I don’t share the view that some tipping point was reached and the TV network model was changed forever by the announcements that NBC and CBS would sell individual programs for 99 cents via DirecTV (DTV) and Comcast (CMCSA/K), respectively. I believe these deals just will just reinforce trends already in pace by accelerating DVR penetration. In fact, the DirecTV-NBC deal requires a DVR to work. If a household has a DVR, it can record any NBC program with the push of a single button. If you’ve never used a DVR, all you do is pull up the guide, move the cursor over the program you want to record and hit the record button. NBC wants you to pay an extra 99 cents so you can watch it commercial free. I record “Seinfeld” five times a day via my DirecTV Tivo and we buzz through the commercials with the fast forward button. A typical commercial block takes less than 20 seconds to fast forward past….

The CBS-Comcast deal is more interesting to me because Comcast already gets massive usage off its free VOD platform. CBS will offer TV shows for 99 cents via the platform. Again, if you have never used it, it is a breeze. Simple menus take you to genres and you can choose your VOD program with a click of a button. I’d imagine the new TV programs will get a prominent front-of-the-guide button. The problem I see with this deal is that all the benefits seem to accrue to Comcast. It has improved its VOD offering, which can only help in attracting new subscribers and retaining current ones. More importantly, any Comcast subscribers that make regular use of the new TV programs are going to quickly add several dollars to their monthly bill. If they don’t already have a DVR, the incentive to add one will be high. Once a DVR is in the house, then you can just record the original showing of the program without paying 99 cents. And in this case, you don’t even get the benefit of eliminating advertisements.
Networks Deserve Credit for Sampling New Distribution Channels
NBC, CBS, and ABC with their iPod deals deserve credit for sampling new distribution methods. The handwriting is on the wall that control of TV watching is shifting to the viewer. Any attempt to try new distribution shows that the TV executives have learned something from the music industry experience (from Napster through iTunes).
But Advertisers Know the Game Is Up
However, TV still faces a big obstacle as viewers fragment among channels and different entertainment options. Worse is that advertisers know the game is up. An article in Wednesday’s Wall Street Journal contained the following:

The nation’s biggest advertiser, Procter & Gamble (PF), which spent roughly $2.5 billion on TV ads last year, indicated it would cut its broadcast upfront commitments for the current prime-time season by about 5% and its upfront commitments on cable by as much as 25%. Media buyers say advertisers, faced with more options and splintering audiences, want to experiment with new forms of promotion that are often cheaper than TV.

Multiple Compression for Ad-Supported TV Stocks Is Permanent
So give the TV networks credit for trying but remember the wave coming over them is too large to reverse for anything more than a strong cyclical advertising upturn. The implication for the ad-supported TV stocks is that the multiple compression we have seen is permanent.