The environmental changes that have occurred since the 1980s as a result of technological advances and shifting audience demands have impacted the broadcast media profoundly. As the pioneer of electronic media products, the conventional characteristics of radio as a local, over-the-air commercial medium have to be reexamined as commercial-free satellite radio subscrip- tion services have become popular nationally among many music lovers and as technologies have enabled the delivery of radio signal worldwide via the Internet and the arrival of customized music CDs and portable music players (e.g., iPod). Broadcast television, once a favorite of most American media consumers, now competes against multichannel programming ser- vices such as cable and DBS as well as streaming content on the Internet. The broadcasters now have to fight for shares in a fragmented audience market, invest heavily in digital technology, and rethink their strategic role in a con- solidated media marketplace where most competitors are verticall inte- grated and operate businesses in many other media sectors.
It is evident that the general environment for broadcasters has changed dramatically. But how have these external forces shaped today’s broadcast market? Adopting the strategic framework proposed in chapter 2, this chapter attempts to answer this question with a review of the economic, technological, political, and sociocultural changes that have influenced the state of broadcast industries and discusses the factors that have affected the competitive dynamics of both the broadcast radio and television markets.

CHANGES IN THE GENERAL ENVIRONMENT

Elements in the broader context of a society influence the operations of industries and the firms within them. Although firms have no control
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over these environmental changes, they can respond to them with ap- propriate strategies. Followings are some major trends that have im- pacted the broadcast media industries.

Economic Changes

Several economic developments have indirectly shaped the direction and nature of today’s broadcast media. First, the growth of a global economy has positively contributed to the market potential of broadcasters. The fact that most television broadcast networks are integrated with produc- tion studios means that the development of a global programming mar- ket would lessen the programming financing burdens of television broadcasters as more overseas media outlets become potential revenue sources. The interconnectedness between different media systems also presents more coproduction cost-sharing/reduction opportunities. Sec- ond, the relatively low interest rates in various time periods between the 1980s and 2000s fostered a favorable environment for mergers and ac- quisitions, which gave birth to numerous media conglomerates and cre- ated many consolidated local broadcast markets. The development of larger media groups means a different strategic role for today’s broad- casters when their corporate parents compete multilaterally (i.e., multipoint competition). Finally, because the U.S. economy grew more than 56% in gross domestic product (GDP) per capita from 1980 to 2000, we are faced with a more affluent media consumer who can afford new subscription or pay-per-event media services that compete with the tra- ditionally free broadcast products. Note that the economic condition of the United States, a market economy, also directly impacts the core in- come source—advertising revenues—for broadcasters. By comparison, the broadcasters have had a mere 16% increase in total ad revenues since 1996, whereas their cable counterparts, which only partially rely on ad- vertising income, had a 150% increase (Standard & Poor’s, 2004). The at- tractiveness of the cable sector often means the development of more alliances and/or consolidations between broadcasters and cablecasters.
Technological Changes
The technological advances in computing and communication technolo- gies in the last two decades have brought tremendous changes to the broadcast industries. There are continuous product innovations in com- puting devices that enable the widespread ownership of personal com- puters and network connections, which take shares from media consumers’ investment in broadcast media products and leisure time. There are new digital communication technologies that facilitate the de- livery of digital signals and make better audio-visual quality, more con- tent options, and interactivity possible and even demanded. Most evidently, although the arrival of cable, satellite, and Internet/broadband distribution technologies has reduced the dominant position of broad-
 
