| BUSINESSWEEK ONLINE : JANUARY 10, 2000 ISSUE | ||||||||
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| INDUSTRY OUTLOOK 2000 -- INFORMATION
Media Leo J. Hindery isn't sounding all that upset these days about leaving the media industry. A month after being forced to resign as president of AT&T's cable operations, the 55-year veteran of the cable business signed on to become chairman of the Internet arm of telecommunications upstart Global Crossing Ltd. (GBLX) ''With all the competition that this industry faces today, I'm glad to let someone else worry about it for a change,'' he says. In 2000, a lot of media executives might wish they had followed Hindery's example. After several false starts, this year the media business will get its first real taste of the competition being ushered in by the Digital Age. More than one-third of U.S. consumers will be staring at some form of digital appliance in 2000. These services will include everything from TV signals beamed from direct broadcast satellites to superfast cable modems to link their computers to the Internet. The competition for viewers will become intense enough to cut into the earnings of TV networks, cable operators, and Internet startups alike--even as the industry basks in the most robust advertising market of recent memory.  The continued rise of the Internet, together with the growth of digitally delivered TV, will make size crucial to media companies, so the consolidation of media companies will continue. One target is likely to be General Electric Co.'s NBC-TV network (GE), the only one of the six largest networks still independent--that is, it isn't linked to a Hollywood studio or a media company. Although GE executives insist that the Peacock Network isn't for sale, the company will probably still get offers. One likely bidder is Time Warner Inc. (TWX), whose vice-chairman, Ted Turner, openly says he wants to add it to the company's cable systems, CNN and the WB Television Network. ''If you're gonna be big, be big,'' says Turner. Time Warner probably won't be the only one looking to grow. Within months, USA Networks (USAI) Chairman Barry Diller says he will strike a deal to merge his shopping network's 12 TV stations with those of another company, giving him two outlets in each of the largest media markets. The need to be large is so crucial that in 2000, for the first time, Internet companies may try to buy traditional media companies, says Peter Kriesky, head of the media practice at Mercer Management Consulting Inc. With its stratospheric stock price, figures Kriesky, America Online Inc. (AOL) may go shopping for a traditional media company to give it exposure beyond the wired world. It held talks with CBS (CBS) in 1999, but CBS hooked up with Viacom (VIA.B) instead. Paradoxically, the continued fragmentation of the media market will help the broadcast networks rake in revenues in 2000, even as viewers continue to flee the major networks for cable, satellite, and the Internet. In 2000, the Big Four networks will sink closer to half the prime time audience, the lowest level ever, says Veronis, Suhler & Associates Inc., a media-industry investment banking firm. Still, network advertising is likely to increase faster than in 1999, says Robert Coen, senior vice-president of ad agency McCann-Erickson. Stoked by heavy media buying for political campaigns, the Summer Olympics, and dot.coms enriched by initial public offerings, the four largest networks will collect $16 billion in 2000, a 9% hike from 1999. MORE DISHES. Nowhere will the fight to lure eyeballs be more evident than in the pitched battle between cable TV and direct-broadcast satellite operators. Finally freed from restrictions on their ability to beam local channels to their customers, satellite operators will continue to offer cut-rate equipment to gain market share. That will help them add 33% more subscribers, reaching 16 million in 2000, says Carmel Group. But the two main operators, Hughes Electronic's (GMH) DirectTV unit and EchoStar, will incur big losses in the process. The competition with satellites will accelerate cable's rush to offer digital services, including Internet access and ever-larger selections of cable channels. By the end of the year, more than 80% of cable subscribers will be able to get some version of two-way interactive service, compared with 45% in 1999, says media analyst Lawrence F. Marcus of BT Alex. Brown Inc. That will enable cable operators to generate $33 billion in revenue from their 67 million subscribers, a robust 12% hike, with steep increases in pay-per-view revenues and Internet access fees. Cable companies won't be the only ones rushing to the Internet, the fastest-growing part of the media world. With computer prices dropping to under $600, nearly two-thirds of U.S. consumers will have online access in 2000, says Forrester Research Inc. That will mean advertising revenues of $4.7 billion for Net sites in 2000, according to Jupiter Communications--a 47% increase over 1999. It will also mean the first significant revenues from the Internet for major media companies. In 2000, after struggling to stop consumers from downloading music, major record companies will begin selling music downloads of major artists. One key development will come this spring, when Universal Music, the world's largest music company, will begin selling downloads, along with Bertelsmann and Sony Music (SNE). ''Traditional record companies have gone from seeing this as a threat to an opportunity,'' says Saul Berman, senior partner for entertainment and media at PricewaterhouseCoopers. MARTIAN INVASION. The still murky concept of convergence of the TV and the computer will inch closer to reality in 2000 as large media companies struggle to keep their audiences from fleeing to online diversions. By February, Disney's ABC network will roll out an ''enhanced TV'' version of its hit show Who Wants to be a Millionaire, allowing consumers to answer host Regis Philbin's questions as they are posed to contestants on the tube. The most eagerly awaited example of convergence, however, is the launch of Nickelodeon Chairman Geraldine Laybourne's much-hyped woman's network, Oxygen, with a brace of Internet sites linked to a cable channel. As media-distribution companies scurry to beef up, Hollywood studios will find their ability to produce content ever more richly rewarded. DVD players will be hot in 2000, with as many as 7 million players expected to be sold, according to the DVD Video Group. That will help double DVD sales, to $4 billion in 2000. Studios will get a rush of new revenues for films already sold on videocassette by repackaging them in DVD format. The DVD bonanza won't undermine the record box office that Hollywood is enjoying. As long as the economy stays strong, most moguls think folks will continue going to movie theaters. The industry isn't expecting another megablockbuster such as George Lucas' The Phantom Menace, but studios will release several sturdy sequels. Among the likely hits will be Warner Brothers' Pokemon 2, Paramount's Mission Impossible 2, and Universal's Eddie Murphy sequel to The Nutty Professor, entitled The Klumps. But in its annual nod to excess, Hollywood will release two films about Mars within a few months of one another: the Brian De Palma film Mission to Mars from Disney and Red Planet from Warner Brothers. Even in outer space, it seems, the media giants can't get enough of competing with one another. By Ronald Grover, with Steven V. Brull, in Los Angeles _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Media Here, Try This Dish  POSITIVES Broadcast networks and local TV stations will see more advertising by Internet companies and national political campaigns. Sales of movies on DVD will help establish a new flow of cash to Hollywood studios. NEGATIVES Free to air local TV stations, direct broadcast satellite companies will step up marketing, leading to price wars with cable operators. Under competition from the Net, TV broadcast viewing will drop below 50% of the market. INTERACT E-Mail to Business Week Online | |||
