• by Diane Mermigas , October 16, 2008

There are seven categorical reasons why the broadcast television networks, and eventually their cable counterparts, will not survive with traditional business models. Formidable trends that are vexing industry executives and nipping at their revenues and earnings could collectively have an explosive impact in 2009.

The changes afoot are more obvious than the economic outcome of content and advertising rapidly shifting from print, television and other static media to online and digital interactive platforms. New value ultimately lies in a continuous connection between consumers and producers of goods and services, between niche social communities and the providers of information, data and communications.

Unlocking that value requires the creation and skillful execution of new business models and structures that could eventually be more lucrative for all concerned. The process begins with the owners of CBS, Fox, NBC and ABC identifying and acknowledging these irreversible change agents:

*The collapse and retrenchment of major advertising categories, such as automotives and financial services. It will take at least 18 months for these categories to rebound with revamped players whose marketing strategies will be radically changed. A second tier of ad categories led by retailers and real estate will be hamstrung for the next year, while frozen consumer and advertising spending eventually thaws. Rapid-fire forecast adjustments, which are expected to further decline, now call for worse-case flat online advertising growth and negative broadcast TV ad declines spanning to -10%. The broadcast networks' diminishing returns are starkly evident in CBS' improved prime-time ratings--but deteriorating financial fundamentals--with an anticipated 30% decline in fourth-quarter operating profits.

*The rapid adoption of the Internet's video bypass means that consumers and advertisers are finding new ways to access television, film and user-generated content on various connected mobile screens. Empowered consumers are likely to hang on to their interactive lifelines, even in the worst of economic times, but will demand convenience and cost-effectiveness. And they will ask: Why pay for cable when you can cherry-pick the full spectrum of content for the cost of a WiFi connection?

*Connected consumers now have mainstream options to get what they want when they want. TiVo and DVRs opened the floodgates; online content aggregators like Hulu.com have inspired a new generation of platforms with and without ads--from YouTube and MySpace to a revamped Joost and countless video blogs. With so much mainstream distribution and manipulation already possible, virtual video will leapfrog digital music and video games to become broadband's prime currency. The home television altar--where broadcast networks worship--will survive if it becomes an interactive hub.

*Standard metrics and accountable measurement are the gateway to justifiable pricing and proven value. The advent of online click accountability has revealed billions of annual advertising dollars lost to traditional media. Web advertising has its own emerging problems, especially "banner blindness." Even the most targeted consumers gloss over and dismiss marketing other than paid search ads, according to the Nielsen/Norman Group.

*Interactivity unleashed and untapped. Tech-empowered consumers appear to be more interested in the end result than in which screen it comes on. They prefer interactivity rather than passivity. As broadband platforms and devices go mainstream, there can be no value proposition until marketers, content producers and providers of goods and services learn to use the interactive tools to the advantage of all parties. The most critical transformation will be developing advertising from a pitch to a transaction model that facilitates e-commerce and a fluid rapport with individual consumers. eBay said Wednesday that it is bracing for worse-than-expected fourth-quarter revenues and earnings in a brick-and-mortar world ravaged by recession.

*The stubborn persistence of legacy operations, structure and mindset is slowly bankrupting the industry. The conglomerate owners of the broadcast networks will cut headcount, but must also eliminate or radically overhaul their gut legacies. That includes the exorbitant cost of producing many programs against minimum returns from a broad range of traditional and digital media outlets--from TV syndication to home video sales to streaming video online. Smaller broadcast affiliates burdened by debt and declining revenues could tank. For many, the new digital business models will come too late.

*The mandated digital conversion in February 2009 could be a lost opportunity. Local TV broadcasters (with the most to gain or lose) are unprepared to use their new spectrum of channels to generate real additional revenues. Even enterprising newspaper and TV station owners are encountering snags. Nielsen Media said Wednesday that more than 9 million U.S. households are not properly equipped to receive digital television signals. Another 12.6 million homes have at least one TV set lacking digital reception, leaving one in every five homes partially or completely unprepared for the Feb. 17 switch. The Federal Communications Commission now concedes that the transition will be "messy" and filled with glitches. Just another crack in the broadcast networks' crumbling foundation.