Thursday, May 20, 2010

How local TV could go the way of newspapers

This is the first of two posts adapted from testimony I am scheduled to present at a Media Ownership Workshop being conducted Friday by the Federal Communications Commission at Stanford University.

The tipping point is not yet at hand, but the economics of local broadcasting may begin to unravel as dramatically – and irretrievably – in the next five years as they did for newspapers in the last five years.

The reason in both cases will be the unparalleled consumer choice made possible by a growing mass of (mostly free) content on the Internet. And here is how it could happen:

Once it becomes as easy and satisfying to view a YouTube video on your 50-inch television as it is to watch “Two and a Half Men,” audiences will fragment to the point that local broadcasters will not be able to attract large quantities of viewers for a particular program at a finite point in time.

This will shatter the mass-advertising model that has served local broadcasters so well since the advent of the medium that some stations in the best of times were able to pocket pre-tax profits as high as 50 cents for every dollar of advertising they sold. While profits nowadays are running at a more modest 20% to 30%, they are well ahead of the pre-tax earnings of such corporate behemoths as Wal-Mart and Exxon.

The challenge to the lucrative local broadcasting model will have a direct impact on the quality, such as it is, of local television news – the medium that approximately 70% of the population counts as its primary source for news. This is a matter of great concern, for which no clear solution is evident.

The technology that appears most likely to threaten local TV broadcasters is called IPTV, which stands for Internet Protocol Television. To put it simply, IPTV enables programming to be delivered over a fast Internet connection to a set-top box plugged into a television.

Once 50 to 100 megabits per second of Internet power is barreling into the high-def centerpiece of the family room, consumers equipped with elaborate, iPad-like remote controls will be able to mix and remix anything – news, shopping, entertainment, games, music, messaging and much more – while leaning comfortably back in their easy chairs.

This will be good for consumers, but a challenge for local broadcasters. Here’s why:

The economics of cable TV programming already are geared to serving small but targeted niches. Both cable and broadcast networks will be able to sell ads (and, perhaps program access) on the shows that individuals download at their websites or at such video aggregators as Hulu. As audiences shatter, however, those options won’t be available to local broadcasters, who will be deprived of the vast reach that enabled the high ad rates and enviable profits long associated with their businesses.

To be clear: The threat is not imminent. But it also is not many years away.

Cable companies, telephone companies, satellite services and other broadband providers are beginning to move with increasing speed toward installing the IPTV gear that seamlessly can integrate traditional TV feeds with those streaming over the Internet.

The operators are motivated by the desire to ensure they are the comprehensive – and they hope, sole – communications provider for each home they serve. As such, they aim to provide video, audio, Internet and telephone service to every home with a single fat pipe – and for a single fat monthly bill.

Although barely 8% of U.S. households had access to IPTV in 2009, this disruptive technology is likely to be available to some 20% of the more than 100 million homes subscribing to pay-television services in 2014, according to senior analyst Lee Ratliff of iSuppli, a private market research company.

Twenty percent penetration of a disruptive new technology is a chillingly significant number for those of us who watched the newspaper industry lose almost half of its advertising base since 2005 – a decline that forced publishers in recent years to fire no less than 15,000 journalists and to sharply truncate the space in their papers devoted to news.

A seismic shift in consumer sentiment and advertiser behavior led to the demise in recent years of such iconic newspapers as the Rocky Mountain News and Seattle Post-Intelligencer, not to mention dozens of smaller daily and non-daily publications. Here’s how the once-mighty newspaper industry unraveled:

The year 2003 was the first point at which 20% of the homes of the United States were subscribing to inexpensive and reliable broadband Internet service. As those consumers began exercising their newfound power to control what they read, when they read it and where they read it, newspaper circulation commenced a quickening decline that has continued to this day.

The drop in readership has been profound: While 48% of Americans said they read a daily newspaper when the Net was in its infancy in 1998, the Pew Center for People & the Press reports that only 25% looked at a print paper in 2008. (Some consumers, of course, now use newspaper websites, instead.)

