In our last newsletter, we took a look at the backgrounds of four media industry leaders, Shari Redstone of Paramount Global, Lachlan Murdoch of Fox, Brian Roberts of Comcast, and Bob Iger of Disney. Our exploration of the media and entertainment industries and their histories continues below. As you probably know, I also write on broader, current business topics. Please see my recently published articles on what leaders can learn from Peter Drucker and how we can improve business education in America.
Caveat: While your writer has been fascinated by the media industries since the early 1960s, his knowledge is not as deep as it is in such industries as consumer products, retailing, automobiles, and airlines. Media is also one of the most complex industries, with multiple and sometimes conflicting data sources. In the paragraphs below we provide a short history and quick top-down survey of the “television” industry. Please reply to this email in order to send us comments or corrections on this article. Thank you!
This article as a PDF file, or only the charts and tables as a PDF or PowerPoint, can be downloaded here. We’ve also put the latest annual reports (Form 10-k) of the six companies reviewed herein at the same link.
I. Television Evolution and Structure
II. Key Industry Segments
III. Six Leading Companies
IV. Observations
I. Television Evolution and Structure
Media Upheaval in the Early 20th Century
New ideas and technologies have been shaking up the entertainment and media industries for over a century.
When the “talkies” came along in 1927, Vaudeville (live variety shows that travelled city to city) was wiped out. The largest chain of Vaudeville theaters, Keith-Orpheum, could not afford the transition to projectors and sound. Yet sound pioneer Radio Corporation of America (RCA) wanted more theaters to use their sound system, and RCA was willing to get into the movie business. Deal-maker Joseph P. Kennedy thus put together a new company to be part of RCA, called RKO Pictures (Radio-Keith-Orpheum). RKO owned theaters and went on to make some great flicks, like Citizen Kane. RKO also distributed the cartoons of the up-and-coming Walt Disney (who later made the risky but successful decision to handle distribution himself rather than working with one of the industry giants). RKO is long gone, while the Walt Disney Company is today the most powerful movie studio.
One of the most important 20th Century innovations was radio, which came along in the early 1920s, starting with Westinghouse’s KDKA station in Pittsburgh. This innovation also had “victims,” the most prominent of which was the phonograph record business. The top Victor Talking Machine Company with its famous dog mascot saw revenues from recordings drop from $52 million in 1920 to $21 million in 1925. The owner, Eldridge Johnson, sold out for $26 million in 1926 (about $500 million in 2023 dollars). RCA bought the company three years later, renaming it RCA Victor. The Great Depression “put the nail in the coffin” as business dropped from a prior peak of 100 million disks being sold annually to a 1932 low of only 10 million. Record industry revenues fell from $125 million per year to $2.5 million.
In this case, yet another new technology saved the record industry: juke boxes. By 1939, disk sales were back up to 60 million, an estimated half sold for juke box use.
In recent years, many thought the record industry was again dead, as Napster followed by iTunes and others were expected to kill it off. Yet, with their rights to so much great music, the top companies figured out how to survive. The three industry giants, Universal Music Group, Sony, and Warner Music Group today have about 70% of the market. In 2022, the three companies combined made an operating profit of almost $4 billion on revenues of over $23 billion from audio recordings and rights. (Sony now owns both of the industry’s original leading names, Columbia Records and RCA Records.)
So an industry or a company can survive these tempests with the right assets and the right leadership.
By the time television came along in the late 1940s, technology challenges were nothing new to the media and entertainment industries.
Television Prelude
TV was an outgrowth of radio. RCA, which both made radios and broadcast through two National Broadcasting Company (NBC) radio networks, the red and the blue, led the nation in the development of radio as well as television. The government felt that NBC had too much power, and forced RCA to spin off the weaker blue network as the American Broadcasting Company (ABC) in 1943.
Meanwhile, entrepreneur William S. Paley and his family had purchased the struggling predecessor of the Columbia Broadcasting System (CBS) at the age of 27 in 1928. During the 1930s and 1940s Paley hired talent like Jack Benny away from NBC and rose to be a fierce competitor to NBC, while ABC lagged far behind.
After years of time and millions of dollars spent on research and development, television premiered to the public in the RCA exhibit at the 1939-40 New York World’s Fair. (See a vintage RCA video on the development of television here).
In April 1939, Fortune magazine ran a major story on the coming of television. Leading radio set makers including RCA, Philco, Zenith, and General Electric prepared to produce TV sets. General Electric, known for their marketing prowess, predicted that by 1944, the industry would be selling 1.9 million sets per year. But the industry was “ahead of its skis.” Due to the war, progress stopped, and sets were not produced and sold for almost ten years.
In May 1948, Fortune again reported on the state of the industry. At the time, 279 thousand TV sets had been produced, with 127 thousand of them sold in New York City, the first place to get mass commercial television. Chicago and Los Angeles each had about 15 thousand sets. The sets were small and expensive, averaging about $600 per set ($7500 in 2023 money). Industry leaders knew set prices would come down as production ramped up. They looked forward to an explosion in demand.
The four television networks (including DuMont, which did not survive) were equally enthusiastic, but at this time still embryonic and losing money, like most of today’s streaming services. In 1948, the four TV networks and 50 American local television stations in total lost about $15 million on revenues of $9 million.
General Electric, with its usual marketing pizazz, predicted that there would be 13 million sets in use by 1952. This time, the prognosticators were right: at the end of 1952, there were 15 million American TV households. In 1947, 20 companies were making TV sets; by 1949, the number was 105. Soon Chicago’s upstart Admiral would come along with better value and become one of the industry leaders. (We wrote up the story of RCA’s decline from the top of the television mountain here.)
On January 19, 1953, Lucille Ball “gave birth” to her son “Little Ricky” on CBS’s I Love Lucy program. Almost 72% of American television sets were tuned to the program, one of the highest audience shares ever recorded. TV set prices had dropped to $2-300. While most American still did not have TV sets, television had become part of our daily lives.
