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Why Networks Struggle Even as More Watch TV


Surfing channels is popular again, but advertising isn't.

Couch potatoes of America, unite! Investors look elsewhere.

A survey by Deloitte, a consulting firm, says a growing number of people are watching more TV each week. The findings echo an earlier survey by Nielsen, but don't hang future investments on this hook.

Deloitte's State of Media Democracy surveyed 2,046 consumers ages 14 to 75 and found 34% chose TV as their favorite media and viewers increased the number of hours in front of the TV to 18 a week from 16 last year, a rise of 12.5%. Only 14% listed surfing the Net as their favorite use of media. That seems low, given the steady growth of Internet usage in the US.

But increased viewership isn't backed by the flow of advertising dollars. The ongoing shift of advertising to the Internet suggests continued deterioration of TV programming -- assuming there's something cheaper to produce than reality shows -- and fewer viewers in the future.

More hours spent watching TV may make sense as people cut back during the recession and turn to cheaper forms of entertainment, but it doesn't make television The Next Big Thing, or even a growth industry.

General Electric (GE) decided to get out of the TV business and recently agreed to sell NBC to Comcast (CMCSA) for $30 billion. CBS (CBS) said third-quarter 2009 revenues declined to $3.35 billion from $3.38 billion for the same period a year ago, as lower advertising sales were largely offset by higher syndication sales. That's an improvement over the second quarter's revenue of $3.01 billion, but investors might ask: Where's the solid, long-term growth?

The purported growing popularity of TV is undercut by the solid performance of Netflix (NFLX). The video-rental company said it ended the third quarter of 2009 with about 11.1 million subscribers, up about 28% from the same period a year ago and up about 5% from the second quarter. Third quarter 2009 revenue increased 24% year-over-year to $423.1 million and net income increased to $0.52 a share from $0.33.

TV's content may become weaker. For decades, the major networks -- ABC, CBS, and NBC -- had a simple plan: develop programming for a mass audience and attract national advertisers. It worked well and many shows lived for years in syndication. But that business model now appears broken because rising production costs have pushed the cost of network dramas as high as $3 million an hour. There's also an innovative newer player grabbing market share: Fox (NWS).
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