The drop in newspaper revenues was just as dramatic: Although newspaper ad sales remained healthy through 2005, they began a dizzying – and still unabated – decline in 2006, the first year broadband was installed in a third of the nation’s homes. After achieving all-time high sales of $49 billion in 2005, ad revenues for the industry were barely $28 billion in 2009, reflecting a drop of 43%. Despite a seeming uptick in the economy in the first months of this year, newspaper ad sales continued to decline.

To be sure, some of the newspaper malaise can be attributed to the most severe economic downturn since the 1930s. But the business is highly unlikely to revert to its former strength when the economy recovers.

Next: The threat to local TV news

18 Comments:

Blogger Señorita Andalucíana said...

How will this affect broadcasting such as PBS?

9:09 AM  
Blogger Ron Stitt said...

You don't actually need a set-top box to deliver full HD video to the screen...see flingo.tv. Sets are already available that allow you to simply plug your broadband connection directly into the TV. According to the company, these will be quite widespread by the coming holiday shopping season.

12:03 PM  
Blogger albert said...

Ironic you are posting this the same day Google announces GoogleTV. The threat is imminent as every day it gets easier to hook up Internet connected devices to big screens. This is already a much more pleasant viewing experience for many things.

12:19 PM  
Blogger William said...

One variable omitted here is the fact that newspapers were tortoise slow in acknowledging the threat. They saw themselves as invincible and did not look to expand their offerings into the new arena.
Broadcasters have the benefit of this lesson, and have been quick to put their content on every new platform available.
While delivery vehicles may change, content is king.

12:29 PM  
Blogger Snappy Dan said...

What this leaves out is the oportunity that alternative broadband suppliers have to "package" local digital OTA broadcasts with high speed internet. No longer does the telecom/cable duopoly have to rule the roost. Hook a highspeed wireless internet connection and a OTA antenna to a media center computer and suddenly the entertainment options are endless. Record digital OTA and watch it on your schedule, stream IPTV, the choice is yours.

2:22 PM  
Blogger Steely Dan said...

The threat is very much imminent, Alan. Take a look at total news viewing at, say, 11 in, say, The Bay Area for the four local stations that have newscasts then. You'll see a 30 percent decline over the last decade, a decline that has accelerated in recent years. The erosion of traditional broadcast news dates to 1980 when a new model for day-long news was launched by a cable network called CNN. Since then, with the proliferation of 24-hour news, sports, weather, tennis, golf, home and garden, outdoors, and what-have-you channels on cable, the former hegemony of traditional broadcast in he world of news with sound and pictures has dissolved. And cable merely set the stage for the Internet, which allows viewers to watch TV news they way they read a newspaper -- non-linearly. Why watch a pre-edited 30-minute (not to mention 60-minute) newscast when you can watch those video clips you want, when and for as long as you want, on the web?
And, finally, there's the issue of quality in much local broadcast reporting, but we'll save that for another day. . .

6:05 PM  
Blogger edward allen said...

Unfortunately, William, many TV stations are owned by newspapers, and so come under the same management. Furthermore, this recession resulted in newspaper companies decimating local TV coverage by firing long-standing anchors. Where I live, the local newspaper-owned station has replaced the evening news show with infomercials. I agree with Allen that local TV is going to come in the crosshairs of technology as TV and the Internet merge.

6:06 PM  
Blogger travis said...

Is this only a threat to local TV? Once we have access to an Internet's worth of content, how will any of the content networks -- from ABC and CBS to CNN and MSNBC (or Scripps and Discovery, for that matter) maintain their business models? With innovations in production technology that allow producers to create quality content at a fraction of the cost of big budget studios, how long will it be before content producers realize the various upsides of piping their content directly to the consumer?

7:07 PM  
Blogger NewsMcNabb said...

