From Airwaves to the Interweb

By Andrew

Part 1

Hayley’s article on ABC’s streaming video service got me thinking about the changing landscape of television. This thinking turned into an article far too long for a single post, so I’ll break it up into a series over the next couple weeks.

There once was a time when television viewers could imagine that they were connected with hundreds of thousands of other viewers watching the same show at the same time. This is no longer true. As the number of delivery options available to consumers expand, the market is segmented into viewers watching the show on cable, satellite, broadcast television, online streaming, digital downloads, and DVD box sets. While this expansion brings choice to consumers, it also represents a battle between the networks and their local affiliates. To the networks, all revenue is the same, and there are plenty of ways to glean that revenue. Local affiliates are limited to revenue they receive from local advertisers.

Let’s take NBC’s The Office as our example. I was watching an episode the other week and noticed Kevin using a shredder with “Staples” prominently displayed on its front. In typical Kevin fashion he was using it to shred a salad. While NBC doesn’t disclose the amount that Staples paid for that product placement, I’m sure it amounts to a significant source of revenue for the network. NBC will also receive revenue from the sales of DVD sets which include the episode, and receive a cut of paid-for ad-free downloads from places like the iTunes store. Essentially, the broader the market, the more opportunities NBC has to make money off of The Office.

Local affiliates are far more limited in their ad revenue. From that same Office episode, the only money local affiliates made was what they could charge local advertisers for ad spots during the show. Local affiliates don’t get any of the money from Staples’ product placement, or DVD sales, or iTunes Downloads. In addition, more people watching shows in alternative mediums means fewer people watching on the local affiliate’s station, making it harder to justify advertising costs to local advertisers. Local stations already have to deal with the segmentation of viewers between over the air broadcasts, satellite TV, and cable. Now, they’re also losing viewers to online streaming, DVD sales, and digital downloads.

This seems to paint a pretty grim picture for local broadcasters and advertisers. Is there any hope? Stay tuned to find out… [To be continued]