NEW YORK (TheStreet) -- If the TV medium no longer is the message, what's a television network to do?
For years, doomsayers have said that TV was dead, long live online digital. Yet Twenty-First Century Fox (FOX) , Tribune Media (TRCO) and CBS (CBS) continue to find paths to profitability through the traditional television platform.
The new TV formula is this: Combine content production with programming while buying up profitable local television stations to control all possible revenue streams.
Fox has been very aggressive with the new strategy. Early this month, it put veteran executive Bert Salke in charge of its new Fox 21 Television Studios unit, which combines the former Fox21 and Fox Television Studios, both of which produce content for cable and digital outlets.
The plan at Fox -- and at CBS and the new Tribune Media -- is to produce content, promote it with big billboard network showings, then sell it to cable and satellite channels that they own. Content can also be sold internationally and to digital providers such as Netflix (NFLX) and Hulu, who are hungry for content. (Fox owns a significant stake in Hulu.)
Thanks to the federal 1992 Cable Act, local TV stations have become very profitable, because cable and satellite companies must pay for the local stations' content.
Retransmission fees now account for 10% of overall television station revenue, and this percentage is expected to rise to 20% in just three years, according to SNL Kagan, which projects the fees will total $3.28 billion in 2015.Must Read: J.P. Morgan's 6 Top Biotech and Pharmaceuticals Stocks to Buy in 2015
This pays off for the networks, which own lots of local stations.
Les Moonves, CBS chief executive, earlier this year told analysts that by 2020 CBS should receive at least $2 billion a year in retransmission revenue.
More original programming means the network production business "is actually pretty healthy," said Jessica Reif Cohen, managing director and senior media and entertainment analyst for Merrill Lynch.A challenge for the networks, however, comes from the continued development by companies such as Google ( GOOG) , Sony ( SNE) and Apple ( AAPL) of so-called "over the top" services, which essentially deliver live TV broadcasts over Internet connections.
The jury is out for media companies that recently have spent a lot of money on their production acquisition and development. Should their content prove unmarketable, the entire programing-plus-production and distribution model crumbles in the face of consumer and advertiser apathy.
Still, networks are becoming "the first window of a bigger opportunity," said David Bank, an RBC Capital Markets analysts who said change is slower than "it sometimes appears."
If that's the case, network TV companies such as Fox, CBS and perhaps Tribune can continue to be profitable despite over-the-top and digital challenges.
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