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Network economics & regulation

Network economics & regulation. Ideas and definitions. What do networks do?. purchase programming or self-produce deliver via local stations to viewers act as intermediaries. Who do networks interact with?. Producers Affiliates Advertisers. Advantages & Disadvantages.

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Network economics & regulation

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  1. Network economics & regulation Ideas and definitions

  2. What do networks do? • purchase programming or self-produce • deliver via local stations to viewers • act as intermediaries

  3. Who do networks interact with? • Producers • Affiliates • Advertisers

  4. Advantages & Disadvantages • lower per-unit costs • important because of first-copy costs • scheduling adds value to programming • compared to direct syndication • large audiences, no duplication • Drawback • Large audiences = loss of viewer satisfaction

  5. Why affiliate? • Network programming as a whole is more profitable • Perhaps not a case-by-case basis • Syndicated programming may appeal more in local market • Sell advertising time to national advertisers • Decreased profits compensated by nets

  6. Network Compensation • Difference between • network ad revenues; and • affiliate expenditures for network programming • Power relations • networks powerful in larger markets • affiliates powerful in smaller markets

  7. Network “Clearance” • percentage of national markets where a show airs • basis for reduced costs associated with networking • “Free riders” carry only profitable network shows

  8. Preemption • Affiliates free to preempt programming • usually weak shows • compensation slightly above profits from preemption • preemption results in lower production spending • exclusive-dealing contracts are illegal

  9. Network regulations • Attempt to curb network power • Contractual limitations with affiliates • Prime-time access rule • Financial interest and syndication rules • Repealed in 1995

  10. Risk-Bearing What Is It & Who Cares?

  11. What is “risk-bearing” • Economic term • Costs must be “borne” prior to profitability • How does “risk-bearing” affect industry players?

  12. Economics of risk-bearing • What are the risks? • unpredictable profits • high production costs • Correlation between production budgets and popularity • More expensive shows are more popular– often • Nets bear risk better than producers

  13. FinSyn and Risk-bearing • Shifted risk from networks to Hollywood • Increased production costs • Lowered network profits • Less innovative programming • Network risks are lower • “Adjancency” • networks take more chances • Reduced option periods

  14. Option periods • length of contract between producer and network • gives network “right of first refusal” • long option periods mean more network risk • short option periods mean more producer risks

  15. Network Decline How (and Why) the Mighty Have Fallen

  16. Why Have Networks Declined? • Increased competition, especially cable • Open skies satellite policy • Alternative forms of cheap distribution

  17. How Can Networks Survive? • Harvesting • short-term: hold on while you can • cost-cutting; lower production costs • Backward vertical integration • buy production companies • Forward vertical integration • buy more stations • Charge for broadcast • Exploit new technologies

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