By 1952, Paley’s CBS led the industry, making a profit of $64 million on $251 million in revenue (compared with RCA’s profit of $32 million on $690 million of revenues, largely from manufacturing).
Industry Reactions to Television
Prior to TV, radio owned the airwaves, but the movie industry was the sole source of “moving pictures.” While radio networks, stations, and set makers moved into television, the movie industry was scared of the new medium. An early survey in Washington, DC, indicated that people who bought televisions cut their movie attendance from 4.5 times per month to 1.3. Radio listening in the key “prime-time” evening hours fell from three hours and forty-two minutes to just twenty-four minutes. (Parallel to today’s “cord-cutters” who are leaving cable television for streaming services.)
The movie makers were not alone in their concerns. Concerts and sporting events that depended on ticket sales and in-person attendance were strongly opposed. That DC survey indicated that attendance at baseball and football games dropped 40-45% once people bought TVs. The Big Ten college athletic conference banned any broadcasting of their popular football games.
Venues that earned additional profits from onsite gambling were equally opposed. A Kentucky Derby executive refused to broadcast the race, saying, “I did not come down here to preside over the death of the Derby.”
Of course these minds were changed as television rose to power. In late 2022, the Big Ten conference signed a $7 billion, seven-year broadcasting rights deal with Fox, CBS, and NBC. Apparently top sports channel ESPN (owned by Disney) thought the price too rich.
But it was the movie makers and movie studios which had the most to lose. Some studios prohibited their stars from appearing on television. Only Paramount, with the input of visionary founder Adolph Zukor, invested in television, operating the first TV stations in Chicago and Los Angeles and investing in the short-lived DuMont network.
Fearing certain death, theater operators tried “theater television.” Eight theaters in Washington, DC, sold over 2,000 tickets to see a “televised” broadcast of the Joe Louis fight at Madison Square Garden, and turned away a thousand more. Others predicted that 5,000 movie theaters would close in the next few years.
Industry talent was also concerned about the impact of TV. In an attempt to limit TV’s power, trade unions required that all recordings of broadcasts be destroyed within 60 days of broadcasting. Reruns and rebroadcasts were, temporarily, off the table.
And, as has been true of television throughout its history, the critics were skeptical. One said, “National culture was to be replaced by national stupor.” The head of the Federal Communications Commission (FCC), charged with regulating the airwaves, called television “a vast wasteland.”
How Movies Worked
To understand the flow of broadcast economics and rights, we need to step back and look at movie industry practices.
Movies in the 1930s and 40s were made by the “big five” studios (MGM, Paramount, Fox, Warner Brothers, and RKO) and the “little three” (Universal, Columbia, and United Artists). These pictures were shown in thousands of theaters across the nation, owned by regional theater chains and by the big studios. The actual film prints (a good business for Eastman Kodak) were expensive to make, heavy, and costly to ship. So movies opened first in major markets and big theaters, then moved on to smaller towns and theaters. Runs in any given theater were limited to a few days or weeks.
Sorting out which theaters got which movies, in what order, on what dates, and for how long, was a very complex process. So the movie studios developed “distribution” divisions, which sorted all this out. These distribution companies also did the marketing and advertising for movies, since they knew when to advertise in which cities, and for how long. (Even today, new movie advertising can be an important revenue source for broadcasting companies.)
Over time, these distributors also helped finance new movies. The studio-based distribution companies also distributed films for smaller producers (e.g., RKO distributed the early Disney films). The movie business has always been an international business, with the distributors dealing with the complexities and vagaries of national laws, culture, and business practice.
Thus the distributors were at the center of the industry. As a result, when one buys a ticket to see a movie in a theater, about 30% of that ticket price goes to production – the producers, set costs, actors, directors, etc. About 30% goes to the theater. But the biggest chunk, 40%, ends up in the hands of the distributor.
The 1920s and 30s were also the era of the true picture palaces. Paramount had the biggest chain. Loew’s (parent of MGM) and Fox also built some giant beauties. But most were owned by local chains. The best-run chain was Balaban & Katz of Chicago, who pioneered the palace, with fine parlors, child care, nattily dressed ushers, a reverberating Wurlitzer theater organ, and more. Balaban and Katz sold out to Adolph Zukor‘s Paramount as he put together his giant chain. Katz and especially Balaban went on to play important roles at Paramount. In the late 1940s, federal trustbusters made the studios sell their theaters or spin them off into separate companies into separate companies. The largest chain, Paramount United, then acquired the struggling ABC TV network from the founder of Life-Savers, later exiting the theater business and eventually selling out to the Disney company.
Before television, the “moving image” industry can be diagrammed like this (arrows indicate which direction “content” flows; money normally flows in the opposite direction):
Television in the Network Era
After 1948, the flow of motion pictures (now joined by television shows) looked like this, and remained so into the 1980s and 1990s:
At first, television programs were largely produced by the sponsors, a practice carried over from radio and its soap operas. Texaco, Procter & Gamble, and other big advertisers and their ad agencies put together the program ideas, hired the talent, and then paid the networks for broadcasting. Each program had just one sponsor. The networks then started producing their own shows and started selling ads to multiple advertisers in each program.
Often these shows were produced by independent producers and sold to the networks. Early players included Seven Arts Productions and Screen Gems. By the early 1950s, the movie studios had begun to see television as a revenue source rather than an enemy. With their production skills, big studios, and talent rosters, Warner Brothers, Universal Studios, Columbia Pictures, and others started producing TV shows and selling them to the networks.
In the 1970s, the Federal Communications Commission (FCC), always wary of potential monopoly power, banned the networks from producing their own shows. The networks were not allowed to have an interest in the rerun (“syndication”) rights of any of their programs, including those that they had made into hits. (CBS, for example, had to part with its ownership of the rights to I Love Lucy, so CBS spun off its rights in a new company named Viacom, now part of Paramount Global.)
