Networks' Fear of Flopping Portends a Slightly Stale TV Season

New shows are risky and expensive, and most networks would rather cultivate last year's crop.
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Meet the new shows, same as the old shows.

That was the theme in New York as the broadcast networks presented their fall 1999 pilots to advertisers and the press this week.

ABC

, a

Disney

(DIS) - Get Report

unit, and

CBS

(CBS) - Get Report

have cut back the number of new shows they're introducing.

NBC

, owned by

General Electric

(GE) - Get Report

, is keeping its schedule relatively steady despite plunging ratings. Only

Fox

(FOX) - Get Report

is bucking the trend as it struggles to move away from the reality-based shlock (

When Vegetables Attack

) that has become its trademark. (

News Corp.

(NWS) - Get Report

, Fox's majority owner, holds a minority stake in

TheStreet.com

.)

In all, the big three networks will introduce only 15 hours of new programming this year, the lowest number in two decades. That compares with 19 1/2 last year and 22 in 1997, according to David Poltrack, CBS executive vice president for planning and research. That's 21 new shows, compared with 28 in 1997.

The networks are spinning this trend toward "stability" as good for viewers. Maybe, maybe not. But even if audiences wince at seeing the same old crud next season -- instead of shiny new crud -- cutting back on new offerings may just help the networks' bottom lines, which are sorely in need of improvement.

The 1998-99 broadcast season was the worst ever for the major over-the-air networks, whose ratings have trended steadily

downward for two decades in the face of ever-increasing competition from cable. How bad have things gotten? When the season ends next week, CBS will limp past NBC, last year's leader, into first place, even though CBS's

Nielsen

ratings are down 8% from last year. That's because ratings at NBC are down a whopping 15% for the season. (Who says entertainment isn't a growth business?)

No one really expects that introducing fewer new shows will solve that fundamental crisis. But the decision to offer fewer new shows does reflect another important change in the economics of the television business: the ability of the networks to function as producers as well as broadcasters.

With ratings plunging, broadcast television is barely a break-even business these days. NBC was the only profitable network for the 1998-99 season, according to executives both inside and outside the company. But producing shows is still a profitable business for studios lucky enough to generate hits that can be syndicated on cable channels and independent stations after their first run is complete. For decades, federal rules prevented the networks from sharing in that gravy, but in 1991, the

Federal Communications Commission

began loosening its restrictions, and since 1995, the networks have been free to own as many of their shows as they please.

They have been quick to take advantage of their new freedom. NBC picked a very public fight with the studios last year when it announced that it wouldn't air any program unless the network got an ownership stake or other guarantees in the show. Other networks have taken the same step less publicly. CBS, for example, owns stakes in all six of the new shows it will air next year.

Unfortunately, just owning a stake in your programs isn't the panacea that Wall Street sometimes pretends it is. That's because while syndicating programs is very profitable, actually producing them isn't. In fact, the license fees that the networks pay to the studios don't cover the production costs for new shows, which must be "deficit-financed" for their first couple seasons. And those deficits aren't insignificant, running hundreds of thousands of dollars per episode, or several million dollars per new show per season. If a show fails to get into syndication, the producer must eat those losses.

So flops are an expensive business. And most television shows flop. In good years, about one in four new shows makes it into a second season. In bad years, the ratio is more like one in six.

"New is bad," jokes Ron Fredrick, executive director of national broadcast for

J. Walter Thompson

, a New York ad agency which places more than $1 billion on television advertising every year.

In the good ol' days, those long odds didn't bother the networks much. After all, the studios shouldered much of the short-term pain if a show was canceled. So the networks didn't have much to gain from trying to "build" a losing show for the long term. Instead, they could simply pull it and try to find something better. Even relatively strong performers could be replaced after a couple of seasons, Fredrick says. "In the old days, they'd have a show that was performing quite well, and they'd think they could do better."

But now that the networks are at least partially financing their own shows, they can't be so cavalier. If a new show fails, it cuts into their bottom line twice, both by hurting ratings and by forcing them to write off its production costs. So they're less likely to swap a mediocre but battle-tested show for an unproven concept. At the same time, once a new show does get on the air, the networks have every incentive to give it a chance to succeed, since they'll share in the back-end profits if it does.

The

success of NBC's

Providence

and Fox's

The PJs

-- both of which were introduced as midseason replacements and didn't have to compete with dozens of other new shows in September -- has not been lost on the industry. With six networks and dozens of cable channels, the networks can no longer assume that viewers will always be able to find a new show, or even find an old show in a new time slot. By introducing fewer new shows and spreading them out more, the networks can concentrate their promotional efforts, giving the newcomers a better chance to succeed.

"You are seeing a lot more second season successes now," says Steve Sternberg, senior vice president for broadcast research at

TN Media

, which buys $1.3 billion of ad time on national television annually. "The networks realize that."

Poltrack says that CBS research shows that a decade ago, almost one-third of Americans were aware of the average new show by November of a new season. That number has now fallen below one-fifth. "You really want to give shows that have any indication of appeal more time to grow," Poltrack says. "Once you've invested in a show, you want to give it every chance to find its audience, and you don't want to kill it prematurely."

All that adds up to an inescapable reality: less new product on the major networks.

So if you didn't get to see as many episodes of

Two Guys, a Girl and a Pizza Place

or

Veronica's Closet

as you would have liked last year, don't worry. They'll be on for a while.