Some experts predict fewer TV stations per market with full-service, interconnected digital components playing to consumers' most personal, local interests. Eventually, local broadcast TV will be redefined, its advertising backbone will be revitalized by e-commerce. It will depend upon partnerships from Google and Yahoo to local newspapers and cable operators.
The digital odds seem stacked against them, although the prevailing hope is that local TV stations can reinvent their business in time to avoid financial calamity. Once exclusive ad dollars and programming are being siphoned by all aspects of the Web, including renegade video aggregators like RedLasso. Cable operators are joining forces under Project Canoe to compete for local TV station ad dollars. Broadcasters' affiliated TV networks are video streaming the prime-time programs that were all-important local news lead-ins.
Local TV stations appear headed for the same restructuring and consolidation ravaging the banking, telecommunications and airline industries. In a world awash in interactive content distribution options, TV stations have lost their grip. Their sheer numbers exceed what many local markets can economically support, even with the advent of cable retransmission revenues. Station margins once a healthy 40% or more are being halved or worse by digital competition and economic strain. Some stations simply do not have the content savvy, financial clout or the impetus for digital success.
In a protracted economic firestorm, many TV station owners will be unable to maintain 10-times or more earnings multiples or healthy on-air ad prices. With debt-payment cycles coming due, costs rising, cash flow under pressure and competition intensifying, the collective adverse impact could be unprecedented for some local TV broadcasters.
In what is supposed to be a biannual bonanza year, total broadcast TV ad revenues fell 4% in the second quarter, compared to the same period last year, with local broadcast down more than 6%, depressed by downturn in automobile and retail categories. If the media conglomerates that own the major broadcast networks and top 10 market TV stations are surprised and confused by this year's weakness (News Corp. said its local Fox TV station revenues plummeted 10% last quarter), then some of the independent station group operators are shell-shocked. The universal station response is headcount and other major cost reductions when the answer should be radical structural change of legacy operations and processes.
Many local broadcasters are not saying much publicly about the challenges ahead. Individual players such as Gannett, Hearst, Belo, LIN and Raycom have proactively launched their own digital enterprises. Others prefer to gather steam collectively, such as ION Media Networks-driven Open Mobil Video Coalition, which includes Sinclair Broadcasting, Post Newsweek, Gannett, Fox, NBC and Dispatch Broadcast.
For now, recycling local news and other ad-supported branded content on the Internet and mobile devices will not collectively generate enough new income to offset declines in their core station revenues. Given the slow pace of mobile phone data adoption, there is skepticism that local TV broadcasters will be generating $2 billion in live ad-supported local broadcasts on phones within four years, as estimated by the National Association of Broadcasters. That would be almost one-third of the nearly $7 billion in mobile advertising revenues projected by 2012.
Borrell Associates predicts local media will more than double its overall online revenues to $23 billion by 2012, more than one-third of which will be video-related. Clearly, the method of packaging and pricing local advertising must change. The secret to snaring new rich media ad revenues is for stations to sell their multiplatform ad inventory in aggregate "as one unit, reaching one consumer in a market, on a relevant, personal basis," according to WorldNow President and CEO Gary Gannaway.
WorldNow is one company providing TV station owners with various technical solutions, including a "frictionless" desktop dash board that manages their applications and infrastructure across all interactive devices and platforms.
Stations able to solidify themselves as the definitive sources of local news and advertising will thrive if they find new ways to translate that online. If automobiles, financials and retailers shift 20% to the Web of what remains of their declining local ad spend, local TV stations must be online with something compelling enough to capture those dollars.
Tom Wolzien, now a private consultant who formerly followed the industry as a Wall Street analyst, warns stations must reinstate their importance against the Internet's de facto source of all news. Interconnecting even the smallest local TV stations' sub-market coverage would be a unique way to aggregate their core super-local news and advertising across all digital platforms. "As consolidation occurs, the tighter economics of the sub-markets will prevail," Wolzien said.
Local TV station owners could be their own worst enemies in underestimating or failing to properly leverage their local connections to communities, consumers and advertisers in utilizing interactive digital technology to their full advantage. As media maverick Mark Cuban recently mused on his blog: "One thing is becoming increasingly clear, while more people are snacking on Internet video, the real meal continues to be TV."
Why, then, is local broadcast television in crisis? Editor's Note: This is the first in an ongoing series of columns that will explore the issues, challenges and opportunities confronting local TV broadcasters over the next 18 months.