The networks generally put up about two-thirds of the cost of making a show, so the producers only made a profit when the shows went into reruns (syndication). Yet the networks decided when to run the shows and which ones were hits, renewed for multiple seasons. A TV series that ran for 4-5 years or produced 100 or more episodes could be a goldmine, but most programs never achieved such levels. Like the movie business, no one really knew what would be a hit and what wouldn’t: it was a “crapshoot.”
This era saw the rise of specialist production companies. Merv Griffin and Goodman-Todson made game shows; Hanna-Barbera made cartoons.
In the 1990s, a time of deregulation, the FCC rolled back these rules and allowed the networks back into the program production business. By then, the movie studios and independent producers were well-established in television production, and continue today producing (and distributing) much of what we see.
The FCC was also concerned about local media control – radio and television stations. Early radio stations were often owned by local newspapers and retailers, such as radio stores, and these pioneers, alongside the networks, led the way in opening TV stations. The FCC limited any one owner of TV stations to total of seven stations. Small chains of TV stations were owned by various companies, including Chris-Craft (the boat company), Westinghouse, newspaper publishers, and others. But the station owners could not expand by acquisition as done in most other industries.
The networks were quick to own the biggest and most profitable stations, those in New York, Chicago, Los Angeles, and other big cities, often using the network initials in their call letters such as WCBS in New York and KABC in Los Angeles. Often making profits in excess of 50% of revenues, the big city network-owned stations were highly profitable and sometimes made more money than the networks themselves, helping to subsidize program development costs.
The FCC later relaxed the station ownership limits, as discussed later in this article.
At the same time, the number of available channels increased. In the early days, the FCC struggled with finding enough “bandwidth” to have more TV channels. In the 1960s, broadcasters and set makers added Ultra-High Frequency (UHF) channels, 14-83, to the original Very High Frequency (VHF) channels, 2-13. More stations were built. The newer UHF stations did not reach nearly as many homes as the original big VHF stations in each city.
Despite all the regulations, in the network era, fortunes were made by the networks, station owners, and program producers.
Planning and scheduling programs for the key prime-time evening hours became an art form. CBS, NBC, and ABC moved shows around their schedules based on what the other two networks (before the arrival of Fox in the 1980s) were showing at the time. ‘Tentpoling” meant putting a strong show before or after a weaker show in order to draw more viewers to the weak show. A program suspended between two tent poles was a “hammock.” If a program ran enough episodes over several seasons, it could later be “stripped” in syndication: sold to TV stations for re-runs with enough episodes to be shown five days a week, or run all day one day a week.
Time-shifting and video recording were unheard-of. That’s changed. Today that legacy network system is called “linear television” because it is broadcast sequentially on a pre-set schedule.
Several tried to create a viable fourth network, to no avail until Rupert Murdoch figured it out with his Fox Network in the 1980s.
Then came cable, which changed everything.
The Cable Era
Cable television is actually as old as broadcast television, first appearing in the late 1940s. Cable began as Community Antenna Television (CATV), a way for small, out-of-the-way communities to share one big antenna, wired to all the houses, and receive the same content as the big cities got. By 1952, there were 70 local cable systems serving 14,000 customers.
Cable systems allowed customers to watch more channels, including those from far away (like non-network superstations TBS from Atlanta and WGN from Chicago). Soon enough, new “basic cable networks” sprang up, led by names like ESPN, MTV, and Nickelodeon. The appeal of cable to viewers began to rise. In 1970, most local cable systems carried 6-12 channels; by 1985, the norm was between 30 and 53 channels and by 2000 some systems carried over 100 channels. Over-the-air, home antenna broadcasting could not compete, though the networks and local stations were paid handsomely by the cable operators for rebroadcasting (“retransmission”) rights.
In 1960, 640 cable systems served 650,000 customers; in 1970, 2,490 systems served 4.5 million; in 1980, 4,225 systems reached 15.2 million homes and offices. By 2000, over 10,000 systems served almost 70 million.
These local systems had economics like the telegraph and telephone industries before them: huge capital expenditures to dig ditches, set poles, and run wires to houses, often financed with debt, followed by large (and increasing) monthly payments that went on for years. The businesses sucked up cash for years, then threw off cash.
These local cable companies were continually being bought and sold. Over time, large Multi-System Operators (MSOs) were created, led by such names as Cablevision, Tele-Communications Inc. (TCI), and Time Warner Cable. By 2022, two companies were by far the largest; Comcast under the Xfinity brand ($66 billion cable revenues) and Charter Communications under the Spectrum brand ($54 billion cable revenues).
As cable rose, so did the basic cable channels, with dozens of companies creating new channels, ranging from weather to golf to old movies. Profits soared. New competitors with satellites came into the picture (such as DISH and DirecTV). Premium, extra-fee services, led by HBO, came along.
Our diagram becomes more complex with the rise of cable:
The Streaming Era
New technologies brought us movies, radio, TV, color TV, cable, and satellite broadcasting. More recently, improvements in internet bandwidth – now advertised with up to 10 gig speeds – have allowed fast streaming of high-definition videos. Twenty years ago, it would have taken days if not weeks to download a movie. Now we can stream tens of thousands of movies and TV shows almost instantly.
At the same time, these technological changes, coupled with regulatory loosening enabled the telecommunications companies (AT&T, Verizon, T-Mobile) to enter the Internet provision business, and cable companies to offer telephone services.
Taken together, the buzz phrase now is Over-the-Top (OTT) broadcasting, meaning users no longer need a set-top box from their cable company. As long as they have Internet service (a router and Wi-Fi), they can access television and movies without cable.
