• by Diane Mermigas , January 31, 2008

You know you are in the presence of a media revolution when NBC Universal CEO Jeff Zucker openly declares the prolonged writers' strike "devastating"--forcing the reinvention of his business. At the same time, former AOL COO Bob Pittman promises to turn TV stations' economic challenge into a digital bonanza.

That was the case in separate opening presentations at the National Association of Television Program Executives' annual conclave in Las Vegas this week. Both executives committed to changing the static business of broadcast networks and TV stations, without providing concrete details on how. What Zucker described as "a reengineering of our businesses from top to bottom, both at the network level and at local stations" is long overdue.

The do-or-die time for broadcasters comes a year from now, when the government mandates analog-to-digital conversion. It is the most underestimated, expensive and potentially profound change ever for the medium. Too many broadcast networks and TV station owners have invested in a digital infrastructure without innovating and executing on the interactive content, advertising and commerce it facilitates. As a result, they risk economic disaster.

The strike is an effective catalyst for replacing broadcast networks' passe content production, distribution and advertising and audience measurement models. Just how much meaningful change evolves is critical to the future of broadcasting. It is not as clear, however, how the strike and digital conversion will create an effective and profitable interactive local broadcast TV paradigm.

Pittman is waging his uphill battle by promising to transform smaller local TV stations he owns into digital gold mines by leveraging ties with consumers, advertisers and niche communities. It is the big brass ring that few broadcasters have been able to comprehend, much less attain. That dangerous resistance could be the undoing of many TV stations in February 2009, when their financial prosperity will be inextricably interlinked with digital interactivity. Pittman's view is that the Internet and television are more complementary than competitive. Yet he stopped short of detailing how he will make a static medium into a winning interactive experience.

Such specifics are critical, especially when Pittman insists he can double television stations' "wildly underpriced" $7 CPMS by depending on changing content and marketing catalysts that will transform grassroots TV stations into digital gold mines. While TV stations and the Net continue to siphon ad dollars from local newspapers and bolster their free cash flow, they can establish themselves as "newspapers online" supported by large local audiences out of Google's reach, Pittman said.

Zucker also acknowledged the importance of making local TV affiliates more than peddlers of network programming and advertising. "We have to be prepared for 2009 ... there are so many other local competitors," he said, without detailing how.

Like a master entertainment mogul, Zucker wowed the NATPE faithful by conceding that the writers' strike has been like a forest fire devastating television's crumbling business models--leaving the promise of renewal. He pointed to NBCU's meaningful first efforts: 360 advertising, eliminating costly upfront presentations. It is discontinuing the wasteful pilot series process. Waste, meaning that only eight of some 80 series pilots produced last season were green-lighted by NBC--and none succeeded.

In fairness, all broadcast networks must resort to such change because they simply cannot script, produce, deliver and market new series fast enough post-strike to facilitate a traditional upfront presentation or a fall prime-time season schedule for advertisers.

Still, the broadcast networks' idea of embracing new business alternatives, such as online video, is too often tantamount to reshuffling their old decks. So far, they're primarily moving their television programs to the Internet, complete with commercials.

For instance, Hulu.com seeks to stream mostly NBC and Fox branded content to better track, control and monetize it. As we have seen with AOL and even iTunes, walled gardens do not work. The Hulu.com effort, billed as the largest cross-platform advertising machine, is devoted to the notion that the NBC and Fox television brands wield the same cache and leverage online as they do on television. Many increasingly argue they do not.

With individual niche content becoming more powerful than many standard traditional media brands, it is imperative that NBCU and its network rivals be more specific about future digital studios, capitalizing on enterprising grassroots content, and creating a profitable interactive ad-supported content ecosystem.

The strategic and logistical intricacies of transforming analog dollars to digital dollars can be overwhelming if it doesn't become real. Perhaps the most influential catalyst is the math. "Last year, the five broadcast networks spent more than $500 million on developing new series scripts and pilots," Zucker said. None were success stories.

A 10% rate of return on such formidable investments will not cut it (if it ever did) in a digital media universe that consumes content like an insatiable beast. At least $3,000 to $5,000 per online video short is a smarter risk investment, although IT IS AN economic thesis --not a new model for creativity and commerce. It's a start, but it's not good enough.