TV News in a Postmodern World

The Real Threat to Local Broadcasting

by Terry Heaton
Fresh from an encouraging meeting of the Television Bureau of Advertising in New York, it's pretty clear that broadcasters are increasingly beginning to see the light about some of the disruptions that are destroying their business model. In session after session, attendees heard stories of a multi-platform universe, along with a host of warnings about the future.

Beth Comstock, president for digital media and market development at NBC Universal, told the group that conventional wisdom is broadcasting's enemy right now, and she urged attendees to start breaking a few rules. "This isn't just about driving growth," she added. "It's about staying in business."

Multi-platform disruptions are a tip of the iceberg.But embracing the multi-platform universe is only a small part of staying in business in the years to come. It's the metaphorical tip of the iceberg for two reasons. One, the biggest business disruption isn't coming from multiple platforms; it's the drift from mass media to personal media. And, two, if multi-platform is a broadcaster's only strategy, he or she is assigning him or herself to the content-provider (only) space for the future. The real opportunities are on the aggregation side (think, not just in making content available everywhere.

However, the biggest threat to local television isn't DVRs or VOD. It isn't audience fragmentation, the decline of the 30-second spot or bad programming. It certainly isn't the internet or the difficulty of finding that killer online application to support an old business model. And it isn't being cut out of the network supply chain by direct-to-consumer distribution.

The biggest threat to local TV is outside technology companies moving into the local entertainment and information space unchallenged by existing local media. This is a very deadly part of the iceberg, because local media companies either don't see it coming or believe they are immune to such competition.

Ball State University's Bob Papper noted at a conference last year in Muncie that television didn't hurt magazines by taking away their readers; they hurt magazines by taking away their advertising. This is the real danger to all local media companies, because local advertising money that used to go -- or could go -- to local companies is already moving outside the market.

While there's a lot of excitement about revenue growth among local media companies, the reality is that more local online ad money goes to companies outside the market than media companies within the market, and this shows no sign of letting up.

Gordon Borrell, whose company studies local online revenue patterns, recently released his Fourth Annual Benchmarking Report on what local web sites earn. This graph tells the story. The orange line represents money from local advertisers that goes outside the market. It is greater than newspapers, TV stations and radio stations combined.

Money going outside the market outpaces money spent within.

Borrell has been telling this story for several years, and he finds the general response from media companies troubling.

I am very worried when I hear someone say that their trusted local brand is what consumers and advertisers will fall back on. Advertisers don't give a rip about a trusted local brand that's been around for 50 or even 100 years if it doesn't give them what they need. They want something that works. If a young brand with no local representation (and even a ridiculous sounding name) can't compete with WBIG or The Daily Plutocrat, then I have to ask how Google and Yahoo were able to suck more than $8 billion out of U.S. advertising budgets last year.

The astonishment expressed by local media sales people when he pulls out the numbers is understandable, given the historical need for local advertisers to connect physically with a media presence. The Internet, Borrell says, draws dollars out of the marketplace without little more than a phone call — if that.

That's why it's often so hard for local media to believe how much money is being spent on Internet advertising. The salespeople competing with them don't attend Ad Club or Toastmaster's meetings. They aren't in the Rotary Club or attend the same church or bump into them in a restaurant. Yet they sell local advertising just the same. And it not only works, but it also has a better ROI than direct mail, newspaper classifieds or radio advertising in many cases.

There are a lot of smart people with deep technology roots and connections who understand this phenomenon and are moving with speed to tap into the spigot of local ad dollars. Google and Yahoo! continue to add and tweak local offerings, but the new kids in town are going after the biggest prize of all — local information.

The newest entry into this space is offered by none other than Weblogs, Inc. founder, Jason Calacanis. After selling his company to AOL, Calacanis now finds himself with AOL's brand and resources and has launched "the first" of what he hopes will be a series of local/regional group blogs, Blogging Ohio. He's already purchased domain names for other locations and clearly has plans to build a network. The Blogging Ohio site isn't much just yet, but that's not the point. Calacanis is after local money, and he'll get it. Moreover, the cost of entry into the space is so small that he can afford to wait for it to work.

Here are some quotes from his Website about the project. Pay attention to his focus on the bottom line:

We needed to get into the game and start learning. We really don't have a detailed plan beyond constant refinement of the product.

There are two types of advertisers in this space: local businesses and national businesses looking for local reach. So, you might have a local phone store advertise on one local blog while having Verizon advertise on 15 local blogs where they offer their service. I'm sure we'll have a mix.

My guess is these blogs will lose money for at least a year before they hit profitability.

I would say making it work would be some combination of:

a) hitting 50 cities
b) hitting 30M pages a month
c) hitting $3M a year in revenue

Hitting those three milestones would be a sign that this was a scalable business in my mind.

Calacanis isn't alone in building what some are calling Blog Farms. Backfence recently took over operation of Dan Gillmor's Bayosphere and now has a presence on the West Coast. Backfence's business model is built on the creation of hyper-local information sites with content generated by its users. Readers can promote events, rate and review local businesses, create photo galleries and post free classifieds listings. Until the Bayosphere acquisition, Backfence sites have been concentrated around the suburbs of the nation's capital, Backfence CEO Susan DiFife told ClickZ that they'll put the hyper-local on top of Bayosphere. Once again, this is about making money, local money.

"Advertisers are clamoring for the most local customers, particularly the small and medium sized businesses," suggests DeFife. "They're looking for the best way to target that local customer."

According to the ClickZ article, the Washington Post is about to launch a hyper-local site. The New York Times' operates 40 local blog sites, and there are others.

When broadcasting executives gather this week in Las Vegas for the annual conference of the National Association of Broadcasters, they'll express excitement over multi-platform options available to them. Experts will sit at conference tables facing the audience and pronounce relief from new media threats and encourage broadcasters to make their content available everywhere.

Radio and Television News Directors will also gather and talk about the usual topics of story telling and making nice newscasts. There will be sessions on making their websites slick and user-friendly, and they'll hear about podcasts and making their content available everywhere.

But no one — not one speaker — will address the real threat to the industry, and that is the shame of these associations who claim to exist on behalf of the best interests of their members. They are all in the denial of which Gordon Borrell spoke above. They believe these little start-ups are meaningless pests to be squashed by the fly swatters of their brands.

At the risk of sounding like a broken record, it is not enough for local broadcasters to simply drag their brands to the multiple platforms made available by the internet. Standing by and doing nothing while over a half of all the local ad money spent online goes to outside companies is corporate malfeasance gone to seed, and these executives will get what's coming to them in the end.

The foundational understanding that broadcasters MUST get their arms around is this: Revenue isn't the problem; audience is the problem. Fix the problem.