These changes enabled “everyone” to get into the streaming business. The first mover was Hulu, originally a joint venture of NBC and Fox, with Disney later joining in. After parts of Fox were sold to Disney, Disney ended up with 2/3 of Hulu and has committed to pay NBC/Comcast $9 billion for the one-third it does not own, though there is speculation that Comcast might buy Disney’s 2/3 instead, presumably for $18 billion. Today Paramount+, Peacock (NBCUniversal/Comcast), Disney+, Fox Nation, and HBO Max (Warner Brothers Discovery) are all streaming away, both their own content and that licensed from others.
Tech giants Google, Apple, and Amazon all began providing television services. The biggest force, by far, is the newcomer Netflix, which started out as an online replacement for Blockbuster video rental stores by mailing videos to customers on a subscription basis, but now concentrates on streaming. Today Netflix and Amazon Prime Video reach more homes than any other source of movies and television.
Our diagram has now become hard to fit on a page:
And….there is one more element to the picture to add even more complexity: “real time” events, from news (including politics and business) to sports and weather. These critically important parts of the industry flow in different ways. News often originates locally, especially from local television stations. Sports are controlled by the leagues. And in each case, rebroadcast rights are tightly controlled. Others take stories from the news and make murder reality shows or use sports history to make documentaries. So some of the real time material ends up in a studio being scripted and produced. If we add this real time element to our diagram, it becomes even harder to read:
II. Key Industry Segments
Segment Analysis
While the above diagrams make these companies look much alike, if we get under the hood and study the numbers, we see they vary in their importance in each industry segment. Here we take a glance at a few key segments.
Movies (and TV shows and series)
At the theater level (US box office receipts), in 2022 Disney had a 26.9% share of market, Comcast (NBCUniversal) 23.2%, Paramount 17.5%, Sony 12.7%, and Warner Brothers 12.5%. While theater revenues are a small part (about 5%) of the industry now, big pictures usually still require theatrical showings to launch and get recognition.
The movie business is driven in large part by blockbusters (starting I 1975 with NBCUniversal’s Jaws), especially those that are part of a ‘franchise” such as the James Bond movies (multiple companies), Spider-Man (Sony), DC Comics and Superman (Warner), Marvel (Disney), Star Wars (Disney), Pixar (Disney), Avatar (Fox Studios, now Disney), Top Gun (Paramount), and Harry Potter (Warner). In recent years, Universal has actually put more movies into nationwide theatrical distribution than Disney, but Disney dominates the top ten film lists.
Distribution deals and rights arrangements are complex, often involving multiple companies. A distributor might have US rights to a film, while another firm has international rights and yet someone else has the rights to license it to television and streaming services.
Add to that the entry of Netflix, Amazon, and Apple into the production (and thus distribution) business.
The movie studios are also responsible for a large share of television production. Warner Brothers was a key producer of both Friends and Seinfeld. Since the company owns HBO, they also have The Sopranos and Game of Thrones. With their $71 billion purchase of Fox’s studio operations, Disney picked up The Simpsons and the 20th Century Fox film library. NBCUniversal (Comcast) owns the hit The Office, one of the most-streamed TV shows.
While we tend to focus on current numbers, each of our major players owns huge libraries of older films and television programs. These libraries generate most of the viewing hours on streaming services and huge revenues for the companies that own the rights. Netflix paid Warner Brothers at least $500 million for five years of rights to broadcast Seinfeld and $100 million for one year’s rights to Friends. Due to its long history leading the broadcast television industry, CBS (Paramount) has one of the deepest and most valuable libraries of old shows, alongside Paramount’s enormous film library.
(Libraries often change hands. In recent years the music industry has seen a number of big transactions as the largest companies build bigger catalogs. Sony is paying an estimated $500 million for Bruce Springsteen’s catalog rights, and Sony and Universal Music Group are paying up to $600 million for Bob Dylan’s catalog.)
Like most everything else in media today, “it’s complicated.” For example, the television show Shark Tank is produced by MGM Television (now part of Amazon), distributed by Sony, and broadcast by CNBC (Comcast). All three companies get a piece of the pie. Such complex relationships are more the norm than the exception.
According to ratings company Nielsen, in the week of February 13, 2023, the most viewed streaming content was:
- Netflix’ series You, produced by Warner Brothers, 1.474 billion minutes of viewing.
- TV series New Amsterdam, on Netflix but owned by NBCUniversal (Comcast), 1.053 billion minutes.
- Your Place or Mine, a Netflix original movie produced by independent production companies founded by actors Jason Bateman and Reese Witherspoon, 955 million minutes.
- The Last of Us, a series on HBO but produced by Sony, 943 million.
- NCIS television series on Netflix, produced and owned by CBS (Paramount), 867 million.
While the latest “original content” films hit high numbers for a short period of time and draw media (and watercooler) buzz, an estimated 80% of Netflix viewing is programming acquired from others, not their own material.
If we turn to broadcast television, which has been losing market share for decades, we see there are still many people watching, which also means an efficient way for advertisers to reach mass audiences simultaneously. According to Nielsen, in the week of February 20, 2023, the top network shows were:
- Chicago Fire, NBC (Comcast), 6.993 million viewers
- FBI, CBS (Paramount), 6.892 million
- 60 Minutes, CBS, 6.879 million
- Chicago Med, NBC, 6.515 million
- Equalizer, CBS, 6.514 million
When major sporting events like the Super Bowl and March Madness take place, the numbers can be far higher.
Yet, in total viewers during the week of February 13, the largest numbers are reported by syndicated (non-network) shows that are purchased by local stations:
- Jeopardy, owned by CBS (Paramount), 9.899 million viewers
- Wheel of Fortune, CBS, 9.191 million
- Family Feud, CBS, 8.265 million
- Judge Judy, CBS, 6.418 million
- Dateline Weekly, NBCUniversal (Comcast), 4.678 million
While Netflix leads the way with cord-cutters, it is clear that programs produced by the legacy companies still carry great value, as they will into the future.
