• by Diane Mermigas , July 2, 2009

Even television has a long tail, and broadcasters had better embrace it

Television is the last thing broadcasters should have on their minds. They have one last chance to play their strong suite -- their local connections -- in a digital marketplace exploding far beyond the small screen before losing consumers and advertisers to a spectrum of unlikely competitors from Google and Craigslist to Zillow and Twitter. There is a new generation of hyperlocal Web sites to contend with that TV stations could not have fathomed a few years ago: from the review site Yelp, to neighborhood site Outside.In to the house-to-house focus of EveryBlock.

Digital connectivity has turned the world of local news and communications on its head. It could eventually crush dozens, if not hundreds, of the nation's TV stations. At the same time, there is growing evidence that local broadcasters gone digital can defend their turf while generating sorely needed new revenue streams. A recent study by Borrell Associates identified more than one dozen legacy broadcast companies generating between $10 million to $311 million in annual revenues from the sale of local online advertising. The average 9% rate of pure play broadcaster online growth can be doubled by tapping Google or Yahoo advertising services. The urgency for broadcasters to go digital can't be overstated. Of the 15 major media companies Borrell analyzed, the $1.03 billion they collectively generated from online advertising in 2008 failed to offset the nearly $2 billion they lost from legacy media advertising last year. At best, only about one-third of TV broadcasters will create and grow thriving, entrepreneurial digital businesses, many experts say.

Chairman, president and CEO Perry Sook began four years ago weaning Nexstar Broadcasting stations from dependence on conventional TV advertising revenues by making them hyperlocal must-haves on online platforms and mobile devices.

Today, nearly 40% of Nexstar's 2009 operating profit comes from e-media and new sources other than selling :30-second advertising on its television stations. Nexstar's aggressive approach has grown its annual e-media revenues from $100,000 in 2006, to $5.1 million in 2007, to $10.2 million in 2008 and an anticipated $15 million to $18 million in 2009 - despite the recession.

Being all things local has translated into dozens of full-blown digital community portals for places like Lubbock, Tx and Erie, Penn. It requires a long tail, niche approach to everything from politics, sports and education to culture, special interests, weather and news. Nexstar's 30 community Web portals makes money the hard way selling $200-a-month pre-rolls and $50 a month banner ads, PayPal integrations and e-commerce transactions, local directories and localized travel through its own Swift Trip from which stations receive transaction fees. The collective 20 million page view and 8 million video pre-rolls each month will help nonconventional revenue sources comprise half of the company's overall earnings by 2011.

"I am not so sure I know what the future delivery mechanisms will be and I'm not so sure that I care. I am more concerned about preserving and growing all of our distribution revenue streams, not only the traditional TV channel. It is the local community that's important," Sook says.

The shrinking number of local television stations that survive will do so as digital arbiters of community content and relevant consumer connections for mobile, PC and other screens. "Local TV is becoming the 5-foot man in an increasingly fragmented environment," Sook says. But less than 10% of us television stations are being used as a catalyst for enterprising and potentially lucrative digital strategies.

"We're positioned to see a Renaissance of sorts. We can 'out-local' every other kind of media player anywhere on the digital spectrum, if we play our cards right," says Sook, whose Nexstar also manages digital TV properties for groups such as Sinclair Broadcasting and Four Points Media Group.

Even as traditional broadcasting (perhaps best referred to as digicasting in light of the recent digital transition) is vexed by auto-industry style legacy challenges, too few stations are experimenting with new business uses of their newly acquired digital spectrum. NBC has gone so far as to develop a chip that transforms cell phones into video receivers and direct consumer access to popular series like The Office without having to pay Apple's iTunes and other gatekeepers.

NBC is fortifying its owned station Web sites with location-based Outside.in and its Radar application for iPhones that zeroes in on places and people on nearly 700 neighborhood blocks. The successful model for local TV news is "aggregate, curate and network," contends Outside.In CEO Mark Josphenson.

Similar branded hyperlocal partnerships are springing up everywhere between local broadcasters and the likes of Topix, Zillow, Google's Latitude, AOL's recently acquired Patch Media and loads of original blogs and Web sites. Although the recession has slowed the annual double-digit growth of local Internet advertising to 8% and of mobile entertainment to 7%, they still outpace the highly negative returns of most other media categories.

Local TV and radio stations grabbed an estimated $805 million in online dollars, or 7.3% of $11 billion total local online advertising in 2008, according to BIA Advisory Service's Kelsey Group.Television took the lion's share, or $463 million. Local broadcast online ad revenues could approach $2 billion by 2013.

Even for gainful digital players such as LIN Television, Gray Television and Hearst, liquidity and loan covenant squeezes, declining TV ad revenues and stocks trading below $1 a share can complicate things. For most broadcasters, the challenge of reinvention is as complicated and as simple as leveraging the power of their local connections - sometimes in an equity partnership with other media players.

