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Ownership

Ownership

By the Project for Excellence in Journalism

In 2006, the corporations that owned the network broadcast groups seemed to be still adjusting to the challenge of the Internet, changes in consumer behavior and the shifting attitudes among advertisers about the value of television.

Following the split of Viacom into two entities in late 2005, CBS generated praise from shareholders and Wall Street, and even as broadcasting revenues weakened later in the year, the company’s stock value increased 24% in 2006.1

At Disney, revenues and profits for the media networks group, which includes ABC, soared in 2006. But in the wake of poor performance in the motion picture industry, the company announced a major corporate restructuring in its studio division.

Finally, at GE, which owns NBC, the company’s overall financial performance was strong. But poor revenue and profit figures in the broadcast division, which had been No. 1 for nearly 20 years, led to steep budget cuts in late October 2006 of $750 million.2 The company also eliminated hundreds of jobs, including many in the news division. And a new initiative was born at NBC, dubbed NBCU 2.0, a move that suggested more cheap-to-produce reality shows and less scripted programming.

The Big Picture

CBS

In late 2005, Viacom, which owned CBS, split itself into two entities. One, which would retain the Viacom name, included the faster-growing cable networks that appealed to younger audiences, most notably MTV and Comedy Central. The other entity, CBS Corp., consisted largely of slower-growing holdings, including CBS television.

CBS Corp. employs over 32,000 people, includes two broadcast networks (CBS and CW), a cable channel (Showtime), a television production studio, 179 radio stations, publishing houses (including Simon & Schuster), and outdoor advertising (billboards). CBS Television is a major contributor to the company, accounting for 64% of its total revenue in 2005.3

Initially, many analysts expected Viacom, and not CBS Corp., to be the better-performing company. In the first half of 2006, though, it was CBS Corp., led by Les Moonves, that won praise from shareholders and Wall Street while Viacom struggled; it ultimately fired its long-time president and CEO, Tom Freston. But in the third quarter, CBS Corp. struggled as TV revenues weakened and radio took an even harder hit.

Looking at the first nine months of the year, revenues at the corporation were up just 1 percent over the same time a year before, with declines at radio offsetting growth in the publishing and outdoor divisions. Profits looked even worse, down 2 percent compared to the first nine months of 2005. Again, radio was particularly hard hit, with sales falling 7 percent in the first nine months of 2006, partly because of Howard Stern’s exodus to Sirius Satellite Radio earlier in that year.4

The following tables below break down the revenue and profits (in millions) for each division within CBS through the first nine months of 2006.

CBS Corp. Revenues, First Nine Months 2006 vs. First Nine Months 2005

2006

2005

Increase/Decrease

Television 6,926.1 6,834.2 1%
Radio 1,461.7 1,571.3 -7%
Outdoor 1,522.8 1,421.9 7%
Publishing 554.5 526.6 5%
Eliminated holding -27.8 -29.9 7%
Total

10,437.3

10,324.1

1%

figures in millions

CBS Corp. Profits, First Nine Months 2006 vs. First Nine Months 2005

2006

2005

Increase/Decrease

Television 1289.1 1251.7 3%
Radio 583.9 687.6 -15%
Outdoor 240.9 164.1 47%
Publishing 32.2 32.1
Total

1,924.9

1,957

-2%

figures in millions

On Wall Street, CBS stock hovered in the mid- to high 20s in 2006 and finished strong, closing at 31 — an increase of 24% from the beginning of the year.5

To bolster its economic performance, the company made a number of moves. In May 2006, it sold Paramount Parks for $1.24 billion.6 To focus on faster-growing markets, it sold 29 radio stations in November 2006.7

It also has made a number of acquisitions, including CSTV Networks Inc., a cable network and online media company that focuses on college sports. Earlier in the year, it even flirted with acquiring Univision, the largest U.S. Spanish-language broadcaster, but the deal fell through, largely because of Federal Communications Commission ownership rules.

Heading into 2007, the broadcast division was hoping to receive a significant boost in ad revenue from the Super Bowl. According to CEO Les Moonves, ads for the Super Bowl were selling quickly and “north of $2.5 million” for each 30-second spot.8

More long-term at CBS, management may be betting its future on the unique media content that it produces. Moonves has said that “content is essential,” and he and CBS consider content so important, according to the New York Times reporter Bill Carter, that they are willing to demand that the cable industry pay a subscription fee for network programs; previously, their shows were retransmitted free over cable. “That’s my obligation,” Moonves told Carter. “To create multiple revenue streams, and this is the classic one. It would mean hundreds of millions of dollars of additional revenue.”9

Disney

The Walt Disney Company is a global entertainment giant that employs 133,000 people.10 The company can be divided into four different business segments: media networks, parks and resorts, studio entertainment, and consumer products.

The Media Networks division not only includes ABC, but also ESPN and 72 radio stations, according to the company’s Web site. Disney also operates theme parks in Florida and California as well as Europe and Asia. Disney also produces motion pictures, and owns a number of well-known production studios, including Miramax, Touchstone, and as of May 2006, Pixar, an animation company founded by Apple’s CEO, Steve Jobs. That acquisition was widely considered an attempt to resuscitate Disney’s animation studio, which had been struggling for quite some time. Finally, the company publishes books, magazines and other consumer products sold in retail stores and online throughout the world.

