Category: Media Consumption

I’ve had an inordinate interest in how the news industry, particularly newspapers, are faring in the Internet age. It’s only relatively recently I realized why I thought that was even relevant to the fields I study – among them what is going to replace (or grow in parallel with) the current model of “Television”. Then it struck me…

Television is to newspapers and magazines what movies are to music.

In the music and movie models we’ve been used to, there is a direct transaction – payment is made to buy music (on disc or download) or to pay to view a movie (in a theater or by buying a DVD). This is a fundamentally different model than Television, where the content is “free” in return for your “attention” to advertising. Advertising supports both Television and newspapers and magazines.

Yes, people pay a small amount for newspapers and magazines, but that is nowhere near the cost of producing the magazine. Newspapers and magazines (I’ll just say “newspapers” from here but I include magazines) are heavily subsidized by advertising or they can’t survive. (Consider how many magazines have been closed in the last year all attributed to the “loss of advertising revenue”). Given that I don’t believe advertisers are coming back, what are the implications of the music experience for movie distribution, and the newspaper experience for television distribution. Without distribution there is no production.

The music industry has found that “infinite goods” – those that can be produced for close-to-zero (a digital copy) – has changed the market. Classic economics tells us that the sale price will trend toward  incremental cost of a sale. For music that’s zero or close to it because there is no scarcity. Scarcity, again classic economics tells us, is what drives up price: no scarcity and the price drops toward the marginal cost of producing the copy. (Yes, classic economics ignores the cost of production.)

The movie industry is finding some of the same dynamics happening, except that the movie industry has an advantage: the primary product is not the movie, but the “going to the movies” experience. Clearly the movie-going experience is more important than the movie otherwise attendance would have dropped dramatically as the quality of picture has dropped. Instead movie attendance is up despite audiences being treated like criminals with bag searches and, in some theaters, full body, airport-style scanners.

The smart people in the music industry have also realized that the business model they grew up with – where Record Companies actually had a role to play – is no longer viable. (When you have to sue your customers to “keep control” of your product, you have acknowledged a total failure of business model and you should be allowed – encouraged even – to go out of business.) So they’ve been deriving new business models that use the non-scarce good (the recorded music) to promote scarce goods – like concerts, experiences and merchandise.

Music, and movies, will continue to have “direct pay” models but they won’t be the same as in the past. (Nor should anyone who has two working neurons think the models can remain the same.)

It is newspapers and television that I’m worried about. The current models for both are unsustainable. Advertising revenue has dropped dramatically partly because of the current economic conditions, but long term because advertisers have better alternatives than renting some irrelevant eyeballs for 30 seconds at a time with a message that’s irrelevant to 99% of the audience who aren’t ready to buy your product right now.

Newspapers once provided a valuable service(s) that have been replaced by better models online. Craigslist has effectively killed the cash cow of classified advertisements because it’s a better model (free, instant). No-one really needs a newspaper to learn the session times for the local movies (available online) nor really, to decide what car they’ll buy next.

People, by and large, don’t need newspapers for news either. Not that most newspapers did that much “reporting” anyway. Surveys of typical local newspapers showed that they often have as few as five or six “real” stories (researched and written by staff reporters) not sourced from elsewhere. Most “news” comes from Associated Press, Reuters, people-in-foreign-countries, press releases, etc.

Worse, most newspapers (and television news) do not really vet their stories, taking away one of the major claims that we “need” professional journalists because, unlike bloggers, they “fact check”. (Really CBS? Who “fact checked” last night’s industry-lacky piece full of major errors on 60 Minutes?) It’s hard to make the case that the majority of professional journalists actually fact check anything. (Quick quiz – in any news story that you’ve been involved with and then seen the reporting, has it ever been completely accurate? Never in my experience, never.)

So, when the impetus for “demand” drops, and the money to produce evaporates because even the advertisers have a better way to do things, newspapers will, of necessity, die. That does not mean that great journalism will die, but it will be funded differently and have very different forms.

Television, including basic cable, is facing the same challenges: advertising revenue is drying up and unlikely to come back to previous levels, meaning the whole model is probably broken. Not this week, not next year, but long term Television as we know it is being destroyed by this lack of advertising revenue; the failure of the “players” to adapt business models, and that audiences for any given show are much smaller because there are so many choices.

What we’ve known as Television will have to evolved into a model that allows for “any program, any time, any device for a fair price” (i.e. a return that is similar to the return from advertising, not an attempt to get a 4x return as the Networks currently do with iTunes et. al).

I suspect that will, like with the Record companies and Movie Studios, leave the Networks out of the picture as middle-men imposed between producer and audience.