"Local television stations are in the midst of figuring out how to change their model," observes Randy Falco, who spent most of his career in broadcast TV as CO-COO of NBCUniversal before a brief stint as CEO of AOL. "They cannot weather this like past recessions. There are too many other permanent changes taking place, like the collapse of the auto industry which represents nearly half their revenue base," Falco said.

Broadcasters' long-term viability depends on the simple notion of "not confusing what we do with how we do it," Sook said. "The mistake most make is trying to transfer what they do on television to the Web - a very unbroadcasting-like medium. Simply put: We provide a service to ring the cash register for local advertisers, and broadcast television is one of the ways we do it."

Some of the more progressive business plans Nexstar is exploring is seamlessly transmitting television content directly to wireless mobile chip-enabled PDAs and phones by working with satellite provider EchoStar. "I don't think you can underestimate the powerful reach of a local station in an increasingly fragmented marketplace," Sook said.

The old-line broadcast mentality - just like online page views and unique viewers -are very limited sales opportunities compared with owning a piece of every ad-supported digital community and every on-line transaction you facilitate. The trick is knowing how.

To that end, WorldNow is assisting hundreds of client stations to find their digital way with real-time web learning forums and customization. CEO Gary Gannaway's formula for online video success is simple: Content + tools + services = attention, participation, interaction, and revenue.

Local television must produce unique online content that that will attract and hold an audience. News video has higher engagement levels than online entertainment with audiences of all ages. "Once video search is perfected, local TV will really be able to unlock the value of its content and really drive revenue growth," says Gannaway, formerly a program syndicator.

WorldNow's end-to-end video publishing platform provides a mechanism for broadcasters to aggressively distribute local content to all interactive, multimedia devices.

Recession-weary consumers may be paying more attention than ever to their local TV newscasts, according to a survey by Frank Magid Assocs. That is making it relatively easy for many TV station Web sites to double or triple revenues from $500,000 to $2 million - or a collective $1.1 billion benchmark in 2008 that could nearly double by 2011, according to Borrell. The broadcasters who "get it" and are utilizing the Internet to develop news brands and a new customer base are realizing online revenue gains between 40% and 200%, says CEO Gordon Borrell.

Audience Research & Development's Terry Heaton and Steve Safran advise local TV news to "embrace the disruption" by leveraging their local brand in mobile digital television and on social networks from Twitter and Facebook, aggregate community RSS feeds, incorporate widgets and enable e-commerce.

Impediments include the lack of video search solutions allowing consumers to find relevant local content. Broadcasters also are hurt by the absence of a universal system for measuring the effectiveness, pricing and selling advertising across all media platforms and devices. "Someone will come up with a way for TV stations to create transparency and a solution for selling the Web as easy as it is to sell a TV spot. No TV station in the country has a dashboard to seamlessly buy ads on tv, mobile and the Web," Gannaway said.

For now, too many broadcasters are settling for predictable Web sites that mirror their on-air content and commercials. A growing number are partnering with other struggling same-market stations and newspapers to consolidate costs and share revenues. In markets where newspapers are shuttering, TV stations could see their overall revenues rise by as much as one-fifth, according to Bernstein Research.

But these are hardly times for winning by default. Canoe Ventures' pending launch of an addressable ad system that allows for different ads to simultaneously appear in 2,400 locations represents an extreme assault by cable operators on local tv's declining ad revenues, which no longer can be bolstered high enough by biennial election and Olympics-related spending. What digital broadcasters really need is an interactive loop joining local consumers and advertisers which, at the moment, cable can provide to them.

Local broadcasters' need to develop new ad revenues sources such as location-based mobile was never more acute. TV stations could generate more than $1 billion in new revenues from nascent ad-supported mobile video applications, according to the National Association of Broadcasters. The industry's subdued annual conclave reinforced the decline of local TV status quo.

Hitching their wagons to broadcast television networks no longer provides guaranteed prosperity when ABC, NBC, CBS and FOX are streaming their programs on the web. The overall U.S. TV ad market could lose three-quarters of its revenue base over the next decade as hyper local content and advertising proliferate on mobile internet-based devices, according to London-based Generator Research.

Young Broadcasting, Tribune, Pappas and Ion Media are among the first of what likely will be many broadcast bankruptcies in a shakeout that eventually will result in a new local-media business model. There are only enough dollars to support two or three surviving and thriving multi-media news organizations per market providing newspaper, television and Internet content and advertising from a single hub.

Still, not everyone feels the same sense of urgency. Tony Vinciquerra, president and ceo of Fox Networks Group, insists "television will always be a thriving business if we stick to the premise that we have to be local and relevant servicing the needs of advertisers across many media platforms."