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Slow fade for the networks?
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October 30, 1998: 12:46 a.m. ET
Auletta: Old-line broadcasters still haven't tuned in to the new media environment
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NEW YORK (CNNfn) - The traditional television networks are in turmoil. NBC, the ratings leader for several seasons, shuffled its executive suite this week to find a way to fend off challenges to its market leadership.
CBS, meanwhile, once known as the "Tiffany network" for its quality programming, has elevated a radio executive -- Mel Karmazin -- to chair the company, and in earnings reported on Thursday, said that its network operations restrained the profitability of the company as a whole.
Media critic Ken Auletta of The New Yorker and author of Three Blind Mice: How the Television Networks Lost Their Way, said Thursday on the "Moneyline News Hour with Lou Dobbs" that the nets still haven't come to terms with the new media environment and face traumatic changes in coming seasons.
LOU DOBBS, ANCHOR: CBS going to sell its network?
KEN AULETTA, THE NEW YORKER: A couple of options. They might sell outright but the buyers out there, potential buyers. One is Edgar Bronfman. Foreign- based companies are not allowed, a foreign company, to own more than 25 percent of television station. Another is Viacom which is not foreign-based. Sony is another potential buyer. They are foreign based.
Then you got Barry Diller out there and of course, you got Ted Turner. That's one option, to sell outright. Another option is to do a partnership with one of the studios. If course if you look at CBS or you look at NBC, their weakness is, they have a distribution system and a network. And they have the stations to distribute, but what they don't have is a factory, a studio.
DOBBS: And that's desperately needed in this day and age. Does Karmazin have much of an option here?
AULETTA: Well, I mean, he has, the talk that Mel Karmazin will sell the network and keep the stations and radio, it doesn't make any sense. The reason the stations make 40 or 50 cents on the dollar is because they get free programming from the networks. So he needs a network and a network association. But you know, the network is a lousy business today.
DOBBS: A lousy business whether it's NBC, CBS or ABC?
AULETTA: All of them. I mean most of them are going to lose money this year. NBC, which was the big ratings winner and the big profit leader, is going to have its profits cut dramatically this year in part because their costs are way up.
DOBBS: Some have suggested as low as $100 million coming up, more than half a billion dollars profit for the network. What can they do? The demographics, obviously, for their newscasts and their entertainment products are getting markedly older. The ratings themselves are declining. What do they do?
AULETTA: Well inevitably. That's why I wrote a book six years ago called Three Blind Mice. They're trapped, because as you get more choices as consumers, you stop paying as much attention to networks. People will be using the Internet now. They have cable and direct broadcast satellite. That's inevitable.
What you have to do is find other sources of revenue. The networks have done, some of them more aggressively than others. Efforts -- I mean Karmazin, with the radio stations and the expanded TV stations, has a lot of revenue. So even though CBS network is not making money, is arguably going to lose some money, he's making a lot of money at the stations.
And in part he's making that money at the stations because of the network. So maybe you have to change the way you do bookkeeping at the network. When you own shows, when you syndicate them which the government has now allowed them to do, you get some new revenue.
DOBBS: Change the bookkeeping, you still have a real serious problem. And you've alluded to it. Real disintermediation. Whether it's coming from satellite television or from the Internet and, increasingly it is the Internet. How profound do you think that disintermediation is and how big a part is it going to play in the futures of the broadcast networks over the next few years?
AULETTA: The networks' advantage is that they have a mass audience. But increasingly, it's not a mass audience anymore. What was once, 10 years ago, 90 percent of the audience on a given night is today about 50 percent of the audience. And that will continue to shrink. So what you have to do is figure out other ways to reach an audience.
Maybe instead of having one channel, and technology is going to allow this, you multiplex and have alternate channels and maybe one of them will be a pay-per-view channel. But the networks have to figure out -- and some of them have -- other businesses to get into to generate profits.
DOBBS: Which would you say is the best positioned network amongst the broadcasters?
AULETTA: You'd have to say the two best positioned are NBC and ABC -- ABC because of things like ESPN, which is a $600 million a year profit-making enterprise in cable. And NBC has done very well with CNBC and some of its other investments -- MSNBC and CNBC. But I think that all of them, if they just look at the network business, they have to worry it's a continuing declining business.
DOBBS: And you didn't mention Fox.
AULETTA: Fox is well positioned but they're weak in cable. They don't have it very strong and losing a lot of money with Fox news. Their strength is they've got a TV factory that produces a lot and a movie factory and they've got great distribution overseas with satellites. But they don't have a cable distribution system here. And their stations are not as strong as the stations of CBS, NBC and ABC.
DOBBS: And you expect the character if you will of the broadcast networks to change markedly over the next year or two.
AULETTA: Well, inevitably they'll do more shilling to promote themselves. They'll talk more and more about synergy. And increasingly, they will not have the resources to have the kind of production values that you see on shows like "ER."
So increasingly the viewer is going to sit back and say, "Hey, this doesn't look as good as the shows used to look." And ultimately, the real danger is the free television that we're used to may at some point not be free. 
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