Two (Big) Things Preventing Local TV’s Collapse

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televisionMemorial Day has passed, and it’s time to start guessing judging the state of the network TV business based on this year’s upfront advertising purchases. Brian Lowry, TV Columnist for Variety, asked last week: “In today’s fragmented world, what attributes still make (the broadcast networks) special?” It’s a good question, because cable offerings are doing better, and people are watching more TV than ever and on an assortment of devices. But the networks? Not so much.

Brian Stelter, the New York Times writer who covers television, recently noted that prime-time ratings for the Big Four broadcasters are dropping more precipitously than ever:

Goldman Sachs found last month that broadcast ratings in the 18-to-49-year-old demographic, the one most coveted by advertisers, fell by 17 percent in the winter months compared with last winter. Goldman Sachs called it “the sharpest pace on record.”

Television itself will do fine, but this Big Four network issue is enormous at the local level, for as these networks go, so goes the business of local broadcasting. With Fox threatening to remove its broadcast signal from the mix that Barry Diller’s Aereo is trying to disrupt, what will happen to the local Fox affiliates? What happens to “Must Carry” legally, if there’s no broadcast signal that the cable companies, well, must carry?

A lot more people besides Henry Blodget have jumped aboard the “TV is in trouble” bandwagon of late. Blodget, the former Wall St. whiz turned commentator, published a controversial post on his Business Insider website a year ago this week: “Don’t Mean To Be Alarmist, But The TV Business May Be Starting To Collapse.” Blodget was roundly criticized for this article, not so much because of his premise but for the methodology he used to develop his conclusions — he talked to his own family. There was also the not-so-little matter of television being in the middle of a record revenue year due to political advertising when his article was published in 2012. I wrote an essay supporting Blodget, although my reasoning was quite different (” Broadcasting isn’t on trial here; it’s the advertising industry, and as they go, so goes broadcasting.”).

But now it’s 2013. There are no Olympics, no political ad money, and the economy teeters on the brink. Many more are seeing the same kinds of things that Blodget saw last year.

Techcrunch: As TV Falls Apart, Tumblr And Twitter Aim To Pick Up The Pieces
The New York Times: As TV Ratings and Profits Fall, Networks Face a Cliffhanger
Reuters: U.S. broadcast TV ratings slide pressures ad rates at “upfronts”

The concept of network content distribution through local affiliates is what’s being challenged by the Web. Local broadcasters are middlemen in the delivery of network content to the masses, and that was fine in a world absent horizontal connectivity. My version of Gilmore’s Law is that “the net regards middlemen as a failures and routes around them,” and I’m not alone in this thinking. The networks simply can do their thing far more efficiently — and thereby, profitably — by going directly to consumers. We went through this discussion when nets started selling programs via the Web a few years ago.

So it would be easy to assume downstream trouble for local broadcasters. But while there’s quite likely much of that ahead, it won’t totally kill the industry. There are two enormous roadblocks standing in the way.

The political process in the U.S. Local television is still atop the heap in terms of delivering the goods for certain advertisers, most notably political candidates. Saturating the airwaves — especially in key states — with ads for those running, delivers incredible profits for local broadcasters. This is not going to change, and absent some major innovation that pushes campaign managers elsewhere — perhaps mobile? — the money is going to continue to support local broadcast companies.

Even though elections occur only every other year, the profit is sufficient to allow these companies to manage the bottom line during off years by controlling expenses. Mass marketing still “works,” and I don’t see that changing overnight. Political money is a significant difference that local broadcasting has over any of its competitors, whether online or off, and it acts as a buffer against collapse.

Emergency proclamations and aftermath. As we learned just this year in Boston, Oklahoma and other places, during breaking news emergencies nothing can compete with local television. Even if Twitter is increasingly recognized as a direct source from witnesses, the job of passing that information, pictures and video along to the general community belongs, at least for now, to the local television stations. This is a job that local stations take very seriously, and innovations intended to disrupt this competency have a long, uphill battle.

That doesn’t mean the effort isn’t there. The FCC oversees the broadcast spectrum, and the Telcos want it badly. We have weather warnings and Amber alerts now via the carriers, and that certainly has the attention of the National Association of Broadcasters. The NAB and emergency management agencies in Florida are conducting tests this year during hurricane season to see if Mobile Digital Television can assist with one-to-many communications. It is well worth watching, although the idea of a ubiquitous mobile digital broadcasting universe has many, many obstacles ahead.

Cable retransmission fees for local broadcasters — and their networks — keep going up and have reached a point where they now provide nearly half of the revenue for some TV stations. It’s another buffer against the future, although one that may not last forever.

Local television may be in a season of tremendous change, but don’t count the medium out too quickly.

TerryNaplesTerry Heaton is President of Reinvent21, a consulting company specializing in business reinvention for the 21st Century. He’s an internationally-recognized creative expert on all things web-related, especially as they relate to local media.