Foreword

On a hot August afternoon in 1922, Mr. H. M. Blackwell, representing the Queens-boro Real Estate Corporation, stood before a microphone within the studios of radio station WEAF in New York City, and read a ten-minute script inviting audiences to visit his new suburban housing development in nearby New Jersey. Within moments after the announcement, the developer’s office began receiving dozens of phone calls from people who had listened to the broadcast. Most historians credit this episode as the first known broadcast commercial.

Simultaneously, young men such as William S. Paley and David Sarnoff recognized the commercial viability in this newfangled wireless source of entertainment. Sarnoff had become famous in 1912 for staying at his Marconi wireless set for more than 24 hours to take down the names of the RMS Titanic’s survivors. And Paley convinced his cigar-manufacturing father that if radio could sell real estate, it would certainly sell cigars. From those inauspicious starts, today’s market-driven amalgam of broadcasting and cable was born.

The obvious success of these ventures and those of other daring businesspeople willing to experiment with this new medium led to the basic advertising business model that would endure for decades to come. Unlike most of the rest of the world, which advocated serious government involvement in the ownership and operation of stations, the founders of U.S. broadcasting preferred an enterprise that was not a government agency, but a private business. And, as the saying goes, the rest is history.

The business of radio and television involves not only collecting revenue from advertisers, but also investing revenue in the internal operations of the station, system, or network. Just as car manufacturers must spend money on materials, labor, and dealerships in order to produce and sell a product, so broadcasters must spend money on programming, marketing, facilities, licensing, and personnel in order to attract audiences to sell to advertisers.

The cable industry uses another business model—subscriptions. In addition to selling commercial time to advertisers, cable operators continue to depend on customer subscription fees as their major source of revenue. From basic and premium program networks to video on demand and Internet access, the business of cable is similar to the business of broadcasting in that it involves the proper monitoring and control of money coming in and money going out. A more formal name for these crucial activities is financial management.

As complex as the conventional broadcasting and cable business models are today, the future promises even more challenges. With the transition from analog to digital technology, the partitions separating one medium from another are disappearing. For example, most television and radio stations now operate Internet web sites that serve as additional profit centers. In addition, both broadcast and cable networks are exploring video on demand via the Internet as a new revenue stream. Will these new media business ventures use an advertising-based or subscription-based business model, or a combination of both? This blurring of media boundaries, often referred to as media convergence, and experimentation with new business models make the need for sound financial management in coming years even more vital.

No one would deny that business and accounting professionals need to keep abreast of the complexities of media financial management, but this book is not intended for them. Instead, it is intended for the people who have other job descriptions, but who nonetheless have a stake in the successful running of a media business. The book also is intended for students of media management who need exposure to the essential principles and jargon of financial management. Business managers and accountants do not operate in a vacuum. They must rely on the competency and goodwill of other people within the organization. Essentially, every department within a station, network, or cable operation contributes to the overall financial health of the business. The purpose of this book is to introduce nonfinancial people to the fundamentals of financial management so they can communicate better with their financial colleagues and appreciate some of the inner workings of the business of media.

Your editors were asked by the Broadcast Cable Financial Management Association (BCFM) to oversee the creation of this book mainly because we are not financial pros, although we do have a solid background in broadcasting. Although each chapter would be written by a highly qualified expert, there was a concern that the authors might take too much for granted, and that editors possessing a similar financial background might not be sensitive to the learning needs of a nonexpert. Consequently, we were solicited to evaluate and modify the chapters not because of what we knew, but rather, because of what we did not know. During this process, we assumed that if we couldn’t understand what an author was talking about, neither could an ordinary reader, and so we asked questions and made changes for the sake of clarity. We are both teachers and are familiar with the learning needs of students in an unknown arena.

We were flattered to be asked to perform this task, and we hope the reader will learn as much as we did.

Walter McDowell

Alan Batten