Tuesday, February 10, 2009

Local TV Stations Face a Fuzzy Future

This article in the WSJ couldn't be more timely. Local television stations face the same threat from cable and now the internet. It has been getting a large share of its ad dollars from the auto and bank industries and is suffering as each of their media budgets have shrunk considerable. Their local news is threatened by web coverage as well as cable news networks, both national and regional, has led to less eyeballs. We now have a DTV conversion that will potentially cause some households to stop receiving TV signals and simply make the local broadcaster just another cable type network.

"Now, with their viewership in decline and ad revenue on a downward spiral, many local TV stations face the prospect of being cut out of the picture. Executives at some major networks are beginning to talk about an option that once would have been unthinkable: eventually taking shows straight to cable, where networks can take in a steady stream of subscriber fees even in an advertising slump." How does the local broadcaster survive? Cut costs, exclusive content, build stronger local brand value?

It is not all doom and gloom. "Local TV stations won't vanish overnight. Networks' parent companies still own some of the largest stations, giving them a possible incentive to preserve that slice of the business. And while their profits are down, the vast majority of stations are making money: Local, regional and national businesses, like car dealers and retailers, spent more than $20 billion on local TV-station ads in 2008, according to some estimates." Still it is about watching the trend and the arrow is pointing lower. Local broadcasters must find away to adapt and re-grow its stature in the community and its brand preference. For those owned and operated stations, a strong parent will be helpful; for others, the challenges will be higher.

Can the Long Tail Survive Or Will It Just Fall Off?

Web content faces an interesting dilemma...itself. As consumers seek more choice among more distribution paths, new viewing options are cutting into and perhaps killing traditional models. Where syndication once enabled broadcasters to recoup costs and achieve profitability, the traditional placeholders, local TV broadcasters, have been replaced, first by national cable networks like USA and TBS, and now by online sites like Hulu and Joost. And in these latest models, the demand is growing, but the revenue models don't offset the losses from traditional models. And so if revenues can't grow, costs must be cut. The big companies can ride out this storm, the small guys can not.

As more content flows from the broadcasters and deep-pocketed producers, armed with more money to promote their awareness and value, what is left for the niche on-line content creators to do. Add to this scenario that advertising dollars have dried up, can this fragmentation of content survive for long?

The answer is no. Some of these long tail content creators will be bought by the big fish. Others will lose their VC dollars and withdraw. Fragmentation only inevitably leads back to segmentation. Let history be your guide to predicting this future. In too many instances, the many turn into the few. Just look at the cable operator as one example. Less than 15 years ago, there were many cable operators across the country; but size does matter and cost efficiencies mean that you must get larger and let economies of scale improve your cost efficiencies. Today, the cable industry is perceived more as an oligopoly, a few powerful cable operators cover the entire country. The same holds true with programming. Where there were once many independent networks existed, acquisition and merger have led to most cable networks represented by few companies.

And so the long tail cannot remain viable; it must either combine with other content providers to gain bigger share or it will simply become too costly to maintain. VC money can only go so far and at some point they will demand a return on their investment. How soon will this happen? It seems that the pace has quicken and it wouldn't surprise me to see major changes within 5 years. Regardless of the time frame, it is going to happen.