• by Diane Mermigas , December 12, 2007

The unprecedented woes plaguing the media and entertainment industries come down to just one thing: The stats used to monetize and value content and advertising are outdated. While it is too early in media's digital transformation to have a full slate of reliable new metrics, alternative business models are gradually being formulated. Implementation, however--as evidenced by the writers' strike and the related advertising predicament--is another matter.

The growing disparity between traditional media measurements and new media expectations may become downright lethal. Both situations are rooted in the assumption that television remains the mass market gatekeeper for entertainment, news, information and marketing. The fragmentation of the digital interactive marketplace is realigning consumer and ad values to reflect television less as a stand-alone medium and more as a conduit for ancillary content and activities. Familiar examples of this include DVDs, video game consoles, TiVo, and other time-shifting devices.

Television programming and advertising will continue to be less dominant in a digital world. Still, broadcast and cable networks are peddling and pricing their content and ad time as if it was 1980. They consider the repurposing of their content and advertising online as ancillary; siphoning what revenues they can from new platforms until they discover what they are worth.

That "stuck in gear" thinking is why writers, producers and networks can't come to terms on the value of digital content and advertising. Too often, ideas on both sides are based on traditional media reach and value. The same dilemma is surfacing in the strike-related tug-of-war between TV networks and advertisers over ad time pricing, placement and makegoods. Many players are relying on conventional measurement and formulas, even as TV advertising and viewership shift.

Truth be told, much of this conflict cannot be avoided. The struggle to reconcile old and new formulas and values will continue until the yawning gap between them is narrowed. That makes contracting for one or more years of content residuals and ad sales all the more difficult, if not impossible.

The best approach is to recognize the situation--commercial purgatory--and be flexible and willing to experiment in smaller increments of time and space that allow for gradual refinement. In short, TV compromises now or gets mowed down like an asphalt drum later.

Consider NBC's current advertising quandary. Having sustained the biggest season-to-date losses, NBC is taking the uncommon step of compensating some of its prime-time advertisers an estimated $500,000 cash for ratings shortfalls, given the absence of original programming and the scarcity of commercial inventory.

This situation is complicated by the industry-wide dilemma of not knowing what future value to assign TV content and advertising, relative to a slew of popular alternative media options: from streaming video online and video games to satellite radio, digital mobile phones and surfing the Web. The networks still are measuring their effectiveness and value according to a universe defined only by TV households. (Nielsen Media's lists of top 10 U.S. consumer selections in more than 24 media categories in 2007 released Tuesday offer a good starting point for appreciating the broad expansion of options across all demographics.)

All alternative media forms are vying for the same consumer and advertising time and dollars. Collectively, they already are game-changers, forcing the revaluation of all conventional media despite Big Media's unwillingness to work through its new reality. Not surprisingly, negotiations have broken off between the Writers Guild of America and the Alliance of Motion Picture and Television Producers over the inability to agree on how to determine and share the value of content created for TV or other new media. The television networks and film studios want to avoid setting a costly precedent with other Hollywood guilds (directors and actors), who will negotiate new pacts within the next year.

While lots of numbers are being tossed around without the hardcore economic analysis, a few stats stand out: Producers are offering writers $250 fixed residuals for unlimited one-year streaming of an hour-long program after a six-week window of free use--compared to the roughly $20,000 that writers are paid when their programs are recycled on network TV. Producers are seeking the DVD rate for Internet downloads and are refusing to compensate for original content made for new media, according to the WGA.

Writers also are being asked to forfeit rights to reality, animation and any proposal using distributor's gross as the basis for residuals paid, as well as seeking the use of fair market value to counter what the WGA calls "vertical integration and self-dealing." Media conglomerates claim their proposed adjustments would amount to $130 million more in annual payments to working writers, even though each major corporation is expected to reap $1 billion in annual revenues from digital media even at this nascent stage.

The ultimate irony is that behind the scenes, both writers and producers are said to be hammering out initiatives with non-guild artists and alternative new platforms, which could serve as a starting point. This is happening because they recognize that consumers and advertisers are shifting into new media modes, whether or not they can assign specific values to them.

Clearly, the opportunity exists amid the chaos for media players to rethink their digital Rubik's cube. They stand to lose more if they don't. The networks collectively could lose more than the $600 million if the writer's strike stretches into mid-2008 because major disruption in their $9 billion advertising upfront and prime-time program development process would be compounded by a worsening economic downturn and the continuing shifts in media models.

The media and entertainment powers are like the Federal Reserve, whose tepid approach to the credit crunch and souring economy is only making matters worse. While there are no single silver bullets, it is time to be bold and creative in crafting new solutions in the digital frontier. All concerned should adopt a more open, enterprising mindset and a new resolve to manage--rather than try to minimize--the change.