Monday, March 23, 2009

Apocalypse Now

Excerpted from an "Advertising Age" article
By Bob Garfield

Broadcast Stations:

Remember how Clear Channel, the radio-TV-billboard colossus, was going to destroy our very democracy by voraciously swallowing every broadcast station in America? For a decade, the mantra from media-concentration hawks: Stop Clear Channel now or we will all be slaves!

Yeah, well, we're probably safe. After being purchased by two private-equity firms (for $38 per share, down from $100 in 2000), Clear Channel dumped its 56 TV stations and tried to unload more than 500 of its small-market radio stations, but has been stymied by the credit freeze and declining value of those assets. Without those sale proceeds, the company's prospects for default on its $20 billion debt are worrisome enough that Standard & Poor's rates its commercial paper five steps below investment grade. Junk, in other words.

In early February, S&P said it was considering downgrading the company yet again. The fearsome juggernaut has just laid off 9% of its work force.

At least it got out of TV when the getting was merely not so good. Bernstein Research predicts a 20% to 30% drop in 2009 TV station ad revenue. Stations' share of TV ad dollars, according to TNS Media Intelligence, dropped to 26% in 2007 from 34% in 2000.

Affiliate fees from networks have essentially disappeared, and the values of local licenses have plummeted, resulting in massive write-downs by ownership groups. And two of the four major networks -- CBS and NBC -- have publicly hinted that the days of distributing programming over the air via affiliates are numbered.

TV Networks:

"Do we want to be what we've been?" asked NBC Universal CEO Jeff Zucker at a December investor conference, as if the matter were in his hands. If everybody had their druthers, the status quo would be just dandy: networks distributing programming to local broadcasters and selling the aggregated audience to advertisers at ever higher costs per thousand.

But nobody has their druthers. According to Nielsen Media Research, in the last reporting period, CBS's prime-time audience was down 2.9%. ABC was down 9.7%, Fox was down 17.5% and NBC was down 14.3%.

The numbers were particularly devastating for Zucker, whose weak schedule has exacerbated viewer exodus, resulting in lost revenue, yielding huge spending cutbacks, producing cheap, even-less-popular programming (no dramas or sitcoms in the first hour of prime time, more and more "The Big Loser" and next "The Jay Leno Show" only in the last hour), leading to still more viewer defection and so on toward oblivion. Zucker keeps the lights on only because mass marketers, desperate for access to even the Incredible Shrinking Mass Audience, have continued to pay more and more for less and less.

The average price of reaching 1,000 households with a 30-second spot in prime time, according to Media Dynamics, has jumped from $8.28 in 1986 to $22.65 in 2008 -- but effectively more like $32, because between 150 and 200 of those 1000 households use DVRs to skip past the ads.
But the ratchet effect is over. What the law of diminishing returns could not influence, the deep recession has. Now the advertiser exodus, too, is under way. As of mid-February, 71% reported having slashed their 2009 budgets, and 6% more said the cuts were on their way.

That's why Zucker finally admits to considering a once-unthinkable proposition: once affiliate contracts and pro-sports deals expire, ceasing to be a network at all. NBC: the cable channel.
And that's not just the last resort of the Big Four laggard. It's also the last resort of the Big Four leader. At CBS, where fourth-quarter profit was down 54%, Les Moonves has publicly speculated about a similar move "five or 10 years away."


Just fair warning, guys: Cable has problems of its own. It's no more DVR-proof than broadcast. It is also suffering a sort of distribution autoimmune disease, wherein the body attacks itself. The very coax the industry has been stringing for 50 years is now the pipe for broadband, which households increasingly are using to bypass pay cable entirely.

Charter Communications will soon be in bankruptcy after losing more than 75,000 basic-cable customers in the fourth quarter of 2008. Churn, the expensive process of replacing lost subscribers with new ones, is taking its toll. Comcast's sign-ups in the fourth quarter were down by half from 2007. Here's what Glenn Britt, CEO of Time Warner Cable, told analysts in his last earnings conference call: "People are saying, 'All I need is broadband. I don't need video."

Britt was referring to "over-the-top," which, if you don't like the autoimmune analogy, can equally be thought of as being shot with your own gun. The game changer in this respect is Boxee, a software app that aggregates all your videos onto one screen and allows you to feed them into your TV machine. This is what they mean by "convergence."

But Boxee is such a threat to the business model of both cable and broadcast that Hulu -- which distributes NBC, Fox and Viacom programs online for free with minimal advertising -- demanded to be removed from Boxee's offerings.

Because if you can watch TV programs on your actual TV, with very few ads and no subscription fees to a cable middleman, why wouldn't you?

Thus, the mantra: "We have the audience. All we need is a business model." As if adequate revenue were somehow guaranteed by physics or heavenly deity. It isn't. I've pored over Isaac Newton and the Ten Commandments. There is no "Thou shalt monetize."

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