The WB television network's recipe for most of its hit shows was always pretty simple: Mix hunks with babes and add a liberal splash of sexual innuendo. And it worked. By the late '90s, the WB was Teen Girl Central. Not anymore. The Gen Yers advertisers covet are tuning out in droves, and speculation is rife that Time Warner Inc.'s (TWX ) 11-year-old network will go the way of its recently canceled show, 7th Heaven.
But the WB is not about to follow its sappy family drama into oblivion. Not yet anyway. And you can thank the zany economics of the TV business for that. Yes, ratings are down for 6 of the 10 shows that returned this season. And it's true that the WB has lost $80 million over the past two years. But Time Warner seems prepared to choke down the losses. That's because the Warner Bros. studio, producer of most of the network's programming, makes a mint selling DVDs and reruns of shows that attract even a modest following. It's a neat trick -- and one that is getting harder to pull off with ratings down 13% from last year. "All the ancillary revenue doesn't mean a thing," says Albie Hecht, a former president at Spike TV, "unless you have something someone wants to see."
The WB is unlike the other networks in one crucial respect. The likes of Fox (NWS ) and UPN can sop up red ink with profits from their TV stations, which make money selling local ads. Warner Bros. owns no stations. And that's where the DVDs and reruns brighten the picture. For example, the studio gets an estimated $850,000 an episode by selling reruns of its Superboy drama Smallville to cable. The WB also sells DVDs, along with Smallville Magazine subscriptions to teens for $37.75 a year. And it gets a cut from the soundtracks of such shows as Gilmore Girls and One Tree Hill.
To generate those ancillary revenues, the WB needs big enough ratings to satisfy advertisers, though. They indirectly foot much of the bill for such shows as Supernatural, which costs an estimated $1 million an episode to make. Yet ratings this year fell by 43% for One Tree Hill, now in its third year, and 24% for four-year-old Everwood. Worse, as several shows have aged, so have the viewers. Since 2002, the WB's median age has risen by six years, to almost 37. "That could be deadly for a network that sells young demos," says Brad Adgate, research director of media buying agency Horizon Media Inc.
Advertisers aren't fleeing so far, but the WB isn't taking any chances. It laid off 45 people, about 15% of the staff, in December. Axing 7th Heaven was another cost-cutting move; the show lost the WB $16 million last year, due to highly compensated stars and falling ratings. And while Warner makes most of the 12 shows on the current schedule, the WB has to reach outside for ratings grabbers, such as Fox's Beauty and the Geek.
The WB doesn't have forever to right its ratings, what with corporate raider Carl C. Icahn at Time Warner's gate. A renegotiated deal with Tribune Co. (TRB ), which owns 22.5% of the WB and carries programming on its 19 affiliates, could help. That contract has been held up for months, giving rise to speculation that Tribune could refuse to pay for the WB shows it carries and cripple the network. Tribune also could stop Warner Bros. from distributing on the Web shows that would compete against its stations.
But the new deal, says WB Chairman Garth Ancier, will likely allow his company to sell shows via the iPod. That's another way for the ratings-challenged network to eke out revenues as it battles to reclaim its lost youth.
By Ronald Grover