Fox Is Abandoning the Pilot Season Format for the Cable Model

Is 21st Century Fox smart for abandoning the pilot season format, or is it an act of desperation?

Jan 21, 2014 at 1:52PM

At a recent meeting of the Television Critics Association, 21st Century Fox (NASDAQ:FOXA) announced it won't take part in the TV-pilot process any longer. Instead, it will adopt a process similar to that of cable TV, where series are developed and released throughout the year instead of the September-to-May schedule that broadcasters have used in the past.

According to Kevin Reilly, chairman of entertainment at Fox Broadcasting, the purpose for the change is to allow the company to generate programming in a more consistent manner throughout the year.

What that suggests is that it's trying to manage the more cyclical nature of viewership, which translates into revenue and earnings going up and down in conjunction with traditional programming strategies.

This shouldn't be confused with the upfront presentations, where advertisers are shown new shows by the networks in order to make decisions on where to put their marketing dollars. Fox will continue to participate in that process.

Cable channels like AMC TV, which is owned by AMC Networks (NASDAQ:AMCX), continue to chip away at the viewing audience of the major broadcasters. This is due largely to hits like "The Walking Dead" and "Mad Men" attracting huge audiences.

This is the major reason 21st Century Fox is embracing a business model that will compete with both the cable channels and the major broadcasters as well.

What's important is shows like "Mad Men" and "The Walking Dead" attract significant numbers in the key 18-49 demo, which is the sweet spot for getting the most revenue from advertisers.

Broadcast TV numbers
As is the usual result for broadcast networks, CBS (NYSE:CBS) is the top network for overall viewers. It leads by a hefty amount over its closest competitor, Comcast's (NASDAQ:CMCSA) NBC. CBS is drawing an average of 11.44 million viewers a night, while NBC is attracting 9.55 million. Coming in 3rd in overall viewers is ABC with 7.80 million, with Fox only attracting an average of 6.76 million a night.

In the key 18-49 demo it changes, with NBC in the lead with a 3.0 rating average. NBC is followed by CBS with a 2.6, Fox with a 2.3, and ABC in fourth with a 2.2 rating average.

As long as some of the broadcasters are doing well, they may decide to continue using the current TV pilot model. Although CBS rarely wins in the 18-49 demo, it does usually win the overall viewership numbers year after year; this suggests that it may decide to keep its existing pilot model until that changes. If Fox makes some headway because of its adaptations, we will probably see the other networks follow. ABC may be the next to move away from the model, with CBS and NBC waiting because of their current success.

A ratings point in the 18-49 demographic is the equivalent of 1.256 million adults in that age range. It includes Live+7 Day with the exception of the last two weeks through Jan. 12, 2014.

Ever since Fox's "American Idol" fell from its juggernaut status and the company stopped its popular "24" series, Fox has gradually seen its viewer numbers erode. With "24" returning, it could make a nice move upward (though this will depend on the number of former fans tuning in).

Over time, the quality of shows offered by Fox during the year will determine its success. Content remains king, and only making changes to the schedule won't be enough. It must come up with big hits like AMC TV in order to rebound to its former success.

Eventually the other major networks will probably participate in similar changes that reinforce content quality. After all, they aren't going to sit back for long if Fox introduces a couple of meaningful hits that propels it to much higher ratings numbers.

Gary Bourgeault has no position in any stocks mentioned. The Motley Fool recommends AMC Networks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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