December 2011

Inflation in programming costs is the new reality for cable networks.

No longer able to simply stock their channels with reruns of "Seinfeld," "Golden Girls" and old movies, cable programmers have ratcheted up spending in the last five years to distinguish themselves with marquee franchises such as ESPN's "Monday Night Football" or provocative original shows including AMC's "Mad Men" and FX's "Sons of Anarchy." But while the spending increases are staggering, cable channels remain the most profitable divisions of many media conglomerates, including Walt Disney Co., NBCUniversal, News Corp. and Time Warner. ESPN, for example, is Disney's biggest profit engine and News Corp.'s cable channels deliver more than half of that company's operating income. Viacom Inc.'s children's network, Nickelodeon, has the industry's highest cash flow margin — a measure of how efficiently a company converts its sales dollars to cash — at nearly 65%, SNL Kagan's report found. The margin for financial news network CNBC approaches 60%. So far, rising costs have been offset by rising returns. Over the last decade, cable networks have increased their advertising revenue an average of 9% a year, according to SNL Kagan, which reported that annual programming expenses over the last five years have risen at the same rate. Last year, cable networks collected $22.3 billion in ad revenue and nearly $25 billion in fees from their affiliates and cable and satellite television operators such as Time Warner Cable and DirecTV. That brought cable networks' total revenue in 2010 to nearly $48 billion.

But Wall Street is concerned that the media industry will be unable to sustain its high margins.

The South Bay led the nation in job growth over the past year, according to a new government report -- and economists predict the region's surge will power a Bay Area expansion.

During the 12 months that ended in October, the South Bay job market grew by 3.2 percent, the U.S. Bureau of Labor Statistics reported Wednesday. Meanwhile, the East Bay employment sector expanded by 0.1 percent. The pace of job growth in the South Bay was nearly triple the nationwide rate and almost double the growth rate for California. And improvement in the Bay Area job market is likely to continue, according to a new UCLA Anderson Forecast. "The Bay Area will be the fastest-growing economy in California in the coming few years, based on employment and income growth," said Jerry Nickelsburg, a senior economist with the Anderson Forecast. This time around, the growth has a better foundation than during the dot-com bubble.

News Corp. Chief Operating Officer Chase Carey said the biggest challenge facing the company is digital-distribution deals with Internet companies such as Netflix and Hulu.

“The digital space is incredibly important,” Carey said at a UBS AG media and communications conference in New York. “Over the next five years, it’ll be the number one issue we’ll have to navigate.” Media companies such as News Corp., Time Warner, Viacom and CBS are experimenting with online distribution of television and movie content. The efforts have the potential to create new revenue streams for media companies, though they need to be careful not to cannibalize revenue from cable operators and other partners, Carey said. “They’re an exciting new dimension to the business,” he said. Deep-pocketed players have emerged to offer distribution over the Internet. Aside from Hulu and Netflix, Amazon markets a streaming service and Apple Inc. offers digital downloads. Verizon Communications, the second-largest U.S. telephone company, could soon offer a Netflix competitor.

Digital distribution, also known as “over the top,” may make the most sense for older video, including TV shows and movies that are generating little revenue elsewhere, said Carey and David Zaslav, chief executive officer of Discovery Communications Inc. Discovery, whose programs include “Deadliest Catch” and “Man vs. Wild,” cut a deal that allows Netflix to offer its shows well after they’re on cable channels.

A detailed examination of more than 20 million Tweets about the race for president finds that the political discussion on Twitter is measurably different than the one found in the blogosphere-more voluminous, more fluid and even less neutral. But both forms of social media differ markedly from the political narrative that Americans receive from news coverage, according to a new study by the Pew Research Center's Project for Excellence in Journalism, which examines campaign coverage and the online conversation from May 2-November 27.

One distinguishing factor about the campaign discourse on Twitter is that it is more intensely opinionated, and less neutral, than in both blogs and news. Tweets contain a smaller percentage of statements about candidates that are simply factual in nature without reflecting positively or negatively on a candidate. In general, that means the discourse on Twitter about the candidates has also been more negative. The political discussion on Twitter has also fluctuated with events more than it has in the blogosphere, where the authors seem to have made up their minds and where the tone about candidates shifts relatively little. On Twitter, the conversation about a candidate sometimes changed markedly from week to week, shifting from positive to negative and vice versa. Finally the new study found that the candidate conversation on Twitter is tremendously active-indeed the number of statements about candidates on Twitter vastly outnumber those offered in blogs by a factor of more than 9 to 1.