MOVING FROM OLD TO NEW MEDIA ISN'T EASY

“No business is going to be $100 million on day one.”

                          —John Wallace, president, NBC Local Media Division.

This statement really caught my attention. Everything I’ve been reading and hearing about the new digital future tells me that we are struggling to figure out the business model.

At the same time, Ben Bernanke hasn’t confirmed that the U.S. economy is in recession, but he has been flirting with the “R” word. Last week, he told a congressional panel that the economy will get worse before it gets better.

This news is wreaking havoc all around. The falling stock market and the housing market are upsetting shareholders; affecting advertising revenues and making Baby Boomers reconsider their retirement plans. It’s 1978 all over again.

Remember the Apple II? It was released in 1977, a time when companies like Apple were trying to launch the field of personal computing without market history to help them develop pro forma financial statements to present to VCs and/or shareholders. 

That’s also a time in history that cable veterans will remember well. By 1978, the “CATV” industry had proven successful in rural markets for nearly 30 years. But when established media companies began entering the competitive period of franchising wars for the rights to wire urban markets, it was also a time marked by “stagflation”—double-digit interest rates, inflation and higher levels of unemployment.

Despite phrases like “lucrative franchise,” their stock prices reflected the market’s uncertainty about extending into this new media platform. A number of the largest brands in the media business chose to abandon their cable ventures.

While today’s uncertain economy makes it a challenging time to talk about extending our companies into uncertain markets, I’d argue that this is the perfect time for us to invent our future.

After all, as a finance person once told me, you can’t really cut your way to long-term profitability. Besides, when consumers cut spending, they rely more on in-home entertainment. They watch our television networks, listen to our radio stations. They also have more time at home to access personalized content. This should be good news for advertisers seeking better ways to target and measure audiences.

A few weeks ago, at a users conference held by Argo Systems, I heard Bruce Leichtman of Leichtman Research Group discuss “New Media: Alternative Trends in Monetizing Content.”

Leichtman’s research reinforces my contention that we should be leveraging our current assets while investing in the future. He identified five concepts that I think we all need to keep in mind as we model our new media businesses and present them to wary investors.  I will talk about the first four in a minute, but first I want to concentrate on his fifth concept—The Big Picture.

Leichtman says that new is exciting but new products need to be viewed, not in isolation, but as part of the bigger whole. I thought about that advice when I heard Perry Sook, CEO of Nexstar Broadcasting, speak at the TVB panel where John Wallace made the point about developing a $100-million business.

Sook pointed out that our ‘feet on the street’ and bricks and mortar facilities give traditional media companies a competitive advantage that can’t be matched quickly by a Yahoo, a Google or some other pure-play Internet company. 

Thinking about our feet on the street is a way to look at the big picture as Leichtman suggests.

When the phone company wants to sell ads in its yellow pages, it employs a sales crew to blanket the community. Some show up at businesses’ doorsteps, others just call until the business either buys or blocks its number. Once the sale period is over, the crew moves to the next community. TV, as Sook reminded the audience, has expertise in the community. Localism is another key competitive advantage and springboard for the future.

Leichtman’s other four points are also worth thinking about:

History Channel—There are correlations to the present in the past.

While we may lack revenue history for some of the specific new media businesses we are modeling, we can look at history to find an analogous situation. For example, we could predict the success of subscription video on demand (SVOD), which represents the highest category of VOD viewing according to Leichtman, by combining what we know about consumer demand for convenience and control, as documented by the success of video rentals, with interest in the monthly subscription model, based upon the history of the premium channel business.

I’d also argue that this will give us at least a basic idea about the adoption of new personalized services such as content delivered to mobile devices, whether it’s short-form programming or simply local team scores.

Little Boxes—The advent of the ability to personalize makes segmentation even more important. 

We certainly have historical data that we can use to apply this axiom to the ways we are using multicasting, VOD, online and mobile platforms for delivering personalized content to our viewers—and more targeted audiences to our advertisers.

Some of us remember when the idea of a 24-hour news or weather channel was fodder for a skit on SNL. Now we have hundreds of niche TV channels; “virtual” channels serving up micro-niche content from VOD libraries; personalized search engines being used to access millions of online videos; and advertiser-sponsored text messages that alert mobile phone customers about local sports and the synopsis  for tonight’s episode, which they can remotely program their DVR to record.

Dental Floss—Someone once told me that, on average, a container of dental floss lasts 18 months in England. 

I was reminded of this trend as I looked at Leichtman’s data concerning VOD and DVR usage in digital video households with these capabilities. By 2011, more than 50 percent of all U.S. households will have DVR and VOD capability. Yet, he predicts that DVR and on-demand viewing will represent just 13 percent of total TV viewing. However, SVOD and free VOD households are far less likely to switch to another service provider, his research shows. Moreover, 36 percent of VOD households use VOD and 45 percent of DVR households are recording up to five TV shows per week, with the mean number of recorded shows per DVR household currently at 9.2 per week.       

Swiss Army Knife—The idea here is that you bought the gadget because it’s a knife with some other tools, but you would go into a store looking for a toothpick and buy a Swiss Army knife?

Leichtman’s data about HDTV households had me wondering whether what I would consider the primary reason for buying an HDTV set others may think of as the toothpick.

For example, only about half of all HDTV households currently subscribe to an HDTV service from a cable, telco or satellite operator. Another study, from U.K.-based ABI Research, predicts that in 2012, when more than 85 percent of U.S. households will have both HDTVs and access to HD signals through a subscription service, “many will continue to forego a monthly service in favor of other content sources.”

Considering that over eight of out every 10 households are already subscribing to a video service provider, there’s a great revenue opportunity for educating and upgrading these customers to an HDTV service package.

With these thoughts in mind, it’s no wonder that “multiplatform” is becoming a common phrase for media companies.

As Toronto-based Convergence Consulting noted in a recent report, broadcasters should grow their online advertising revenue while they lessen any negative impact on their traditional TV advertising ad programming revenue.

The six-month study of targeted advertising by Comcast and Starcom MediaVest reported by TVNEWSDAY and others provides a great example on just how we can strengthen our traditional ad revenue businesses.

The study found that households that had ads targeted at them were about a third less likely to change the channel than those that were shown traditional ads.

Just a few weeks from now, members of BCFM and our BCCA subsidiary will meet for our annual conference. With the theme of “Your World. Your Connection,” it will focus on how we can access our competitive advantages in order to connect with our customers.

We hope you’ll join us in Dallas on May 13-15 to share ideas on how we will build value for our businesses, our shareholders and our industry.

Mary Collins is the president and CEO of the Broadcast Cable Financial Management Association, a professional society for addressing the diverse needs of financial and business professionals in the broadcast, cable, and electronic media industries. Her column appears here every other Friday.