Tuesday, September 1, 2009


Historically the newspaper and broadcasting business has been a highly profitable endeavor. Today we hear almost daily of local newspapers printing their last editions and television stations filing for bankruptcy. Publishers and General Managers are rubbing their hands together and stroking their brows in anguish because their products and jobs are going away.

Broadcasting & Cable Magazine recently reported that local broadcast revenue is down a previously unheard of 27%, while network TV was down 5.8% and syndication was down .7% during the first half of this year. Local automobile advertising was down a whopping 54.5% while auto dealer advertising was off 43.6% in the same period.

Graduate schools in the towers of learning across the country are conducting case studies to analyze these figures and failures. I can save them all a lot of time and investigation, because there is nobody to blame but the leadership of these businesses. Obviously, the economic turn down is one fact, but the operational model for newspapers and television has changed due to a dramatic increase in competition from cable and computer usage and the inevitable advertising dollars chasing them. The days of obscene profits from newspaper and TV are long over, and the ownerships failed repeatedly to take appropriate action as the profile of their business shifted over the past 15-20 years.

Your Commander can speak with some authority, because he was there during the heydays of profit, but that was a time when there were only three network television stations in a market, and there were actually many smaller markets where there was only one television station serving the entire market place. The same was true in the newspaper business, but then came cable television, 24 hour news channels, satellite broadcasting and the then unknown world of the internet.

Those new ventures all seemed very speculative and they were foolishly disregarded as competitors that had little or no chance to succeed. Today we know that newspapers, television stations, and the networks failed to adjust to the changing competitive forces. The expression “adapt or perish” comes to mind and it is certainly valid when you consider what has happened over the last twenty years.

The newspaper industry has failed to establish a revenue producing format that will attract users to their internet sites. It is a matter of fact that young adults are not reading newspapers because the internet is portable with Blackberry and I-Phone. Today our youth are into Facebook, Twitter and/or blogs. When you look at your shrinking newspaper you will note that one of the biggest sections in the paper today is the Obituary section and even the Classified Section is smaller. With less readership and subscriptions the revenue volume and advertising lineage is plummeting downward. More and more cities and towns are becoming single paper or no paper towns. Only USA Today and the Wall Street Journal, having created a special niche, enjoy increased readership totals as well as revenue success. Newspapers must determine a way to increase their readership and revenue. Currently it appears those goals may be achieved with on-line editions that require paid subscribers.

The television business model has changed, too with dramatic increases in competitive viewing alternatives, such as cable, satellite, and all the competitive forces that confront the newspapers. Production costs have grown dramatically over time and when you have fewer viewers you can no longer absorb the syndication, production, and personnel expenditures. Something has to give and to date it is shrinking personnel and product quality with an increase in reruns of old successful programs. None of those “solutions” led to increasing profitability. There are two ways to survive: cut back to a profit or grow your business to a profit. Television has thus far not found a way to successfully do either.

How this happened is a fair question. Most stations were started and owned by local families who owned newspapers and/or radio stations in their respective markets. It is my theory that as the value of the properties grew, there was great interest in selling the stations at 20 times cash flow or more. Original owners were getting older and were advised to begin to put their finances in order. Banks were aggressively pushing both buyers and sellers to make deals and the banks, in turn, prospered with big commitment fees in the range of $400,000 or far more just to arrange the financing. Many stations sold several times over 10 years or so and each time there were additional commitment fees, which just added to the debt leverage. Ultimately the audiences started to plummet and the debt burden became unsustainable, and that is where many stations are today.

During my years in station management I worked for four different ownerships. Three were highly leveraged with a constant goal of greater profit ratios. One was owned by a very successful operator who had a flagship station in Las Vegas that made huge profits, and thus it took the pressure off the other stations in the group to operate over-aggressively. That one group truly did function in the public interest, convenience and necessity as is the Federal Communications Commission (FCC) mandate.

As an old timer from the good old days of huge profitable television operations, I believe we did ourselves in by greed. Few owners took the long-term view and lived for only today. Television increasingly airs far too many commercials, less quality programming, a reduced standard of ethically appropriate program standards, and a fails to adapt to the changing competitive environment. Seven and eight commercials on a break are excessive! The number of commercials in a thirty minute newscast has reduced the amount of actual news presented to viewers to about 20 minutes, if that. Programs now running in syndication, such as Two and A Half Men are very funny, but should not be scheduled from 7 to 8PM, and products such as Viagra, Kotex, etc. should not be running during times when young impressionable children are in the audience. Programming and network television executives are totally responsible for the dramatic erosion in the quality of their product due to financial greed.

Tragically, the industry push for viewers has led to the reduction in moral responsibilities. The cable competition can create and air highly volatile programs that the networks cannot due to FCC regulations.

Remember, too, that today’s television networks are owned and operated by huge publicly held corporations. The days of influential strong-willed leaders such as William Paley, General David Sarnoff and Leonard Goldenson are gone. Were they still with us today the industry would be healthier, because they had long held views and integrity.

Your Commander predicts that in the future we will see far fewer newspapers in print, and more on-line newspapers in a majority of markets. Ultimately we will pay for that on-line information and much more.

Television’s future is bleak too, because we will see more and more stations going black due to a lack of financial solvency. There will be more and more pay to view options that will provide an increase in commercial free viewing, but you will see more and more inappropriate content, also. Some people think I may be nuts, but I believe that within five years we will see open nudity and sexual acts on our televisions delivered by cable.

At the same time we are experiencing change, we will see a leveling off in the number of viewing options. I suspect that a 500 cable universe is just about all that the market can support. As I have already predicted in an earlier report I believe one of the major television networks will drop their affiliates and move totally to a cable environment.

What does the future hold? I wish I knew, but it already is vastly different from what we grew up with. Will it be improve is a better question, but I doubt that old timers like me believe that the prospects for betterment are very good. Even cable fails to deliver quality live programming like “Playhouse 90.” Do you ever wonder why it seems that our past is now more appreciated? Thankfully, some things will never really change.


No comments: