By Joe Flint
For decades, cable channels spent heavily to fill their
schedules with reruns of hit shows, and Hollywood studios came to
count on that steady stream of cash to keep their content-machines
going.
But as Viacom Inc.'s recent announcement of a hefty write-down
shows, the rerun "syndication" market is no longer the sure bet it
once was. The owner of more than 20 cable channels attributed $430
million of its $785 million in pretax charges to underperforming
programming, including the purchase of reruns--such as "CSI" and
"Community"--that failed to deliver enough viewers.
Viacom isn't the only media company to have made bad bets on
reruns lately. Time Warner Inc.'s TNT struck out with "The
Mentalist" and "Hawaii Five-0," leading to a similar write-down.
Crown Media Holdings Inc.'s Hallmark Channel last year pulled
repeats of the critically acclaimed legal drama "The Good Wife"
after just a few weeks because of low ratings. "NCIS LA" and
"Modern Family" haven't delivered the big numbers that USA Network,
owned by NBCUniversal, had anticipated.
These recent experiences may reveal the potential cracks forming
in the lucrative syndication market that could have major
implications across the entire TV ecosystem. TV and studio
executives are now left contemplating exactly how much a rerun of
"NCIS" or "Modern Family" is really worth.
There are several reasons why many reruns no longer have the
firepower they once did. Streaming services such as Netflix, Amazon
and Hulu carry reruns of many popular shows, as well as their own
original content. Plus, the amount of original programming on cable
networks has increased, taking eyeballs away from reruns.
"The more stuff that ends up on Netflix, the more viewers move
there and the more holes you will get in your traditional
business," said Todd Juenger, a Bernstein Research analyst.
This can set off a vicious cycle: If viewers no longer flock to
reruns, then cable networks will likely pay less for them and focus
more on original content. Studios will then need to make up for
that lost revenue somewhere else, perhaps by striking earlier, more
expensive licensing deals with more online video providers like
Netflix. That helps beef up video alternatives like Netflix that
are cannibalizing traditional linear TV viewing in the first
place.
For makers of TV shows, the challenge is that the revenue that
comes from streaming services for repeats has traditionally been
seen as just gravy on top of what traditional outlets, like cable
networks, pay. Analysts such as Mr. Juenger and even some
syndication executives aren't sure that streaming services can make
up the difference if cable networks lose their appetite for
reruns.
"The subscription video-on-demand buyers are starting to be much
more selective in what they buy," said one sales chief at a major
TV production studio.
To be sure, many industry executives said some of Viacom's
problems were self-inflicted. "Community" and "Entourage," another
show it wrote off, were cult hits. Also, Viacom's networks, which
range from MTV to Spike to Nickelodeon, typically have the heaviest
load of commercials, according to Nielsen, which could have played
a part in driving viewers away.
"The business is changing rapidly as platforms expand and
consumer behavior changes," said a Viacom spokesman. "Like everyone
in the industry, we are looking very carefully at not only the
value, but also the shrinking shelf life, of acquired
programming."
Buying syndicated shows has always been a crapshoot and
sometimes networks have aggressively gone after shows before they
exhibited real staying power. Time Warner Inc.'s TBS, for example,
bought repeats of the CBS comedy "Two Broke Girls" very early in
its run on that network. Since then the show's ratings have fallen,
which means it likely won't deliver strong ratings later for
TBS.
Another challenge is that some of the broadcast networks are
ordering fewer shows that appeal to the masses, which means cable
networks are less willing to spend heavily for those reruns.
"Cable networks are now forced to look at programs that are more
targeted and thus tend not to pay the premium for those shows,"
said Bill Carroll, a vice president and director of content
strategy for the industry consulting firm Katz Television Group.
"Just because a show is successful on network TV doesn't mean it is
going to have the same degree of success in reruns."
Furthermore, most shows in syndication have a shorter lifespan.
There are exceptions such as "Seinfeld" and "Friends."
For cable networks, the dilemma is whether to risk $100 million
on reruns or invest that money in original shows where the
potential profits are greater.
"Do we live with lower audiences or spend money on original
programming trying to attract audiences?" asked Mr. Juenger, the
Bernstein Research analyst.
USA Network said its reruns remain an "important part of the
programming mix because of the huge margins and the profits that it
brings to the network," according to a spokeswoman. She also said
that "Modern Family" has helped bring in younger viewers.
Some industry executives expect cable networks will seek to
hedge their bets on reruns by demanding shorter and less costly
deals, especially if a show is already on a streaming service.
Still, cable networks need content not just for the evening but
also during the day, when there is hardly any original programming.
As Mr. Carroll put it, "there will always be a 'Law & Order' on
somewhere."
Shalini Ramachandran contributed to this article.
Write to Joe Flint at joe.flint@wsj.com
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