, could allow networks to broadcast three or four separate channels on the frequency range that now contains just a single channel.

Thus, ABC might offer all-sports and all-news channels along with a conventional entertainment service. Broadcast networks could offer as much variety in one package as several cable channels do now.

“Networks, after all, are essentially packagers of information,” notes William Ebeling Jr. of Braxton Associates, a division of the accounting firm Deloitte & Touche, which has published a study on the multimedia age.

Are the bidders for NBC and other networks aware of the technological possibilities? Probably. Smart people have been going for networks: Rupert Murdoch, who has built the Fox network; cable pioneer Ted Turner; Gerald Levin of Time Warner; Disney Studios’ Michael Eisner.

On the other hand, smart people also seem ready to sell. General Electric’s Jack Welch is shopping NBC, and CBS’ Laurence Tisch and ABC’s principal owner, investor Warren Buffett, have shown themselves amenable to deals, too. Buffett expressed disenchantment with media investments four years ago, writing that, because of increased cable channels and direct mail, “advertising dollars are more widely dispersed and the pricing power of ad vendors has diminished.” And so had the value of media investments, he added.

Still, Buffett’s holding company, Berkshire Hathaway, has made gains of more than $2 billion in Cap Cities/ABC stock and retains 20 million shares.

But his point about advertising is borne out by the fact that this year’s advertiser surge into network TV does not signal a return to the days when soap and toothpaste makers Procter & Gamble and Colgate dominated programming with massive ad budgets.

Such companies have cut back TV advertising, explains analyst James Dougherty of Dean Witter, and now use much of their budgets for promotion deals with supermarkets to display their products and coupons and cents-off sales to attract customers.

The world has changed. Consumers today are very price conscious and less impressed with brand names and fancy ads than with costs on the shelf.

Thus the business of “delivering eyeballs to the advertiser,” as television was once defined, is in transition--and will evolve further, as “viewers” gain even more control through computers over what they watch and when.

Advertising will have to reach such customers one at a time, because they’re the opposite of a mass market. And that could spell trouble for public companies that now lead the advertising industry--WPP Group, Interpublic, Omnicom, Foote Cone & Belding--if they can’t reinvent their business.

But if ad budgets aren’t growing, why the enthusiasm for TV networks? Short term, it’s based on the fact that the future isn’t here yet, and that the old model still works occasionally, notes analyst Alan Gottesman of PaineWebber. Networks remain the only medium that can reach 61% of America’s 94.2-million homes in a single broadcast.

Longer term, however, the networks, which are unique in their ability to produce and distribute programs through local stations all over the country--and increasingly the world--are turning into updated versions of traditional movie studios.

And that’s why it’s those very Hollywood studios that are bidding for and organizing networks in the new age, where in the 1950s it was the mass advertisers along New York’s Madison Avenue that engineered the development of the TV business. As ever, times change.