Yes, There's Still Life In The Networks

Last week the general take on the NBC Universal-Comcast merger was that network television was kaput, and all the profits were in cable. Well, network television both is and is not kaput, as I've already argued, but one thing that's worth looking at more closely here are the economics of the "network business" and the "cable business" and how closely they are connected.

As everyone who keeps track of these things knows, the bulk of NBC Universal's profits come from cable, and this has led folks in the press to think that the "network business" is now irrelevant. This is just not right. Surely everyone understands that Hollywood accounting isn't exactly as simply as adding up the price of the bread and the cheese in  the supermarket checkout line, but when it comes to TV, for some reason a lot of folks look at the top line and think it tells the whole story. But as Comcast's own chief said in the telephone press conference, though no one paid much attention, it doesn't. Here's the thing: effectively for years network TV has gotten "paid" by cable carriers with additional channels. So the math looks disadvantageous to network programming, but that's because this system makes the profits fall on the cable side. It's a little like a farmer trading apples for corn, selling the corn, and then saying that selling corn makes money while the apple business is awful because all he gets for his apples is ... corn.

If the networks don't need more cable channels (and they don't) they'll start looking to get paid for the network programming by cable carriers in cash, not in kind. And if that's what they are looking for, I suspect they will get it. The mistake that many analysts make here is in thinking that somehow content will keep getting squeezed forever. Some will be (umm ... newspapers?) But network programming remains very desirable, and if keeping it at the level it's at means sharing more of the monthly cable subscription fees (maybe by moving more high quality network programming to premium tier channels) they'll do that. The idea that network programming is just too expensive to sustain is not a new one--though it may be true that some of the network news operations are. Cut through the accounting though, and at the end of the day the networks tend to find each time that the kind of pricy prime time entertainment programming viewers turn to the networks for ends up paying its own way, and it will continue to do so. Every once in a while the networks will try some gimmick like handing over a big chunk of prime time to Jay Leno. That never lasts long.