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casters, advances in digitization and compression have also offered broadcasters new business opportunities. More recently, the introduction of personal digital recorders and on-demand content services is beginning to transform how audiences use the television medium, prompting the need to reevaluate the existing broadcast business model of a free over-the-air commercial system. In essence, the continued technological evolution has redefined the nature and boundaries of broadcast products as well as how and how much the consumers use broadcast products.
Political Changes
Beginning with the sweeping changes brought about by the Telecommu- nications Act of 1996, the regulatory environment of broadcast indus- tries has been largely relaxed to encourage cross-media competition and the introduction of new media technologies. The adoption of more liberal ownership rules by the Federal Communications Commission (FCC) has made it easier for broadcasters to own a number of broadcast properties as well as develop cross-media ownership. These deregulatory moves ef- fectively facilitate the application of cross-promotion strategies, sharing of resources, and negotiation power of broadcast group owners. In es- sence, the recent deregulatory development has changed the strategic op- tions and priorities for many broadcasters, making corporate strategies a critical aspect of competition. There also have been global political changes toward privatization and commercialization of media systems. The opening of media borders and commercialization means the option of global diversification and increase of programming demands and thus revenue potential for the vertically integrated U.S. broadcasters.

Sociocultural and Demographic Changes

Sociocultural and demographic changes have profound impacts on the broadcast business because these external forces ultimately shape the au- dience type, size, preferences, and behavior. A number of developments in this area have influenced the market for broadcast products. First, the ag- ing of the baby boomer audience segment has widened the desirable age bracket for broadcast advertisers, thus somewhat altering the program- ming approach (e.g., more health-related content) and competitive posi- tions of different broadcasters. Second, the growing income disparity between different socioeconomic audience segments has pushed further the application of market segmentation strategy, a specialty for cablecasters rather than broadcasters. Third, more women in the workforce as well as increasing workplace diversity have significant im- plications in both programming content and scheduling strategies. In general, most television broadcasters’ conventional day-parting schedul- ing and general-appeal programming strategies seem to be less respon- sive to such societal developments. Fourth, the attitudes toward quality of life and environment have influenced both broadcasters’ promotional
 
approaches and news focuses. For examples, the busy lifestyle of today’s audiences has resulted in diminishing audience loyalty and leisure time, which prompted the increase of programming modularity (i.e., shorter plot lines) and cross-platform marketing. Finally, the fast growth of two demographic groups—the Hispanic and African American markets—has considerable connotations for the programming and diversification strategies of broadcasters. The lure of the increasing Hispanic population and its buying power has spawned a new array of Spanish radio formats and the acquisitions of Spanish programming sources (e.g., NBC’s acqui- sition of Telemundo). The expansion of the African American demo- graphic segment also has some notable programming and marketing implications for broadcasters because anecdotal evidence suggests that this segment comprises a large number of young people and spends more on cable services and entertainment than the general population.
CHANGES IN BROADCAST INDUSTRIES
As depicted previously in chapter 2, the external environment of an in- dustry shapes the nature and state of competition between the firms op- erating in it. Accordingly, the aforementioned changes have impacted the relationships between broadcasters in the market and the strategies adopted by these firms. To examine these competitive dynamics and their implications, we adopt Porter’s five-force competition assessment framework, reviewing the bargaining power of suppliers, bargaining power of buyers, threat of substitute products, threat of new market entrants, and rivalry among competing firms.

Bargaining Power of Supplier

In the context of broadcast markets, suppliers are the content produc- ers/suppliers for broadcast networks and stations. Historically, the bar- gaining position of the television content suppliers was not particularly strong because broadcast television networks and stations held the control of the conduits to audiences. With the proliferation of electronic media out- lets (i.e., the number of content buyers has increased), the content suppliers have garnered somewhat more bargaining power. Nevertheless, the active consolidations at both the network and station levels seem to have also so- lidified the countering negotiation power of the broadcast buyers. For ex- ample, the formation of large station groups has resulted in a significant increase of television broadcasters’ bargaining power over syndicators. Ta- ble 5.1 shows the considerable numbers of stations and extensive reach controlled by the top network/station groups. It is virtually impossible to launch a new syndicated program without the support of these station groups. In addition, in recent years, television broadcasters have attempted to mitigate the power of content suppliers through vertical integration. As a result, all broadcast television networks are now affiliated by ownership with major studios (see Table 5.2).