Bleak Future Ahead for ‘Free’ TV

By Robert Yadon -- Multichannel News, 3/22/2010 12:58:15 PM

The Federal Communications Commission recently launched an examination of the future of media and the information needs of communities in a digital age. Some sobering trends over the past decade should influence the agency’s ultimate findings and affect how we receive and value local broadcast information in our communities in the future.

Let’s examine the facts. As early as 1990, Michael Wirth noted in the Journal of Media Economics that the cable industry was having an increasingly negative impact on broadcast television, as its power in both the programming and advertising markets increased. Ten years later, his findings were confirmed. The last time overthe- air television broadcasting was watched by a majority of households was in 2000. This dramatic downward trend not only continued over this past decade, but the viewership divide has increased over time. Last year, cable’s household share (60.6) share was up 2%, while broadcasters’ share (32.1) was down 2%.

Cable television has capitalized on a large bandwidth and channel capacity, advancing digital technology as a “last-mile” provider of content and services and a favorable, growthoriented business model that follows the regulatory road map provided by Congress. A series of statutory provisions and court decisions also has helped the cable television industry secure investment capital, deploy new technology, expand content and rapidly grow audience share and advertising revenue at the expense of all local media. Cable systems, unlike their broadcast counterparts, are unencumbered by the expense of producing local content or statutory requirements to serve in the public interest, convenience and necessity.

In an effort to survive, television broadcasters have had to be more creative in generating new revenue streams. One example is retransmission consent — a means for local affiliates to negotiate compensation from cable systems for carrying their local station signals.

The bad news in this bargain, however, is that local network affiliates are being asked to share this retransmission income with their networks. The practice of networks paying affiliates to carry network programming is but a fond memory. Some broadcast networks also continue to invest in their own cable-television networks and content, drawing additional viewers away from their broadcast affiliates. It seems television broadcasting cannot help but feed on itself — a form of economic implosion — resulting in the continued detriment to the bottom line.

A number of solutions were rejected by the FCC under the Bush administration. Digital mustcarry would have provided additional channels, competition and revenue for the local broadcast stations, for example. Absent some form of regulatory relief, the problem will eventually fall on Congress, rather than the FCC, to correct. The potential loss of regulated outlets for lowest unit rate advertising during election campaigns should command interest among incumbents who rely on local broadcast advertising as the best way to preserve their seats.

As Daniel Patrick Moynihan once said, “Everyone is entitled to his own opinion but not his own facts.” Here, the facts are clear. The days when owning a local television station was a license to print money are gone. Local television broadcasting is in a financial death spiral that, if left uncorrected, eventually will result in the systematic, if not total elimination of free, over-the-air local television broadcasting.