Will broadcasters suffer the same fate as newspapers?

solving new math problems with an old math mindOn this question rides billions of dollars, the livelihoods of thousands of people, the future of local TV news, and the continuity of the word “community,” at least as we used to define it. The ultimate demise of the broadcasting paradigm is inevitable, because the forces undercutting its foundation are too many and too strong, and when it comes, it will seem like it happened overnight. The reality, however, is that it’s been building for a long time.

It may be five years. It may be ten. But its future is set. Like newspapers, the industry itself will be redefined and won’t go away entirely, but the days of systems that produce runaway profits for broadcast companies are history. Worse yet, the industry’s “second revenue stream” via retransmission consent is on a collision course with new business logic, and it simply cannot sustain the future.

Broadcasters have seen ratings slip over the past 10 years as viewers increasingly turned to cable for TV programming. According to research from Nielsen, broadcasters owned a 46.8% household share in 2000, compared with cable networks’ 41.2%. Cable’s household share has since risen to 60.6% while the share among broadcasters has dipped to 32.1%. Video games are beginning to cut into both, according to Nielsen.

the big 4 networks share is headed south

Moreover, alternate delivery systems (ADS), including Satellite, have blunted cable’s growth now, and this is only going to accelerate. Local advertising is not seen in any of these systems, so both broadcasters and local cable franchises are impacted. And this doesn’t even address the potential of online innovations that impact the industry, such as Apple TV, Google TV, Netflix and others. According to a new article in Advanced Television, a record number of American TV households are making the big switch.

(N)ational ADS penetration hit 30.9 per cent last month, an all-time high that is up from 30.3 per cent in May 2010. Wired-cable penetration, on the other hand, declined to 60.6 per cent in May 2011 from 61.1 per cent in May 2010—the last time wired-cable penetration had been any lower was in November 1989. “It would appear that the cut-the-cord phenomenon is real, and that has implications for the advertising community. Advertisers who buy cable locally need to know that local wired cable systems’ ability to deliver commercials continues to erode,” said Steve Lanzano, TVB president.

Broadcasters say they need retransmission fees to continue producing high-quality original programming, but it isn’t the broadcast industry that creates those programs; it’s the studios. Do studios still need the same delivery system we’ve had for decades? The answer is unequivocally “no!”

Everybody knows that ADS growth will skyrocket the moment HBO decides to go direct-to-consumers. Won’t happen, you say? This is why the cable industry so strongly opposes à la carte business models.

For purposes of this discussion, let’s divide the broadcast industry into two parts, the stations that actually broadcast the programs and the networks that provide the programming, which is then “aired” by the stations. It’s one, big industry, but the two are actually different cogs of the machine. This is important, because the reality is that the one doesn’t need the other anymore.

But the biggest issue with this “second revenue stream” is who’s paying for it. Um, that would be viewers, the same people who are seeking less expensive ways to watch what they want to watch. Do you see the logic problem? The value proposition for viewers of television has always been that they trade their time for watching commercials in order to watch their programs, but, beginning with movie theaters, people now have to pay twice: the price of admission AND watching commercials. This is ridiculous, but people seem to be complying. The movie theater experience, however, is very different than watching something at home, and the jury is still out about the threshhold for consumer toleration of being gouged both ways.

New York Venture Capitalist Fred Wilson, one of the deep pockets behind the disruption, wrote of this anger last year.

Of course, the losers in all of these spats are the consumers who get jerked around and risk missing things they love like the college bowl games or the Oscars. Most of these spats get settled at the last minute, but the whole exercise gives everyone a black eye.

The reason we have to put up with nonsense like this is that cable providers are still operating near monopolies. There are other options like satellite TV or services like Verizon FIOS. But most consumers get their video services from the incumbent cable provider.

And when a content provider, like ABC or Fox, wants to get more money for its programming and the cable company balks, it is the cable company’s customers who are stuck.

And I haven’t said a word about skipping commercials, right?

We simply must understand that the energy behind ADS is that it’s less costly, not more. The economy isn’t going to get any better soon — if ever — so that second stream may actually destroy the first one, too.

Even if, by some miracle, the retransmission paradigm continues, there’s no way to reverse the larger trends affecting television’s audience. While broadcasters seek to get paid for the programming they provide, they’re becoming less important to viewers, advertisers, and ultimately, to the cable companies they’re pressing for retrans fees in the first place.

The forces working against the industry are each parts of bigger trends, and that’s what makes it problematic for broadcasters, because the hole into which our square pegs fit is becoming round. Here’s just a partial list:

  • Audience fragmentation — This will continue to fracture the mass media model, and especially that which is created and consumed within peer groups.
  • Application separation — We’re just beginning to play with the ability to separate content from infrastructure, and that doesn’t bode well for any industry whose profit is tied to infrastructure.
  • Empowered consumers — The Great Horizontal destroys our ability to manipulate audiences anymore, because they can do something about it, including organizing revolts. This, too, is just beginning.
  • Consumers want their spectrum back — Perhaps the greatest threat to broadcasting is that our spectrum is now needed for wireless broadband, which serves those empowered people in ways far beyond what broadcasting can possibly do. Remember, folks, the air belongs to everybody, not a handful of corporations.
  • The revolution in advertising — Interactivity isn’t hurting TV by taking away its audience; it’s hurting us by taking away our money. Everybody is a media company today, including and especially the people formerly known as the advertisers.

The wild card in all of this is Mobile Digital Television (MDTV). It’s the only upbeat possibility for the industry, but I fear that the need for immediate revenue will kill it before it gets a chance. The only way this will work is if the service is free, and even then, the processes, systems and paradigms will have to be entirely different than they are today for it to “work.” Mobile isn’t old school TV. It just isn’t. Even before MDTV, Nielsen reports that local broadcasters dominate the mobile video scene, and tests by the OMVC in Washington D.C. last year showed that local news was especially high on the list of what people want to watch via a portable device. The market’s there, but my fear is that lust for the illusive second revenue stream will kill it. I should add, too, that the FCC cannot be inclined to assign spectrum for MDTV when the lure of wireless broadband is so powerful.

Most people look at all this and say, “Yeah, it’s difficult, but we’ll pull through.” That’s like the little boy whistling in the dark to drive the storm away.

We’re not desperate enough to face reinvention and change, and until we get there, we simply won’t. Unfortunately, like the newspaper industry, by the time that day arrives, it will very likely be too late to do anything about it.


  1. I agree with the concerns and the trend, I guess the question is how can money be made in the future. Who will pay for what. If businesses are their own ad agencies (which I agree they are becoming), and consumers don’t want to sit through ads of any sort or pay for access to content. Who pays for what? I do think people still want local news product (no matter how it is delivered, apps, broadcast, web, MDTV) but where will that revenue stream be?

  2. just had a $5 pizza that cost more than most broadcasters’ stock trades for.

    maybe the future is already being priced in.

  3. Scooter McGavin says

    Terry Heaton is doomsayer. And he’s been at it for YEARS and YEARS. Good God, man…enough already.

    • “Doomsayer” is an interesting term, Scooter. Perhaps, but I view it more as a warning, and yet, for all my “doomsaying,” nearly everybody continues to march steadfast toward the cliff. I know exactly why, but it doesn’t change anything. Moreover, if all I did was prophesy doom, I’d more welcome the term, but I’m also offering solutions, which is more than the “everything’s fine” crowd can say. Keep those cards and letters coming.


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