Sorry. I don't agree. What the Internet cannot do as well as local TV is live, breaking news. Yes, when a storm cloud builds, I do go to my computer and check my various weather sites, but they are not as flexible and responsive as local TV news. Further, when a local news story breaks, the Internet is in its infancy. As long as there is a need for live coverage, there will be local TV. True, the audience may not be available day-to-day, but when all hell breaks loose, they turn on the TV.

9:21 PM  
Blogger NewsMcNabb said...

"Comment moderation has been enabled. All comments must be approved by the blog author."--That's crap too. Hmm. Prior censorship? I'm disappointed.

9:23 PM  
Blogger travis said...

@NewsMcNabb: If you haven't heard of them, I would recommend a company called Newtek. They are one of a handful of companies that make remote broadcast systems that can be bought for a couple thousand dollars -- and that's just the HD broadcast quality price point for the early adopter market in 2010. If you don't mind standard definition, you can livestream right now from an iPhone. But even cell phones will have HD cameras by the end of the year.

http://www.newtek.com/

http://techcrunch.com/2009/12/09/iphone-live-streaming-ustream/

http://gizmodo.com/5526303/you-wont-believe-this-video-was-taken-with-a-cellphone

Do we really think a broadcast news station with all of its cumbersome institutional momentum can be more flexible than a networked community of local citizen news gatherers armed with the technology to broadcast live over the internet from their skateboards?

Clearly, the presentation of live events -- like sporting events, etc. -- will always benefit from the kind of production that can only be achieved by a huge operation. But breaking news, and local news in general, is going to go more and more local. And local news producers are going to look less and less like Anderson Cooper wannabes and more and more like the kid next door. As audiences fragment, they will inevitably fragment towards content that is more relevant to them, and in terms of local news, what could be more relevant than information produced by your neighbors? In comparison, in the SF Bay Area, we recently had a week-long local TV news cycle covering a sink hole that swallowed a car. Is that really journalism? Is that what we're worried we will lose with the death of local TV news? For that matter, who's watching local news anyway?

To my mind, the bigger problem with all of this dramatic change is the fact that journalism still does not boast any controllable professional standards and, as a result, lacks a system that offers the general public a metric to determine who is and is not a qualified journalist. That's obviously a problem that we've been talking about for a long time, but the consequences of the glaring lack of its solution are only going to become more and more significant as the innovations unfold.

11:14 PM  
Blogger highvision said...

Travis has some good points, and I'm glad he realizes the difference between wana be blogger journalist versus someone who this is their profession. (though some bloggers were journalists before being fired etc..) It’s interesting to think because being a blogger and taken for a good source of info versus an organization devoted to that effort. People will trust that. Versus a heart surgeon or pilot who has peoples lives in their hands, that people will accept those web bloggers to give them good info that has been thoroughly checked with sources and run by several producers and other individuals with experience at telling stories. I would say most blogger news sites are not setup that way, and maybe only an individual that has a particular interest in one subject. Im a broadcast engineer and am amazed at how much effort these reporters put into their story, and how often I see those reporters discussing and going over scripts with producers on how to explain something to the public. Especially a murder trial that they have been covering for days. Staying at the court house all day, and going though the mundane, setting up pool cameras with other stations etc.. While newspaper reporters can go far more in depth then a 2min piece on that day’s testimonial etc.. Or what politicians are saying or doing at the capital. The problem I see with individuals aggravating their own news to their own interests and taste is that they then start to only have a single view of the world around them. Then you don't have a well informed public. I’ve come from a market that the only local newscast available was finally canceled. Now those viewers only have news from over 200 miles away as being “local”. Their only local sources are small newspapers that sometimes only publish 2-3 times a week, and radio stations that tend to only read press releases faxed to them in a five min. news segment read by a DJ who has no journalism skill. Hardly any real journalism for those people. Small rural communities are the first to be hit, and it’s happening right now as we speak. Eventually it may come down to regional news networks as penny pinchers try and find ways to keep profits up. Maybe at 500 mile radius from a large metropolitan area. I think this is especially true of the wide open west, small spread out populations that’s harder and harder to make a large profit with. Just gobble up small market stations and link them together to make one large netlet and combine all the markets into a single large one. If something does not change, I think this is going to happen. So if you live in podunk western Nebraska, you probably would get your news from Denver. Hardly local for you, but profitable for that entity who owns that market.

