Les Moonves' Fight With Charlie Ergen Is Really About TV Advertising

NEW YORK ( TheStreet) -- The numbers are indisputable: Advertising is leaving television. It may be fast, it may be slow but it's undeniable: Marketers are moving money out of television and into digital.

Advertising at 21st Century Fox's (FOXA) broadcast network fell 5% in the quarter ended Sept. 30, and Viacom (VIAB)  posted the same-sized drop at its cable-networks, which includes BET And Nickelodeon. Ad sales at  CBS (CBS) , owner of the most-watched network, were down 1% and Comcast  (CMCSA) said advertising at its NBCUniversal's cable-TV unit fell 4.6%.

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The drop-off in television advertising has been gathering strength throughout 2014. It's a shift that BernsteinResearch media analyst Todd Juenger labels as nothing short of a "structural decline in ad-supported TV audiences."

The decline serves as an ominous backdrop to the ongoing and sometimes nasty dispute between CBS and the Dish Network (DISH) over how much the pay-TV operator should pay the content producer to carry its programming. Its distribution deal with Dish expires on Thursday. If the two sides can't agree on a new contract, Dish Chairman Charlie Ergen has threatened to take CBS off his satellite-TV network in 14 markets, including Los Angeles, New York, Dallas and Denver, cities where the network owns its local TV station.

In past years, CBS sought higher fees to cover higher production costs. But this year is different. When Moonves projects his company's finances into the future, he knows that if Dish wants a multi-year deal, CBS is going to need sufficient revenue to help compensate for a likely slowdown in advertising.

"Les Moonves wants to charge more for his content to offset whatever pressure he may be feeling on the advertising front," Craig Huber, an independent media analyst based in Greenwich, Conn. said in a phone interview. "The biggest change going on out there this year is the move of television advertising dollars to mobile."

The shift in ad-spending became apparent clear to any remaining doubters in the spring when marketers allocated 6% less money to upfront advertising, the annual purchase of TV space for the fall and winter season. That trend is projected to continue, according to MoffettNathanson, which lowered its forecast for ad spending on network TV to 3.9% for 2014 from a 5% estimate made in May. 

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Of course, lower advertising is simply a response to lower TV ratings. Marketers are only doing what they're expected to do: Go where the eyeballs are going. Primetime viewing on the largest television networks was 5% lower in October among 18- to 49-year-olds than during the same month a year ago, according to data compiled by Morgan Stanley. Total television viewing for the month ended Oct. 27 was 7% lower among 18 to 49-year-olds compared to the same period a year ago, according to Nielsen. People are simply watching less television programming on television. 

That might be one reason CBS' shares have dropped 21% since reaching a 52-week high in March, closing on Wednesday at $53.34.

How these changes in advertising and viewing will alter the business of television is a source of much debate and jockeying by the networks. No one is predicting the demise of a $70 billion a year industry, but a slippage in revenue is always a concern. The drop is a major reason for the launch of CBS All Access, the network's Internet-based subscription service that carries much of its programming though not it's first-run primetime content. Time Warner (TWX) is also turning to mobile devices to boost revenue by readying a standalone version of HBO scheduled to go live sometime next year.

And Dish too is working on an over-the-top online television streaming service that will cost $20 to $30 per month for fewer channels, further proof that all media companies are hedging their bets on traditional television.  

Meanwhile, Ergen is arguing that CBS's demands for higher fees will force him to pass those increases to his customers. Moonves counters that Dish ought to drop some of its less-popular channels to free up additional money to pay for content that large numbers of people still watch.   

Of course, CBS has the National Football League, and people, especially men, like to watch professional football games. For that reason alone Ergen is likely to find a way to appease Moonves' demands that the satellite-TV operator pay higher fees to carry NFL games, and two of TV's most popular shows, NCIS and The Big Bang Theory. Folks in Denver, where the Broncos will play the Miami Dolphins on Sunday, aren't going to appreciate not being able to watch their team in the comfort of their living rooms.

"Dish is playing with fire here because CBS has the best primetime lineup and has one of the two best NFL packages," Huber said. "If they took CBS off, they'll lose an awful lot of subscribers."

And that wouldn't be good for television. Dish was falling 1.8% to $73.35 on Thursday while CBS was dropping 0.3% to $53.20.

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Written by Leon Lazaroff in New York

Contact by Email.

Follow @LeonLazaroff

Leon Lazaroff is TheStreet's deputy managing editor.

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