• by Diane Mermigas , September 20, 2007

In an era of new media economics that's slowly turning the broadcast TV networks inside out, news anchor Dan Rather and his longtime employer CBS deserve each other. Both are in a time warp.

At face value, Rather's recent lawsuit against CBS seems frivolous: He is seeking $70 million in damages for being whisked out of his evening news anchor chair and shorted airtime as a "60 Minutes" contributor. Rather contends he also is due $24 million from CBS under an extended contract.

Dig deeper. It's sadly evident the lawsuit is a byproduct of both Rather and CBS clinging to old-line value systems and economics that are being dismantled by new always-on, interactive media.

The marquee news anchor, like the network's self-absorbed half-hour nightly network newscast, is an anachronism in an era when the connected consumer wants the news on-demand and, increasingly, online. If they are attracted to anything, it is branded news-gathering organizations--not particular news readers. Consumers want the news headlines on their cell phones and filtered through MySpace or Yahoo News. They prefer to get details on their favorite news-related Web sites or in a Google search.

Not surprisingly, early evening network newscasts continued to decline the first half of 2007 by 4% in overall ratings--CBS is third with an 8% decline in ratings--and by 10% in adult viewers ages 25-54. (CBS is ranked second, and is down 10%.) There was a notable 5% decline in 50-plus age viewers. The networks' evening newscasts are their oldest-skewing programs, with the median age of viewers 60-plus, according to Magna Global.

It has been well-documented that the rising tide of media consumers get their news when and where they want it: from 24-hour TV news sources like CNN to mock news sources like "The Daily Show." And they turn increasingly to the Internet, where news competes for attention with all other cyber content. According to the Pew Research Center, in these times of fragmented media, "only a slim majority (of consumers) can name the journalist they admire most..."

In the narcissistic Internet world--where the "me" is first in media--consumers are more fixed on their Facebook friends, special-interest Web sites and email banter than in the matters of state or the world. So it's little wonder that an annual $15 million gig with Katie Couric, who succeeded Rather as CBS evening news anchor last year, hasn't panned out. It's clearly the wrong approach to news, showing a stunning lack of understanding of changing consumer habits and a miscalculation of the importance of TV news-reading journalists.

This is not the 1960s and 1970s, when legendary news anchor Walter Cronkite personified our national conscience when it came to important global and national events that shaped our lives. In the digital interactive world of 24/7 news bits and pieces, Anderson Cooper comes the closest to that faded tradition.

CBS failed on three fronts when it replaced Rather with Couric as a panacea for its news woes. It failed to acknowledge the major shifts in what constitutes news; how consumers prefer to get news; and the new economics of the news business.

You can hardly blame Rather for pursuing the same line of passé thinking in his lawsuit, as if the old broadcast TV network value system that gave him star power was still in place. But both Rather and CBS will lose by stubbornly embracing dysfunctional expectations and economics.

Declining ratings can only lead to declining revenues in broadcast network TV. For instance, Bernstein Research estimated that a nearly 18% drop in CBS Network TV second-quarter ratings was accompanied by a 5% decline in network ad revenues--which was more than a 13% decline from the second quarter of 2006. The correlations are unavoidable.

Like its broadcast TV network brethren, CBS tries to make up the difference by collecting on ad sales in news programming on the Internet and other media platforms. But at some point, the cost of producing a half-hour of nightly newscast led by a high-priced anchor makes less economic sense, even with news-gathering components recycled elsewhere. Profits become more elusive, even when you hold costs flat in this new media environment as absolute dollars--estimates range from 5% to 10%--permanently shift from old to new media platforms.

That makes network news no different than entertainment programming. Broadcast TV networks cannot afford to pay exorbitant talent prices while they try to determine how much and how fast they can generate supplemental revenues on the Internet and other new media platforms to offset a virtual stagnant traditional ad base.

Bernstein analyst Michael Nathanson said in a report Thursday that broadcast networks' ratings are down 16% to 20% in the third quarter, marking a sequential acceleration in the decline seen in previous quarters. Advertiser make-goods on those ratings shortfalls is resulting in tighter scatter market inventories and unit prices, creating a "red herring" for what some insist is a strong uptick for the broadcast networks.

More specifically, CBS, which is talking up double-digit scatter sales, is continuing to experience low-to-mid single-digit declines in prime-time ad revenues (sans sports) this year. Plus, it has more exposure to risky ad sectors and vulnerable media platforms, like broadcast network TV, in this economic downturn than other of its network peers, Nathanson points out.

The correlation between downward ratings and ad revenues in a fragmented and competitive media market is the economic reality that should be governing broadcast network decision-making on all fronts, including news.

When you have been reduced to just another player in the supply chain--as both CBS and Rather have--you adjust and thrive or you resist and wither.