I don’t (yet) know what that model is going to be, or indeed if there will be only a single model, but the transformation of a nearly-70 year old business model based on scarcity (broadcast licenses) has to evolve when that scarcity no longer exists. And it no longer exists.

The catalyst for this post was Henry Blodget’s provocative post Sorry, There’s No Way To Save The TV Business. There’s a lot in the article I agree with, but also a lot of good counterpoints in the comments. Clearly it’s not yet universally agreed upon!

That article alone would probably be worth commenting on, but add it to a whole bunch of other articles I’ve been holding for comment:

TV: The Next to Fall by Jeff Jarvis at Seeking Alpha (i.e. strong/good) Media

We’ve been wringing hands over newspapers and magazines, but TV and radio aren’t far behind. Broadcast is next.

It’s a failure of distribution as a business model. Distribution is a scarcity business: ‘I control the tower/press/wire and you don’t and that’s what makes my business.’ Not long ago, they said that owning these channels was tantamount to owning a mint. No more. The same was said of content. But it’s relationships (read: links) that create value today.

Why Television Needs a Reality Check on Sustainable Business Models by Diane Mermigas

Time for a reality check. You know your business model is in trouble when …

Revenues and free cash flow recede and profits evaporate

The TV Industry Is Terminally Ill by Bruce Everis, also at Seeking Alpha

The demise of TV is because it is old technology. Quite frankly I find it pretty boring these days. They just cannot compete with computing, the internet and gaming. And they cannot compete because they are not interactive (except in a farcically limited way), they do not connect the user with other users and their content is purely linear. Their main market now is the educationally subnormal, geriatrics and babies, because these are the only people left who aren’t online.

Broadcast TV Faces Struggle to Stay Viable in the New York Times by Tim Arango

For decades, the big three, now big four, networks all had the same game plan: spend many millions to develop and produce scripted shows aimed at a mass audience and national advertisers, with a shelf life of years or decades as reruns in syndication.

But that model, based on attracting enough ad dollars to cover the costs of shows like “Lost” and “ER,” no longer appears viable. Network dramas now cost about $3 million an hour.

The future for the networks, it seems, is more low-cost reality shows, more news and talk, and a greater effort to find new revenue streams, whether they be from receiving subscriber fees as cable channels do, or becoming cable networks themselves, an idea that has gained currency.

For Television, It’s a Whole New World again by Diane Mermigas

Anyone expecting television advertising–including network upfront spending that could decline more than 15%–to rebound to former levels is in serious denial of the deep-set economic changes underway.

Systemic shifts in how companies and consumers make and spend money could throw media and other commercial players into a death spiral if they are unwilling to alter behavior and expectations. Advertising is not going away, but its fundamental economics are changing. That makes widespread media market deflation and deterioration (the worst being local media) much more than a cyclical glitch, according to a new Goldman Sachs report.

There are others but it’s too depressing for a Monday evening!  For an industry that’s still making money and still incredibly popular – latest figures show the average American viewing about 310 minutes a day (just over 5 hours) – that’s an awful lot of doom and gloom.

And probably unjustified. New technologies have never wiped out any preceding industry. Film did not destroy stage. Radio did not kill film. Television killed neither radio nor film. It’s unlikely that Internet Video or Internet TV (call it what you will, I still like New Media with the caveat that it’s unmediated) will replace Television.

What has happened is that the role of different media has changed. Radio has few panel or game shows and very few drama programs anymore. These have migrated to Television. A lot of film production is dedicated to Television distribution so, instead of replacing the Film Industry, Television helped it grow.

So, it’s likely that Broadcast Television will remain – the big four networks will have a role. But I think we’ll see it change to feed the few mass markets remaining: sports (definitely); news (although most TV news is pre-recorded and edited before the broadcast); reality television, talk and game shows (because they’re relatively cheap to produce).

Pretty much everything else will migrate to on-demand consumption. There’s little loyalty to a channel, but there is loyalty to the programs. What a lot of TV executives haven’t yet realized is that people don’t care about their network or channel, just the individual programs that they carry. Increasingly – since the Betamax in 1976 – that has been consumed on the viewer’s schedule. The only thing I’ve watched real time in the last three years has been the Superbowl, because I’m at a Superbowl party! (And to be truthful, I’m there for the party and people first, the ads in the broadcast second with little interest in the actual game.)

As the audience for drama and comedy splinter, the advertising supported model is almost certainly unsustainable. Advertising online isn’t going to match broadcast revenues per viewer leaving only subscription or direct pay to support quality programming.

Not that any of this is going to happen overnight. Still, I have to agree with the doomsayers: the traditional advertising supported broadcast model (aped by most cable channels) is unsustainable long term for most programming.