NEW YORK (Reuters) - Once considered the backwater of television, cable networks have in recent years become the brightest stars in the media business, bringing their owners outsized profits and attracting some of today’s biggest names in showbiz.
The latest migration: Conan O‘Brien took his talk show style and young audience from NBC to TBS. Next up, Oprah Winfrey launches an entire cable network, OWN, in 2011.
The three hottest entertainment companies on Wall Street are Discovery Communications, Scripps Networks Interactive and Viacom Inc.. Their stock prices are all up 25 percent or more this year.
Not one of them owns a broadcast network; rather they’re home to cable channels such as the Food Network, Animal Planet, Travel Channel, and Comedy Central.
But with cable’s expansion come challenges that include differentiating networks in a multi-channel universe and, as with the broadcast networks, keeping youthful audiences tuned-in amid a number of entertainment options from movies to videogames, social networking and others.
“What we are doing is trying to find audiences who are passionate,” said Peter Liguori, chief operating officer of Discovery Communications, which will partner with Winfrey in the OWN network.
OWN, the Oprah Winfrey Network will include a mix of shows offering entertainment and information as well as a reality-based series, “Your Own Show: Oprah’s Search for the Next TV Star”.
There is no doubt about cable’s success in the past decade as shows such as HBO’s “The Sopranos” or AMC’s “Mad Men” won over critics and fans, and specialty networks like all-sports channel ESPN became juggernauts for profits.
According to media research firm SNL Kagan, Walt Disney’s ESPN cable networks which earned $1.5 billion in cash flow in 2009, compared with CBS television network, which earned $228 million in cash flow last year.
Ten years ago, broadcast captured 48 percent of prime-time viewing households while cable had a 43 percent share, according to Nielsen Media Research. Now cable networks command 60 percent of audience homes, versus the networks’ 36 percent.
One big reason is that cable networks cater to narrow groups of fervent viewers who become attached to shows they love, and that strategy means consistent audiences in a fragmented market.
Broadcasters, by contrast, are built to attract mass audiences and often must tailor content for broad appeal, pleasing fewer viewers in the process.
O‘Brien’s move to Time Warner Inc‘sTBS network serves as a good example. TBS snagged O‘Brien from General Electric-owned NBC after the broadcaster made a disastrous reshuffle of its late-night lineup earlier this year.
After O‘Brien became host of NBC’s “The Tonight Show,” the network was unable to attract the audiences that advertisers and its network affiliates needed. But TBS is looking for exactly the sort of youthful, offbeat comedy-loving audience that O‘Brien, 47, brings with his new show, “Conan.”
“My parents are going to watch and I‘m thrilled about that, but they don’t count in this business. The game is all about youthful demographics and we expect Conan to be extremely competitive,” Steve Koonin, president of Turner Entertainment Networks, which includes TBS.
Similarly, Oprah Winfrey, whose chat show has long been among the top-rated programs on daytime TV, can leverage her fan base to launch the lifestyle-oriented network, OWN.
And at the moment, cable networks have the money to spend on stars thanks to twin revenue streams of advertising and fees paid by pay TV services.
Moreover, that business model also gives cable programs more time to blossom than those on broadcast TV, where there is far more pressure to immediately please advertisers.
On cable, “you are not going to get canceled in the middle of the year like on network TV because of low ratings,” said Brad Adgate senior vice president of research at Horizon Media.
Still, because of their big audiences, broadcasters retain the upper hand in pricing TV advertisements, which tend to command roughly 30 percent more than cable TV commercial spots. But in recent years, the ad playing field has been considerably leveled, advertising executives said.
“Those days of getting a (huge) rating on one show are few and far between,” said Donna Speciale, an advertising executive with agency MediaVest, whose clients include Coca-Cola and Wal-Mart Stores Inc.. “You now need a lot of little wins as opposed to big wins.”
Reporting by Jennifer Saba; editing by Paul Thomasch and Carol Bishopric