In 2006, Disney was among the best-performing big media companies. Its latest full fiscal year began on October 1, 2005, and ended September 30, 2006. In that year, total revenues were up over 7% compared with 2005 and profits were up 33%.11

Media holdings, which accounted for 43% of all revenues and 56% of all profits in fiscal year 2006, led the way. Revenues were up 11% over the year before, and profit margins were slightly higher, at 12%. Theme parks and resorts also performed well, with revenues climbing 10%.12

Disney’s movie studios were the one division that saw revenues decline for the year. The performance prompted Disney to announce a major corporate restructuring in 2006, that included cutting 650 jobs, plans to make fewer movies, and the intention to return to more family-friendly films.13

Disney Revenues, FY 2006 vs. FY 2005

2006

2005

Increase/Decrease

Media Networks 14,638 13,207 11%
Parks and Resorts 9,925 9,023 10%
Studio Entertainment 7,529 7,587 -1%
Consumer Products 2,193 2,127 3%
Total 34,285 31,944 7%

figures in millions

Disney Profits, FY 2006 vs. FY 2005

2006

2005

Increase/Decrease

Media Networks 3610 3209 12%
Parks and Resorts 1534 1178 30%
Studio Entertainment 729 207 252%
Consumer Products 618 543 14%
Total 6,491 5,137 26%

figures in millions

Disney’s growth was rewarded on Wall Street; its stock price rose 42% during the calendar year 2006.

As 2006 ended Disney was poised to sign multiyear with the two largest cable operators, Comcast and Time Warner. Such a deal would continue to bring billions of dollars of content to cable viewers, a move largely seen as increasing the company’s financial predictability. According to the Los Angeles Times, license fees for pay television accounted for half of Disney’s overall profit in 2005.14

General Electric

General Electric, with headquarters in Connecticut, employs 316,000 people worldwide.15 Its holdings can be divided into six major business segments: infrastructure, industrial, health care, NBC Universal, commercial finance, and GE Money, which was formerly known as GE Consumer Finance.

Largest of all in revenues and employees, GE is an even more diverse company than its network rivals, producing everything from airplane engines to MRI machines to reality shows. The television division accounts for barely a blip of the total revenues. According to its 2005 annual report, the company as a whole generated just about $150 billion in 2005.16 NBC Universal, which includes the company’s television holdings, accounted just 10% of the company’s total revenues.17 News, or journalism, obviously, should be a smaller number still.

Over all, revenues for 2006 were up 10% over the year before, while earnings increased 25%. That growth, however, was not spread evenly across the various holdings. The bulk of it came in the health care, commercial finance, and infrastructure sectors, with profit margins increasing 18%, 17% and 16% respectively.18 With such solid overall growth, GE’s stock price increased 11% during the calendar year 2006.

NBC Universal, on the other hand, which includes broadcast and cable channels, experienced a 6 percent decline in profits during 2006. In fact, it was the only one of the six G.E. divisions in which profits declined.

That was likely a major factor in the October 2006 announcement of major changes at the network. They included $750 million in cost-cutting with the loss of 700 jobs companywide, or roughly 2 percent of the total workforce. including a number in its news division. At the same time, NBC Universal announced it would be rethinking its primetime programming strategy.

GE Revenues, 2006 vs. 2005

2006

2005

Increase/Decrease

Infrastructure

47,429

41,803

13

Industrial

33,494

32,631

3

Healthcare

16,562

15,153

9

NBC Universal

16,188

14,689

10

Commerical Finance

23,792

20,646

15

GE Money

21,759

19,416

12

Total

163,391

147,956

10

figures in millions

GE Profits, 2006 vs. 2005

2006

2005

Increase/Decrease

Infrastructure

9,040

7,769

16

Industrial

2,694

2,559

5

Healthcare

3,143

2,665

18

NBC Universal

2,919

3,092

-6

Commerical Finance

5,028

4,290

17

GE Money

3,507

3,050

15

Total

20,829

16,711

25

figures in millions

It has called the new strategy NBCU 2.0. In programming it calls for more reality shows and fewer dramas and sitcoms, which are considerably more expensive to produce. In an interview with Broadcasting & Cable, NBC’s CEO, Jeff Zucker, said that the “network television business remains very vibrant, but we all have to get a grip on our escalating production and marketing costs.”19

As the Wall Street Journal reported, NBC has historically had a strong following among upscale, urban consumers who are generally among the most sought-after group by marketers. Whether that composition shifts with more of The Apprentice and less Studio 60 will be an important story to watch this year and next.

Down the Road

Heading into the future, all three networks seem to understand the challenges that lie ahead, including competition from cable, the Internet, and wireless media, though each is approaching them in a different way.

All three are certainly interested in making further gains into online and wireless media. Revenues and profits from digital operations are currently small, but are expected to grow rapidly over the next few years. At CBS, Les Moonves projected revenues from its online operations to grow 100% this year.20 And according to Jessica Reif Cohen, a media analyst at Merrill Lynch, profits from online advertising and paid content could account for as much as 8% to 9% of total earning for Disney in just three to five years (they currently account for just over 1%).21

Some of the growth is expected to come from downloads, with the company collecting revenues from downloads and podcasts of hit episodes of Desperate Housewives and Lost, that sell for $1.99 each on Apple’s iTunes. And entire shows are increasingly becoming available on the network Web sites, eliminating the need for a distributor like Apple, which may bring more revenue to the networks as traffic to the Web sites continues to grow.

Obstacles do remain, however. Most notably there is the 800-lb gorilla, YouTube, which continues to collect the lion’s share of online video viewers. Second, there are major concerns, shared by all major media companies, about potential copyright infringement. And third, there is the question of how the Internet will affect the audience for the networks’ offline content, which still accounts for almost all existing ad revenue.