Second of two parts. The first part is here.
In pivoting aggressively from print to local TV, Gannett Inc. and Tribune Co. are embracing a legacy media model that could be headed for the same audience fragmentation and economic dislocation as the newspaper businesses they are trying to escape.
As detailed here yesterday, the two iconic publishing brands have announced parallel, billion-plus acquisitions that will boost their local broadcast holdings at the same time they reduce their exposure to the fraying newspaper empires on which both companies were built. Going further, Tribune is seeking buyers for some or all of a publishing portfolio that includes such prominent brands as the Chicago Tribune and the Los Angeles Times.
The long-time newspaper publishers can’t be blamed for being attracted to broadcasting. Television generated a record $49.7 billion in local and national advertising sales in 2012, while newspaper advertising revenues – which have been sliding relentlessly for seven years – ended 2012 at less than half the all-time high of $49.4 billion hit in 2005.
Though the transactions planned by Gannett and Tribune clearly reflect their confidence in the continued health of broadcasting, a look at the collapse of the once-indomitable newspaper business suggests that TV, in due course, could suffer a similar fate. We’ll review the accumulating evidence in a moment. First, here is a quick review of what happened to newspapers:
When the Internet emerged in the mid-1990s, it posed an enormous threat to the lucrative mass-media business model enjoyed by newspapers (and broadcasters) by providing individuals with not only a broader array of content than ever before but also the power to pick and choose the time and place they consumed it. Then, as now, interactive technology even made it possible for people to publish and promote the words, pictures and videos that they created on their own.
Starting as a trickle that later turned into a wave, consumer choice began to erode the massive, one-of-a-kind audiences that gave publishers in most markets the power to charge the premium advertising rates that for many years produced exceptional profitability for the industry. Notwithstanding the arrival of the Internet, newspaper ad sales continued to climb for more than decade, actually hitting a record in 2005. It wasn’t until 2006 – well before the Great Recession materialized – that newspaper sales began the precipitous – and, so far, unarrested – decline that has vaporized more than half of the industry’s primary revenue stream.
While there is a danger in oversimplifying the reason for the decade-long delay between the arrival of the Internet and the collapse of the newspaper business, the key factor appears to be that it took roughly 10 years before half of U.S. households obtained cheap and reliable broadband Internet service.
Once Americans (especially the younger ones) had a convenient way to get and give content on their own, they seized it with enthusiasm. Along with advertising sales, the industry’s average weekday circulation since 2005 has plunged 42% to the point that barely one in three households still takes a newspaper.
Now, let’s get back to TV, where forces similar to those that unhinged the newspaper business are about to converge on local broadcasting.
Although there is nothing more convenient than leaning back on the sofa for an evening of channel-surfing, a broad array of research shows that a growing number of consumers are turning their video-watching time into a lean-forward experience where they exercise the power of personal choice. Here are the key trends:
∷ Soaring content options. Thanks to the rise of digitally delivered multichannel services, the number of broadcast and cable TV channels has more than doubled to 1,781 since 1970, according to the U.S. Census Bureau. But the choices available from the traditional sources pale in comparison to the billions and billions of videos available on the Internet, where YouTube alone says users upload more than 100 hours of video every minute of the day.
∷ Diversified platforms. Consumers can acquire programming on more devices than ever, including disc players, recording devices, gaming boxes, streaming services, cable pay-per-view, smartphones, tablets, computers and more. Reflecting these choices, the number of American households subscribing to cable TV dropped to 49% in 2012 from 63% in 2000, according to the National Cable Television Association, a trade group. Meanwhile, Ericsson, the telecommunications technology company, predicts that video consumption on smartphones will increase by more than sixfold within five years to represent fully half of all of the world’s mobile data traffic.
∷ Disaggregated audiences. In a 2012 study, Google reported that 77% of viewers use multiple computer, tablet and smartphone screens when they watch TV. Distracted audiences may be the least of the broadcast industry’s problems. According to a survey last year by Deloitte LLP, no fewer than 80% of viewers skip commercials when watching recorded programs.
∷ Decaying demographics. As dramatically illustrated in the chart below, young people are far less inclined to watch video than their elders, a generational divide strikingly similar to the one challenging newspapers. While individuals in the 65-plus age group watch an average of more than 56 hours of television in a week, those in the 18-24 cohort consume a comparatively modest 37 hours of video per week, according to the Nielsen rating agency. Significantly, the big drop in video consumption across the age groups (as indicated by the blue bar), is in off-air viewing.
The power of consumers to choose their own programming, select viewing venues, shift viewing times and zap advertising plays utter havoc with every facet of the traditional broadcast model, which relies on charging advertisers hefty fees for access to large audiences that can be reliably assembled at a predictable time and place.
The only reason the TV business remains healthy today is inertia. Because the medium to date has been well understood and reasonably well proven, it favored by many marketers and advertising agencies as a way to communicate with vast numbers of what, they hope, are prospective customers.
As the forces described above inexorably shrink the tune-in audience, advertisers looking for cheaper, better, and surer, ways to connect with customers will shift their purchases to digital platforms delivering precision-targeted messages to select individuals at exactly the time and place they are most likely to respond to them.
At the same time advertisers get better at tuning in to the needs and desires of consumers, consumers are going to get better at tuning in to the video content they really want. The definitive shift in broadcast TV consumption will occur when it becomes as easy to control the big screen in the den as it is to customize your smartphone. We are not there yet.
But here’s why the day is coming: While nearly every household in the United States has at least one TV, only 22.5% of homes in 2012 were equipped with so-called smart TVs connected to a broadband Internet service capable of smoothly streaming user-selected programming, according to the eMarketer research service. If the experience of the newspaper business is any guide, the broadcast audience – and, therefore the medium’s appeal to advertisers – could begin to decay as smart TV penetration nears 50% of homes.
Because it remains a chore today to find alternative video programming even with a smart TV, consumers have yet to exercise the full power of video choice available to them. But any number of companies is working on solving this problem.
Shortly before he died, Apple founder Steve Jobs told his biographer that he had “cracked the code” for an improved home video experience that puts the viewer in control of the torrent of video options. Once Apple, or someone else, makes it as easy to find and acquire programming for a flatscreen as it is to manage your iPhone, then consumers will forsake traditional off-air viewing for all but such exceptional events as, say, the Super Bowl or the inauguration of the first woman president.
Just as advertisers followed consumers away from newspapers, they will follow TV viewers to wherever they go next. If and when that happens, the party will be over for broadcasters.