• by Diane Mermigas , June 2, 2008

If the consumer is digital media's new platform, then local is one powerful killer app.

For all the evolving interactive local TV and newspaper extensions, there are many more peers mired in their crumbling old business models. Some traditional players might pack it up rather than roll the digital dice. Before many TV stations and newspapers learn to interactively leverage their valuable consumers, advertisers and community connections, local is being redefined.

The new local is topical blogs, social networks and other online communities that reach engaged consumers.

The intension economy (driven by ready-to-buy consumers) will grow around what we actually want. "Demand will drive supply," contends Harvard Law blogger Doc Searls. "We are no longer seats, eyeballs, users and consumers." He is testing open, free markets controlled by customers and vendors in a model called Vendor Relationship Management. They are creeping onto iPhones and other mobile Internet devices.

It is one of many ways that primary online constituents are realigning to create and monetize value. For instance, TV stations can reach out to local consumers with an online relationship model to manage their connections and integrate local resources. By some metrics, local TV stations are unlocking the key to generating online revenues--even in a weak economy.

Borrell Associates forecasts that all local online advertising is growing at 50%, despite economic weakness, to reach $13.1 billion in 2008. The research firm forecasts continuing strong double digits over the next 18 months, and average compound annual growth of 15% through 2012. Factor in the inevitable slowdown, and online remains the fastest-growing sector for local TV stations (expected to generate $1.2 billion in revenues this year) and for local newspapers (expected to generate $3.7 billion in local online revenues in 2008).

Just as important, the most financially successful local Web operations are venturing into page designs and product lines that have little to do with their local broadcast TV or newspaper roots, Borrell noted in a new report.

Belo, Hearst-Argyle, Gannett and LIN TV realized a 35% to 60% online increase in recent years. Newcomer Nexstar experienced more than 600% growth in online ad revenues from less than half a million in the first half of 2007 to more than $4 million the second half of last year, Borrell said.

The multi-platform future that many TV stations are pursuing will literally keep some TV stations in business in the next several years, offsetting declining or flat traditional advertising income. In a special presentation to the Television Bureau of Advertising last year, independent consultant and former industry analyst Tom Wolzien estimated that local TV broadcasters face a challenge of making up some $16 billion in potentially lost revenues. That growing gap between primary channel and total revenues goals comprised the Internet and interactive businesses. By 2015, at least 15% of local TV broadcasters' overall revenues must be generated by non-core TV sources, including the Internet and digital interactive services. With TV broadcasters playing their hands differently across various platforms and devices, it will be the survival of the fittest, experts say.

TVB executives say much will depend on how aggressively and creatively local TV broadcasters handle the sale of their multi-platform ad inventory. Perhaps a bigger threat is local broadcasters' ability to compete in the hyper-local sphere of highly relevant community, education and social news, events and issues. So much of that has swiftly moved to the Web, where it is controlled directly by consumers.

Although the Web's long tail of fragmented special interests can be difficult to monetize, a fledgling broadcaster such as Nexstar drills down into hyper-local content, but collectively has a large enough geographic footprint to monetize. Local broadcast groups must scale such efforts to be economically viable.

Next February, the mandated digital conversion will dump raw spectrum in the laps of broadcasters. Some are already using it to generate new revenues by privately leasing for data casting, 24/7 weather and local sports, fragmented multilingual ethnic programming, subscription move services, digital radio and new mobile and HD applications.

For now, a Morgan Stanley survey of local advertisers indicates an accelerating secular shift away from traditional media (particularly print) to online "driven by superior target ability and return on investment." With local budget declines possibly reaching a trough and remaining flat over the next six months, Morgan Stanley lowered its overall U.S. advertising to 2.3% growth in 2008 and only 1.8% in 2009. Against that weak backdrop, local TV stations are forecast to realize 4% growth in ad revenues this year, and a loss of negative 6% local ad revenues in 2009. The good news is that advertisers suggest that 20% to 25% of their budgets will shift to online over the next two years.

However, the mere shift of ad dollars from traditional to Internet platforms is not, in itself, enough to assure financial success. If broadcasters and newspapers fail to recognize how consumers and advertisers (vendors) actually relate to each other and use data and content online, they will miss the opportunity to recast their economic models for a future not in their control.