Cable Channels
People have also grown addicted to the cable channels, from sports to weather to news. The top channels have tons of old content to license to the streaming firms. While these numbers are smaller, the targeted nature of the audiences can make them very valuable to advertisers. In early February 2023, the most viewed cable networks by weekly viewers were:
- Fox News 2.520 million (Fox)
- MSNBC 1.374 million (Comcast)
- ESPN 945,000 (Disney)
- HGTV 821,000 (Warner Brothers Discovery)
- History Channel 750,000 (A&E Networks, half-owned by Disney and half by privately held Hearst)
- INSP 745,000 (independent religious channel)
- CNN 719,000 (Warner Brothers Discovery)
- TNT 703,000 (Warner Brothers Discovery)
- Hallmark 698,000 (Privately held by Hall family, owners of Hallmark Cards)
- USA 671,000 (NBCUniversal = Comcast)
- TBS 556,000 (Warner Brothers Discovery)
- Food Network 541,000 (69% owned by Warner Brothers Discovery, 31% by Nexstar, the big TV station owner)
- Discovery 487,000 (Warner Brothers Discovery)
- TV Land 479,000 (Paramount)
- Investigation Discovery 473,000 (Warner Brothers Discovery)
- TLC 467,000 (Warner Brothers Discovery)
- A&E 438,000 (50% Disney, 50% Hearst)
- GSN 393,000 (Sony)
- Lifetime 382,000 (50% Disney, 50% Hearst)
- Bravo 380,000 (Comcast)
Nielsen’s numbers for the top basic cable channel shows show the least diversity — every one of the top ten shows in a February week were on Fox News (Fox), led by The Five at 3.239 million viewers. Few if any daytime shows had ever achieved the success of The Five, boosted by people staying home the last few years.
While the decline of cable system operators might seem to imply hard times for these cable channels, the facts that they have loyal fans and plentiful content should provide future revenue streams to their owners as streaming companies pay for rebroadcast rights. Warner Brothers Discovery is especially well-positioned.
Cable Operators
In 2010, 88% of American households paid their cable or satellite company for TV. By 2022, the number was down to 66% and dropping. The latest data shows these companies as the biggest providers:
- Xfinity (Comcast) 16.1 million subscribers
- Spectrum (Charter Communications) 15.1 million
- DirecTV (owned by AT&T but probably for sale) 13.1 million
- DISH (independent public company) 7.4 million
- Fios (Verizon) 3.3 million
- Contour (Cox Communications) 3.0 million
- Optimum (Altice USA) 2.4 million
These companies are also Internet Service Providers (ISPs), but the telecom companies (AT&T, Verizon, T-Mobile) are gaining share while these companies are losing subscribers. At this stage of technological evolution, the critical role of ISPs is assured.
Local TV Stations
As deregulation gained steam in the last thirty years, the FCC dramatically increased the number of TV stations that one company could own. Rather than setting a cap on the number of stations, the FCC allows any one company to reach 39% of the US market. However, in a bizarre approach, the FCC counts UHF stations at half the weighting of VHF stations in figuring the 39%. Before cable, the UHF stations were at a disadvantage and this policy made some sense. But with cable, all these local stations obtained roughly equal access to viewers, ending the need for special treatment for UHF stations, though the FCC’s strange rule persists. The largest owner of TV stations, Nexstar, actually reaches 68% of US households. The company owns stations in over 100 markets and generates annual revenue of about $4 billion, over half from retransmission fees paid by cable companies and streaming services, the balance from advertising sales, largely on local news programs.
BIA Advisory Services puts together numbers on the largest TV station groups, shown here for 2021 (Standard General was going to acquire industry #2 Tegna but the deal may not happen, as it is still under review by the FCC).
Streaming Services
The big battle today is in streaming, also known as Over-the-Top (OTT) service, since it goes “over the top” of the cable companies; customers only need an Internet connection. As indicated on the following pages, the big studio companies lost almost $8 billion building their streaming businesses in 2022, while industry leader Netflix made money ($5.6 billion operating profit).
The major companies report their data in different ways, and some are more secretive than others. As a result, different sources indicate different numbers of subscribers and households. The table below contains two sets of such data. After that, we compare current streaming pricing.
III. Six Leading Companies
Overall Comparison of Six Companies
Here we take a more in-depth look at the four companies whose leaders we discussed in our previous newsletter: Comcast, Disney, Fox, and Paramount. We’ve added two other key competitors, both with major movie (and TV production) studios: Warner Brothers Discovery and Sony.
The table below compares the revenues (sales) of the six companies in 2022, along with a breakout of key segments of their business. We’ve marked in red those segments that do over $20 billion a year in revenues – relative giants. Comcast’s cable systems tower over the other segments in revenues at $66 billion a year. Yet the studios of Comcast (NBCUniversal), Disney, and Paramount exceed the $20 billion mark, along with Disney’s theme parks, “experiences” (resorts and cruise line), and merchandise, and Sony’s big games (PlayStation) business. Disney’s DTC (Direct-to-Consumer) business, primarily the Disney+ streaming service and Hulu, just missed the $20 billion mark. With the sale of its 20th (or 21st) Century Fox studios to Disney for $71 billion, the Murdochs’ Fox is smaller (and less diverse) than the other companies. (The family still controls News Corporation, headed by Lachlan Murdoch and owner of the Wall Street Journal and other primarily print media.)
If we turn to operating profits (before corporate overhead, interest, taxes, and other general expenses) by segment, shown below, we see that Comcast’s cable systems are again the gorilla in the room, with operating profits of $29 billion last year. Next largest profit generator is the cable channel/network business of Warner Brothers Discovery, at over $10 billion. Disney’s media and theme park businesses are next at about $8 billion each. However, Disney lost back a lot of that money by losing $4 billion on its DTC streaming services. Paramount and Warner Brothers Discovery each lost about $2 billion in their efforts to compete in streaming, while Comcast does not break out the numbers for its streaming service, Peacock. (The largest profit sources are marked in red. Losses are shown in parentheses.)
