• by Diane Mermigas , December 21, 2007

It has taken a paralyzing writers' strike to force program production and advertising sales changes the television networks should have made years ago. Once content and ads are tied to specific needs rather than a force-fed upfront and prime-time season cycles, the business will become more fiscally fit and competitive for its digital future.

While they have openly acknowledged the economic shortcomings of their inefficient practices, there has been no impetus to change until now. Faced with giving advertisers cash refunds for ratings and programs that never materialized, and with no new series for their ad-supported Web sites, the TV networks are likely to greet 2008 with a more conciliatory approach to hammering out solutions. The strike is more costly than they are willing to concede.

The argument by the broadcast networks that the strike will render surprising near-term profitability as reduced programming costs materialize faster than anticipated revenues declines is a bit of smoke and mirrors. The near-term financial advantage of cheaper repeat programming and low-cost reality shows, the absence of deficit-financed production, reduced development losses and the termination of bad deals could yield "large windfall benefits," Bernstein analysts say. But it would be fleeting.

The disastrous downside could be an inability to recapture viewers who exited for alternative media, as well as the permanent loss of important ancillary revenues from DVD and international program sales, domestic syndication, streaming video and downloads. Bernstein notes that even without a strike, fourth-quarter broadcast network ratings are shockingly weak, with live-to-live viewing down an average 12% and late-night talk shows down 20%--which already has cost the Big 4 networks about $13 million in earnings from an estimated $300 million in annual earnings generated by their late-night programs.

The argument the parent companies make about shifting potential financial losses from their broadcast networks to their cable networks, while initially correct, is a long-term loser. Bernstein estimates that Viacom stands to gain an incremental $312 million in operating profit from a 10% incremental shift in ad revenues to its cable networks. But that short-term gain eventually would even out as advertisers continue to redistribute their dollars, and cable content would have to continue to stand up to competition.

In fact, broadcast television could become a questionable value proposition and creative wasteland. Consumers and advertisers could find what they need elsewhere.

The bottom line: there is no sure way to fully gauge the extent of the damage the strike has caused with regard to television's base audience, advertising and economics. The salient question is: How much of a change do the Big Four want to bring about on digital's uncertain high seas?

The radical change that must eventually come to the television business will benefit all. The $9 billion committed by advertisers in the annual prime-time upfront could be redistributed throughout the year to support more thoughtfully crafted series that work, rather than a majority of hastily produced ones that fail. TV's prize mass market could coexist with more valuable target marketing on the tube, Web and mobile device. The game of chicken played with TV ad inventory would be replaced with a quantifiable and effective value proposition. On the content side, money and time would be more deliberately invested in programs fashioned for specific consumers, advertisers and platforms. Innovation and experimentation could be mandated.

Television could become a creative and informed springboard for supplying content to streamed, downloaded and real-time interactive media. Television could initiate its own renaissance by becoming a strategic digital leader--rather than a pokey follower. There likely will be more multimedia revenues and profits, and happier constituents, once new business models, methodology and sensibilities are comfortably ensconced.

Television is not the only place in Medialand where crisis will be the principal catalyst for altering the status quo. Few traditional media players are going willingly into the digital revolution that plays by a new set of rules and expectations. Transforming a business can be intimidating--until it's clear that change is not an option. In the case of the writers' strike, once the creative scribes take their craft to independent places in television, films and the Net, and digital rivals Big Media economically, it's game over.

TV networks, studios and their corporate parents know that day is coming. They see the new business fundamentals developed by a powerful force such as Google, where bid pricing and target placement of advertising and the transactional brass ring are transforming all marketing and e-commerce. The underlying power of search, social networking and other relevant mechanisms will be put to good use once traditional media become digital interactive at its core--not just around the edges.

Misery will have plenty of company in 2008. Newspapers generating revenue growth on the Web to offset their spiraling declines in print will find themselves at a pivotal juncture. Embracing the digital options for content, distribution and advertising will have an enormous economic impact and assure the industry's survival. Radio's brush with its future in the form of satellite technology, while turbulent, will render financial promise.

There are so many amazing trends and developments occurring in so many places in media, it is impossible to do them all justice in a year-end review or year-ahead forecast. It has become far more instructive to examine the catalysts for change in what could be media's breakaway year.