Why Viacom CBS Is Eyeing A Sale for Part of The CW: Exploring Syndication and Secondary Markets
Recently, Viacom CBS has been in talks to sell the entire network, The CW, to Nexstar, a media company that owns 199 local television stations across the United States. This move raises several questions about the financial health of the network and the future of the television industry.
Understanding The CW
The CW is a television network that is a partnership between Viacom CBS and WarnerMedia. Like many other network television shows, The CW makes the majority of its revenue through secondary markets such as syndication, streaming, home video, and international distribution. Throughout its history, which spans from The WB and UPN, this business model has been the norm.
Historical Context: A Revenue Strategy Based on Secondary Markets
Traditionally, network owners who have owned virtually none of the network’s TV stations have taken a loss while providing significant exposure for their shows. This exposure enabled them to make substantial profits in other avenues such as syndication, streaming, home video, and international distribution.
WarnerMedia and TimeWarner exemplify this business model, both having no ownership of broadcast stations. On the other hand, CBS, as a station owner, only owns a limited number of CW stations. This illustrates a common business model in the television industry, where networks are sold to companies that own the stations but do not control the network itself.
The Role of Nexstar in the Transaction
Enter Nexstar Broadcasting, which became a significant player in the CW market after acquiring most of the channels of former Tribune Broadcasting. Tribune, which was a 50% owner of The WB, owned The CW’s largest affiliate partner before it was sold to Nexstar. This acquisition makes Nexstar a strong candidate for buying The CW in its entirety.
Strategic Decisions and Synergies
The decision by The CW's studio owners to sell most of the network to Nexstar is based on a strategic business decision. Nexstar will own the stations that broadcast The CW, while the studio owners will continue to produce shows for the network. This arrangement is beneficial for both parties for the following reasons:
Revenue from Syndication and Home Video
Network shows, including those in the secondary markets, have historically made most of their money from syndication, streaming, home video, and international distribution. The studio owners will continue to make significant profits from these secondary markets, allowing them to capitalize on the exposure provided by Nexstar. Syndication, for instance, involves the sale of reruns of network shows to local stations, while streaming services like Netflix, Hulu, and Amazon can also generate substantial revenue.
Ownership and Control
By not owning the stations that broadcast the network, the studio owners avoid the losses associated with running a network where they don’t control the station. This business model allows the owners to focus on producing high-quality content, which then generates additional revenue through secondary markets. Additionally, this arrangement ensures that the shows continue to be aired on the CW, providing a consistent platform for the network's content.
Conclusion
The sale of The CW to Nexstar reflects a well-established business strategy in the television industry. It is driven by the significant revenue generated through secondary markets, as well as the financial benefits of not owning the stations that broadcast the network. This transaction not only simplifies ownership but also ensures a continued revenue stream for the studio owners through the sale of secondary markets and home video distribution.
In the ever-evolving television landscape, the ability to capitalize on secondary markets remains a crucial factor in the long-term success of network television. This case study provides valuable insights into how networks can streamline their operations while maintaining a profitable revenue stream.