For comparison, in 2022, Netflix made an operating profit of $5.6 billion on revenues of $31.6 billion. So, with enough subscribers, money can be made on streaming. (Amazon Prime and Netflix have the most subscribers, over 150 million each.)
(Note that single-year profit data should be used with some caution, especially given the big swing down due to Covid, the swing back up post-Covid, changes in the corporate income tax rate, and various write-downs and major adjustments in any one year.)
The April 4, 2023 market capitalizations of these companies (what it would cost to buy all of their shares) are shown below. Given the vagaries of the stock market, these numbers change daily.
Comcast $159 billion
Disney $183 billion
Fox $17 billion
Paramount $15 billion
Sony $112 billion
Warner Brothers
Discovery $37 billion
The next table uses the preceding data to show operating profit as a percent of revenues by segment. Keep in mind that the real measure of profitability is return on investment (ROI), not profit as percent of sales. That big $29 billion profit made by Comcast’s cable systems has required huge capital expenditures, a big investment in wires and hardware. Nevertheless, profits relative to sales are useful in comparing operations that are truly apples-to-apples, as in the DTC (streaming) losses shown by three companies. Note that in this table, the high profit margin businesses are the Comcast cable systems and the cable networks of Fox and Warner Brothers Discovery, all earning over 40% on sales. (Read about the myths about profits here.)
The last table in this section adds more detail to the segment revenue numbers. Current buzz in the streaming world is that advertising-based television is on the rise, including services like Paramount’s Pluto and Fox’s Tubi. Fox gets more of its revenue, 43%, from advertising than the others, but because of its smaller size does not match their total dollars, with Comcast, Disney, Paramount, and Warner Brothers Discovery each generating $9-10 billion in ad money. The Warner Brothers side of Warner Brothers Discovery does not carry many ads, but the cable networks part of the business has a substantial ad business. With Pluto, Paramount’s ad business is relatively more important to them than at the other streaming (DTC) players. Nobody comes close to Disney’s DTC subscriber revenue of almost $16 billion, though it’s a money loser so far. Including advertising and subscriber revenue, Disney’s $19.5 billion DTC business (Disney+ and Hulu) is a giant of streaming, following Amazon Prime Video and Netflix.
Also note that “Theatrical Distribution” – selling or renting movies to movie theaters – is about 5% of studio revenues for Comcast (NBCUniversal), Disney, and Paramount. Fox no longer owns a studio.
On the following pages, we use our industry structure diagrams to show the parts of the industry that each of the six companies are active in, followed by more detailed financial data. For all the details and data reported, see the company annual reports (form 10-k) that you can download here.
Comcast
Disney
Fox
While Fox does create content (production) for its broadcast and basic cable networks, since the sale of Fox studios to Disney, it does not have nearly the production and distribution businesses that Comcast, Disney, and Paramount have. So we’ve shaded those elements in grey.
Paramount
Warner Brothers Discovery
“WBD” is a bit more challenging to analyze, since the two companies – the old Discovery and the former Time Warner Media operations of AT&T – only merged in the past year. Warner Brothers Discovery is also in the game business, with the current hot Harry Potter based game, but not broken out in their reporting.
Full year results were reported after we finished this article; you can download the new annual report here (as well as the older merger document which includes a lot of data). The table below uses our preliminary estimates, which are close to the final numbers.
Sony
Here we also include one non-US company, Sony, due to their importance in the movie and television production industries. Sony has taken a different track from the other companies here. They have not gotten into the streaming fights, but prefer to license their content for others to “broadcast.” And of course they have a lot more non-media businesses than the other companies. According to this data, the company is extremely well-balanced in terms of profitability, with most major segments making a profit of 12-19% of sales and earning over a billion dollars a year.
IV. Observations
Needless to say, there is a lot going on in this industry, with many players. Here are our over-arching observations on where things might be headed:
Original Content
Netflix, Amazon, and Apple are spending billions of dollars on their own, exclusive original content, often produced by others for them but you have to use their service to see the shows. HBO (Warner Brothers Discovery) pioneered this approach.
This can become a race to see who can make the biggest hits. History would indicate that this is usually a fool’s errand. No movie company outside of Disney has proven the ability to have winners year-in, year-out. Like television series and music and book publishing, you never know where the next hit is coming from or how big it will be. It’s a crapshoot.
The one exception is when producers have been able to successfully produce a “franchise” like James Bond or Star Wars. Disney has focused its energies on buying and creating such franchises, with great overall success. But even with franchises, you don’t know whether you can get dozens of films out of the idea (James Bond) or just two or three (Top Gun, Indiana Jones, Avatar).
Ultimately, the value lies in the library you own, consisting of franchises but primarily single films, from Citizen Kane to Lawrence of Arabia to the Titanic. For those firms (everyone but Fox) with deep libraries assembled over many years, it should be A Wonderful Life. The same applies to their libraries of television programs, especially hit series but including other categories like strong cable networks and syndicated game shows. Even soundtracks from movies and shows can be valuable – Warner Brothers Discovery is mulling selling their soundtrack catalog for $1-2 billion.
We believe it’s the libraries, not the latest one-time hits, that are the key assets of these companies. (As may be even more true of the music companies. One wonders if old songs might have more value relative to current material than is true in movies and television. Do the Beatles, Rolling Stones, Led Zeppelin, the Beach Boys, and Eagles garner a bigger share of total listening time than 1960s and 70s movies and TV shows get of total viewing time?)
