Network spending shows why free TV isn't dead yet

If you looked at the finances of the broadcast TV networks, you might not be optimistic about the future of free TV. Each year, ABC, NBC and Fox contribute a smaller share of the profits reaped by their parent companies. Meanwhile cable channels boost viewership and get growing chunks of the advertising pie. No wonder a cable company is about to scoop up NBC — largely because it owns cable channels, which also deliver a stream of revenue from subscription fees.

So why are the TV networks spending tens of millions of dollars more on prime-time dramas and comedies for next season than they did in the last season? What's in it for the companies, when even Fox, No. 1 among viewers in the key demographic of 18- to 49-year-olds, eked out just 3 percent of the total operating profit reported by Rupert Murdoch's News Corp. in the last quarter?

An analysis of the broadcast business suggests a few answers:

1) Even though the profits may be slim on the broadcast segment alone, other areas of media companies enjoy the benefits.
2) The most expensive shows that generate the largest audiences are usually developed on broadcast TV before migrating to cable channels.
3) The benefit of hitting a home run outweighs the cost of a few strikeouts.
4) Broadcast television is developing sources of revenue that were once exclusively the domain of cable networks. That also helps justify new spending.
5) Broadcast TV, not cable, remains the easiest way for advertisers to get their message out quickly. And now advertisers have more money to spend.