1:42 AM  
Blogger William said...

Ultimately good ole economics will have it's say. Individuals and neighbors can certainly broadcast their own local stories now, but with no large platform, who hears it? No viewers = no advertisers, and soon your neighbor stops. Just as consumers are motivated by convenience of 'one stop shopping' (big box vs mom-n-pop), we gravitate towards larger established portals. My neighbor may be the reporter, but he'll be paid by the local broadcast station.
Still, an interesting debate, and only time will tell how it ends up. My only hope is that it's allowed to happen organically.

6:55 AM  
Blogger thecreative said...

I don't understand why local media doesn't adopt the same technologies that are allowing new home grown competitors on their turf.

For example. If newspaper would of seen the potential in the web then they would be dominating online news instead of bloggers. Blogging wouldn't be what it is today if the newspaper's did have any sort of vision.

Radio is in the same position. I don't listen to the radio but I listen to probably a dozen or more podcasts a week on topics I care about. Radio had all the talent and know how to produce great professional podcasts. But because they weren't willing to disturb their ad model people in their homes with a laptop and a mic are killing them. Also because you can tell a advertiser exactly how many people downloaded or listened to your show live. The analytics are there. Radio and TV just guess at their numbers.

Local TV stations have the best talent to do IPTV. But they are too tied to their revenue model and won't let go until it's too late.

What Local TV could do is first pay a real web design and development team to give them a modern standards compliant web site. Most are hideous and cater to selling ads instead of getting their content in front of visitors.

Also why not just hook up to an online streaming service like Ustream and broadcast live over the internet?

My generation and younger will and are consuming media on their iPhones, iPads, and computers. The TV is for movies.

If local broadcasters don't learn from the newspaper's mistakes then people like me will start up our own local IPTV news station and broadcast on our neck of the woods and take all the local advertising money. It's not that hard to find and report on stories anymore with web access. I know for a fact most TV news producers are just sitting in front of a computer using Twitter and YouTube to find content. There is very little of actual journalism that goes on anymore.

When this happens local broadcasters will be boo hooing like the newspapers that life in this new Internet world just isn't fair.

4:13 PM  
Blogger Dr. Charles Forbin said...

The death of "If it bleeds, it leads."

And I am supposed to mourn this, why?

The real casualty of the death of local news is the lack of coverage of local politics. Without that coverage, politicians become corporate whores and elections a formality with uninformed voters. But local TV news has by and large been MIA on local politics for years.

Newspapers were killed off by Craigslist. There was probably little they could have done to avoid their fate. But being more responsive to the needs of their readers, instead of their corporate paymasters, in their editorial line might have helped. A lot of people out there feeling mighty disenfranchised these days.

And that latter is the niche that bloggers leaped to fill on the national scene, and likely will fill on the local scene. In their rush to feed the propaganda line of their corporate paymasters, the media in this country forgot that the most important asset that they have, far more important than their preening journalists, has been their readers' trust.

Want to know what future journalism will look like? Go back and read I.F. Stone.

3:58 AM  
Blogger elvis said...

I'm already doing this with a Mac Mini and 42 1080P HDTV. I watch anything I want mostly free. Just the way i like it. Waiting for the world to catch up I guess.

12:45 PM  
Blogger Fidalginho said...

The real question is,

How can you short Local TV networks?

3:09 PM  
Blogger bernard said...

Let me make some observations.

One of the first users for the internet was those people addicted to news. These people gained access to newspapers all over the world and new information sources. The local newspaper and television news got left behind.

Internet film and TV is already here for the top 20%. I have a computer at home linked into the TV. Almost all of my TV is though the internet now.

9:04 PM  

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