From Anachronism to Action: TV Networks Can Change

Walt Disney CEO Bob Iger called it right, dubbing the upfront ritual "an anachronism" in a company earnings call this week. Now the industry needs to do something about it while it has the golden opportunity.

The question is: Will media conglomerates, with powerful cable and other assets to balance out the failing fortunes of their broadcast networks, have the courage to transform their archaic advertising sales and creative content process into something more productive for an interactive marketplace? It would be a bold, proactive move as they forge their digital destinies.

The WGA strike has given media companies an involuntary respite from their decades-long rut. While the broadcast networks have long talked about their desire for a 52-week ratings and series development season, they remain glued to a fast-track, big-waste run-off of series. In an interactive media market that continually renews itself, the practice is meaningless.

The utter disruption of the 2007-2008 prime-time season, concurrent with the explosion of digital media alternatives, should galvanize broadcast network owners to reinvent how they do business. Some media executives appear to be part-way there. ABC and CBS say they will order fewer new series pilots. On the other hand, the $1 billion-plus in new online video and advertising revenues generated at each network company depends on television content. NBC has said it may not order any pilots and take promising series directly into a limited run, as occurs on the cable networks. Less than 25% of series scripts commissioned for the 2007-2008 season have been delivered, and the TV networks have terminated hundreds of creative deals as a result of the strike. Many writers, producers and actors are working for independent agents on the Internet and elsewhere. But selectively pursuing projects will do little to radically realign the television network business model.



The broadcast networks are cutting costs, knowing they will lose revenues with fewer new shows to sell to advertisers in prime time and online streaming video sites, as well as into syndication. The networks also will pay double the residual rates for TV shows streamed online, as well as residuals for ad-supported streamed content, to comply with the terms of the proposed WGA settlement. The result will be a negative impact on network profits, Iger and others concede.

Still, the best the broadcast networks' brain trust has so far mustered is to maybe call off their glitzy upfront for Madison Avenue, which costs an estimated $3 million per network. Otherwise, all of the broadcast networks appear ready to jump back into the $9 billion upfront advertising sales market and a finite-structured production season that will cost upwards of $6 billion, and at best, yield a few series hits.

Why? Perhaps the broadcast networks are scared that if they don't sew up bulk commitments from advertisers in advance, they may redirect some of their dollars to other media and marketing options. Flash. That is going to happen anyway. The negative impact of the ongoing economic slowdown looms over the media companies and advertisers, despite upbeat quarterly earnings being reported from months ago.

Retailers and other advertisers will increasingly become more cautious in their media spending, evident in the auto industry pullback. Many marketers will be more willing to stick with the lower cost, higher-targeted returns on Internet-based marketing. Listen closely to media company executives' remarks: They are subtly warning that they will feel the financial pinch of an economic slowdown and the writers' strike in subsequent quarters.

Iger may yet utilize his vision and position to steer the TV industry to much-needed change. He was the first to allow the downloading of ABC and Disney content on Apple iTunes. As a career-long broadcaster, Iger understands that the broadcast network business needs revamping, so it can compete more cost-effectively with cable and the Internet. It is foolish to think advertisers and agencies will not be guided in their spending by a recent 17% decline in prime-time ratings and consumers spending more time with the Internet and video games, as corroborated by MindShare and WPP Group research.

The broadcast networks and their parent companies can start by funding a more thoughtful, innovative creative process that produces the kind of multi-platform content that advertisers and consumers readily embrace. Let the medium compete on its own merits and do what it does best. It is that simple and that complex.

If the broadcast networks don't voluntarily make such decisive change now, they will be forced to do it later under more dire circumstances. The forces of change are unassailable.

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