1,300 commercial television stations in the U.S., much like newspapers and magazines, are under attack as new technologies roil the industry. The Internet, in particular, is sucking away both viewers and advertisers.As has been noted previously on this blog, the days of high barriers to entry for both content creation and distribution are passing. Music, news, video and interactive entertainment are all available on the Internet for free. In most cases, the content is superior to what is found on TV since the TV stations have to program for a broader market while Internet content providers can tailor their products to niche markets.
The shift is sending ripples through the broader media industry. For decades, TV stations have been a fount of cash for some of the industry's biggest players such as Viacom Inc., News Corp. and General Electric Co.'s NBC. Newspaper publishers such as Tribune Co. and Gannett Co., also diversified into television. For many of these companies, steady profits from their stations funded expansion into other businesses.
At News Corp., which at one time derived about one-third of profits from its station group, proceeds helped the company to become a global powerhouse. Tribune's station profits funded its efforts to become a newspaper giant with the 2000 acquisition of Times-Mirror Co.
The picture has changed. Total local broadcast revenue fell 9% in 2005 to $16.8 billion, according to the Television Bureau of Advertising. The chief culprit: Big advertisers cutting back budgets or moving to the Web. Among auto marketers, which have long accounted for about a third of station revenue, DaimlerChrysler AG cut spending on local TV by 13% in 2005. Ford Motor Co. slashed its local TV budget by 15%.
Like catbloggers, for instance.
A high barrier to entry means that it is difficult to join the industry. In the past, to distribute content you needed expensive transmitters, skilled engineers, FCC licenses and so forth. Now all you need is an ISP and a website or blog.
An oligopoly is a market with a high barrier to entry so that there are a relatively small number of firms providing goods and services. They can price their products based on everyone else's prices. In this case, the products they are pricing is advertising space. In an oligopoly, there's only a few places to go to buy advertising and you have to pay a higher price because of it.
When the barriers to entry fall, the number of choices for the consumers increases and the pricing power of the providers decreases. Ford can now buy advertising on literally millions of places. For a time, this blog was hosting advertisements from Honda. The broadcast stations still have an infrastructure built around the good old days. They have staffs to pay, equipment to maintain, buildings to repair and so forth. The article describes how one of these stations in particular is branching out into the web. That's a good move, but I don't see how it will generate enough revenue in the long run to maintain all of their existing infrastructure.
The truth of the matter is that the old economic model is passing and this decline will continue for a long time.
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