Branding
Which leads directly to the subject of branding, a badly overused term these days. History shows us that a brand above all else clearly represents something in people’s minds. When we mention Tesla, Target, UPS, Deere, Tide, Chevrolet, Ford, Ferrari, Chanel, Coca-Cola, or Delta, you immediately know what we are talking about. A picture probably forms in your head.
On the other hand, we think that ABC, CBS, NBC, Paramount, Warner Brothers, and Universal Studios are not brands, no matter what their managements may claim. None of those represents a single idea to the public. If you go to a Paramount movie, it could be anything from a romantic comedy to a horror film. NBC is big time sports broadcasts at one hour and tales of murder the next. Few people tell their friends, “If it’s a Warner Brothers, movie you know you will like it.” (Whereas they more likely say that about Disney’s Pixar brand.)
There is no one to blame for this, it is just the nature of the businesses they are in. At one time, we would have called ABC Sports and CBS News brands, because they were recognized leaders, but not the parent networks.
On the other hand, ESPN, the Food Network, the Travel Channel, and Disney movies are real brands, with a clear focus in customers’ minds. (The great Walt Disney was among the first in the movie industry to understand this principle.)
Brands that are well-managed, that are nourished, have tremendous power. But they must clearly stand for something, for anything – from ketchup to tractors. We believe this applies to the media industries, as well. Those brands with strong identities are most likely to live on.
The Importance of Local
Most of our focus, and that of most observers, is on national and international programming. Disney movies are global hits, appealing to everyone.
Yet there is great value in “local.” In this interview, Fox chief Lachlan Murdoch bemoans the decline of local news reporting and investigative journalism. Newspapers are dying everywhere, laying off multitudes of local reporters, people who used to cover state governments and dig into local issues.
Many think all traditional television – the legacy networks and local TV stations – have little or no future. But if the local stations die, who does investigative journalism? Where do we go for local news and weather? While we realize the stock answer is “just go to the internet,” it seems to us that there is a place for such broadcasting to continue to serve us, no matter how we receive it (cable subscription or via YouTube TV or other streaming services). Those stations and networks have talented meteorologists and reporters and years of experience.
The local stations also fill a critical need for advertisers, from local car dealers to election candidates, a cyclical business but big dollars.
Which leads right into…
The Importance of Global
Our entire worldview is of necessity framed from an American point of view. Yet the big growth opportunities for all these firms are not in the United States, but in China, India, Indonesia, Brazil, and all the other countries. Television sets and smartphones are cheap, systems and infrastructure are being upgraded worldwide, and that world continues to be hungry for content. Billions have moved from poverty to the middle class.
Historically, Hollywood, the studios we’ve talked about, were the dominant providers of filmed entertainment for the world. But as that world has become more affluent, demand rises, much of it for locally produced content. Look into Indian movies (Bollywood) or Brazilian music to see the content wealth that lies out there.
This is a huge challenge for all these firms. No longer is “whatever Hollywood puts out” good enough for the world. Each country and region has their own culture, their own tastes, and importantly, their own laws and regulations. Sex in a movie gets you downrated in the US, but not in Canada, where violence can lower your rating.
Of course this ties to our comments about “local” in the preceding section. If YouTube TV carries local TV stations because customers demand it, then they are going to have to carry local news in India, too.
The globalization of media also means many more competitors, from Spanish language networks to big European and Asian producers and distributors. The French/Dutch Banijay/FL company probably makes some shows you have seen. (And the size of the industry makes room for small independent companies like the innovative American company Filmrise.)
The Importance of Advertisers
Our current obsession with subscription services, whether cable TV, HBO, or Netflix, has tended to bury discussions of the role of advertising, which doesn’t take place on many of the subscription services.
Yet more and more often, industry leaders are starting services that are either entirely ad-supported, or offer a lower price if the customer is willing to watch ads. The latest terms are Advertising based Video on Demand (AVOD) and Free Ad-supported Streaming Television (FAST), the latter being exactly what America had in the 1960s network era before the rise of cable television.
Top AVOD and FAST services include Roku (a public company), Tubi (Fox), Pluto TV (Paramount), and Vudu (75% owned by NBCUniversal/Comcast, 25% Warner Brothers Discovery).
Reporting on this trend usually takes the viewpoint, “Streaming companies need revenue and need to lower prices for some customers.” But what about the advertisers themselves?
Whether magazines, newspapers, or TV stations and networks, advertising has long been a primary source of media company revenue and profits.
In December 2022 alone, Procter & Gamble, often the nation’s top advertiser, spent $164 million on US network TV and $29 million on US Spanish language national networks. General Motors, another huge advertiser, spent $82 million on local TV stations in the same month. These advertisers know where their customers are, what they are watching, and which medium works best for each brand they own.
In 2020, candidates for federal offices spent at least $2.5 billion on political television ads, much of it placed on local TV stations. While there is certainly a role for Google and Facebook ads, big sports events, hit movies, and local news may offer advertisers bigger or more targeted audiences at a lower cost per exposure.
If AVOD and FAST grow as quickly as expected, there will be more competition for all that ad money, and some providers are sure to be winners.
When we combine the need for local news and weather with the need for local advertising, especially for local businesses, the future of local TV stations may not be as bleak as some predict.
And some of the streamers will integrate advertising better than others. The old TV networks and stations have well-established advertising sales forces which may become an advantage, as advertising plays a rising role in streaming services.
Diversity vs. Focus
Overall, these companies are diverse in their business activities, with Sony being the most extreme as a total corporation – operating in fields from sophisticated imaging technologies to finance to game consoles. Fox is the least diverse (the family has a fondness for niches that others miss).
And Sony stands apart by not entering the streaming wars – the studio part of the company is focused only on licensing its content to others, perhaps a smart move? Even Disney has backed off prior commitment to keeping their content to themselves (and Disney+ subscribers), and has re-opened the door to more licensing of content to others.
Diversity can work (study Apple), but history indicates that most great companies do one thing, or a narrow range of related things, over and over, better and better every year. The sprawling conglomerates of the 1960s – Litton, ITT, LTV, Gulf & Western – are long gone, broken into their pieces. In more recent years such longstanding companies as General Electric, United Aircraft, and Dow Chemical have broken themselves up into smaller, more nimble, more focused independent companies.
Often the “money” is in the niches, though those niches might grow to be big, or are small components of a big industry (like media). Porsche and Ferrari garner infinitesimal shares of the global auto market, but are still big and often profitable companies.
When Seattle teen Jim Casey borrowed $100 to start a foot and bicycle delivery boy service, he probably saw it as a niche. He later noticed that all the big retail stores had their own stables of horse-drawn delivery vehicles (and later trucks). Casey came up with the idea to operate one delivery service for all the stores, saving money, time, and effort. Today his UPS is the world’s largest and most valuable transportation company.
In building the Disney brand that resonates today, Walt Disney was focused on filmed entertainment. In the 1950s he edged into television programs and theme parks, an idea he invented. At the time of his death in 1966, the company was only doing under $100 million a year in revenue, overshadowed by the big movie studios. Yet the brand and customer love he developed formed the core of the giant Walt Disney Company we know today.
These big, diversified media companies may reap hoped-for benefits from “synergy” – different divisions working with each other. But such diversification brings risks. There are and will be opportunities for firms which are more focused within the vast media landscape.
Consolidation
As has been mentioned, the communications regulators, here and abroad, stoke fears of monopoly and “too much power in too few hands.” But the present environment, as outlined in the preceding paragraphs, is a free-for-all. Competitors of all sizes and from every corner of the world have opportunities in these fields. While the regulators looked backward and worried about the power of a CBS or a cable company, Netflix and Amazon Video came out of nowhere and changed the landscape.
We can safely predict that any efforts toward industry consolidation will be opposed by US and international regulators.
Yet some consolidation is unavoidable.
Will viewers really be happy that a hot movie is only available on a channel they do not subscribe to? Will people enjoy having to choose between hundreds of providers? Will they pay $5-15 per month to each of dozens of services? If they want to watch a favorite movie from their past, will they be able to figure out which service provides it? (There are already services like justwatch.com to help out.)
At the studio level, the real value is in those libraries, full of both classics and more recent hits. With Disney towering over the other companies, might a Warner Brothers Discovery merge with a Paramount to be of more equal size? (Shari Redstone would have to agree to any such deal given her control of Paramount voting stock.)
Perhaps even more unthinkable to regulators, what about consolidation of local TV stations? After years of making sure that no one owned too many stations in one city, might the FCC realize that having one or two local stations with strong community-based sports, news, and weather is better than seeing four stations die? Big station owners Nexstar and Tegna already own more than one station in many of the cities they serve. Meaningful savings could be achieved by merging studios, personnel, and transmitter facilities.
From the viewpoint of us, the viewers, some of this consolidation might prove beneficial, without worrying about any one company having “too much power” in this rapidly changing, incredibly diverse and complex industry.
Consolidation tends to lead to bigger, more diversified operations, but it can also facilitate more focused enterprises. Kraft General Foods included many companies, but then was split into the more manageable Kraft and Mondelez. Dow Chemical bought DuPont, then re-arranged the bigger operation into three clearly defined and focused new companies.
Speaking of mergers, we have to mention a current rumor – that Apple, sitting on almost $50 billion in cash, might try to buy Disney.
Management
Our final comment is that the future of these companies depends on one thing: quality of management. They all face similar challenges. They all have vaults full of valuable content. They can all produce new films and shows, but the greatest value is in those libraries. Which leaders can most intelligently navigate these stormy seas and best monetize those valuable assets?
Perhaps industry leaders can learn from studying the record industry and how they survived and continue to build their catalogs, as described earlier.
Perhaps we can learn from two smaller companies, not discussed in this story, that have successfully evolved over time.
One hundred years ago, Hearst and Scripps (or Scripps-Howard) were two of America’s biggest newspaper owners. Today most American newspapers are dying. The formerly powerful New York Daily News has declined from 2.4 million daily readers to just 55,000. Yet Hearst and Scripps both moved with the times and today have meaningful television and cable operations. While the private, family-owned Hearst Communications still publishes magazines and newspapers, the company also owns 50% of cable channel A&E, 20% of ESPN, and over 30 local television stations.
The original Scripps empire has evolved into the publicly-held E. W. Scripps Company, a $2 billion enterprise owning over 60 local television stations reaching 65% of America’s households. The company spun off its newspaper operations in 2014 to focus on television. Scripps also created HGTV in 1994 and bought control of the Food Network in 1997, ultimately resulting in a separate public company, Scripps Networks Interactive in 2008. Ten years later, Discovery Communications (now Warner Brothers Discovery) bought these top cable networks for $14.6 billion. If they hung in there with the company, the Scripps heirs should have done well despite the choppy seas.
Somehow, the leaders of Hearst and Scripps figured out how to change and prosper.
Everything these media giants do, every mistake, every success, stems from management. Do your own analysis by watching these telling interviews with Shari Redstone, Lachlan Murdoch, Brian Roberts, and Bob Iger.
These are among the most turbulent times in the history of media. Yet history tells us that change means opportunity. And that some leaders will figure it all out while many will pass by the wayside or sell out.
(Personal Note: I have been working on understanding this industry for months. My research has led me to make small personal investments – less than $1000 each – in Fox, Warner Brothers Discovery, Paramount, Nexstar, Tegna, and Altice. I am not suggesting you do the same, but I thought you should know. The two most obvious winners at this stage of the game are Disney and Netflix, but I felt the other companies offered better value at current stock prices. Evaluation of Comcast would require a deeper study of the future of cable systems.)
Gary Hoover
Executive Director
American Business History Center
