It’s time for a serious reality check

New data this week from BIA Financial and The Kelsey Group sheds some useful light on the wishful thinking of many in the traditional media business. Depending on your perspective, you’ll either see this as another cut in the “death by a thousand cuts” for the Media 1.0 world, or you’ll see it as truth — the kind that we can’t move forward without.

I’ve been writing about this space for ten years, and I’ve never seen the downstream paths more clearly. Those who cannot see them (or can’t admit they are even there), are simply blind. Traditional media is no longer a growth business. Let that sink in for a minute, and then get over it.

BIA/Kelsey forecasts U.S. local advertising revenues to decline from $155.3 billion in 2008 to $144.4 billion in 2013, representing a negative 1.4 percent compound annual growth rate (CAGR).

Only the local interactive segment will show growth throughout the forecast period. All other local media will experience marginal to rapid declines in the next 18 to 36 months. A small number of traditional media will rebound with a revived economy beginning in 2011, though most traditional media will continue to decline, albeit at a slower pace.

“By the end of the forecast period, the overall size of the local advertising market will be considerably smaller than it was at the end of 2008,” said Tom Buono, president and CEO, BIA Advisory Services. “As the shift to online accelerates, and the demand for accountability metrics grows, there is an increased urgency for traditional media companies to develop and embrace new business models that incorporate digital strategies in order to drive business over the next decade.”

The compound annual growth rate over the period for local television is even steeper than the overall figure at a minus 1.8 percent. How can publicly-traded companies — whose lifeblood is growth — justify their existence to shareholders given the evidence? Here’s some data provided to me by BIA. While over-the-air television is slowly shrinking, “TV Online” is growing at a CAGR of 22.4 percent.

chart showing growth projects for local television

The “interactive” share of the total local advertising pie is projected to grow from 9 percent last year to 22.2 percent in 2013. Clearly, this is the growth industry that we need to be in, but what is it?

It isn’t our old, reliable “ad-supported content;” it’s things like mobile, Internet Yellow Pages, local search, online verticals and classifieds, voice search, e‑mail marketing and other interactive revenues. This is, of course, problematic for local media companies, because we make “content” for a living. Should we give up on that? The answer may well be “yes,” if you’re betting the future ranch on it, online or off.

I think this question will become THE most-asked question in the boardrooms of traditional media companies in the coming two years. If the business of media is advertising, then there’s sufficient evidence and data out there to suggest workable business models to reinvigorate growth. However, these don’t involve content — let’s say “news” content — so who will guard the eternal flame? This has always been the conflict of professional journalism; it just wasn’t so visible as it is today, for J‑supported businesses used to be such high margin companies.

As an old colleague once said, “Little did we know when we became a profit center that one day we’d have to play by the rules.”

I think the local media business of the future will be a hybrid (I’ve been saying this for a very long time) that will provide news, information and entertainment at much more mature margins, and growth will be in the new world of advertising that is disconnected to content. We’ll still make a lot of money with our content, but the honest reality is that it will never again be enough to sustain serious growth.

The golden goose is dead. Long live the golden goose!

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