The parallels between TV stations today and newspapers in 2005 should be heeded by local TV executives. The trends are equally troubling and there is much they can learn from newspapers’ experience and response. Clearly, audience and advertisers are moving to digital platforms. But TV stations confront the same challenges as newspapers: digital is returning significantly less revenue than the core product and advertisers don’t yet know how to effectively buy across media channels.
Newspapers: A Cautionary Tale For Local TV
Does this sound familiar? A local media company is enjoying robust revenue and modest audience declines. It continues to offer mass-market advertisers broad reach. Clearly there are dark clouds on the horizon — shifting media consumption behavior, expanding media choices, less expensive and more targeted options for advertisers, competitors with different business models. But business is good so there is little urgency to change.
This could describe U.S. newspapers in 2005, which were enjoying record revenue despite significant looming challenges to its business. Fast forward eight years later and the industry is less than half the size (in terms of ad dollars) than it was in 2005.
But it could also describe the local TV business today. Yet, with a few exceptions, executives are not operating with any sense of urgency. Why? Because revenue continues to be strong and declines in local TV viewing are relatively modest. But the parallels between TV stations today and newspapers in 2005 should be a cautionary tale for local TV executives.
Newspapers current state is the result of three key factors: a lack of revenue diversification, lack of aggressive investment in digital platforms and declines in audience, particularly from younger segments. The warning signs were clear: new platforms were destroying newspapers’ pricing capabilities and providing more effective user experiences; advertisers wanted more targeting and ROI; media choices for news were exploding.
Today, newspaper executives — who are operating with a great deal of urgency — are now focused on driving revenue from new sources and new customers, increasing investments in digital and, to a lesser extent, developing differentiated products on new platforms.
For local TV, the trends are equally troubling and there is much they can learn from newspapers’ experience and response.
In 2005, classified revenue accounted for 35% of newspapers’ total ad revenue, according to NAA. In 2012, the percentage dropped to 18% and actual revenue declined more than 70%. Most of those dollars moved online or disappeared completely. Retail, which accounted for 45% of revenue in 2005, has declined 50% since then.
Local TV has a similar reliance on automotive and political advertising, which accounted for 22% and 12% of ad revenue last year, respectively, according to TVB. But forecasts for both ad categories are not encouraging. Political advertising, obviously, is cyclical and despite being very strong in 2012, was distributed unevenly (most went to TV stations in key battleground states).
Automotive advertising, too, has been strong. Borrell Associates forecasts that automotive companies will spend 14% more in local advertising this year, but 90% of that increase — $11.9 billion — will go online. And according to an Automotive News survey of dealers, about half will not increase ad spending this year and those who will are increasing budgets less than 10%.
Digital is becoming an increasing part of dealers’ media mix. About two-thirds of Automotive News survey respondents will increase their digital ad budget this year. As much as 35% of sales are now coming from digital, it reports. According to Automotive News, dealers “fear TV and radio are not as effective as they used to be because people have ways to avoid seeing or hearing the ads.”
Overall, local TV advertising has been trending down (except for a blip in 2012 from political and Olympics coverage). Local TV news programs are perhaps most vulnerable but are accounting for an increasing share of revenue (nearly 50%).
On the audience side, total newspaper audience growth (measured across platforms) is relatively flat, and down slightly in 2012 despite huge increases in mobile audiences (according to data from Scarborough Research).
Local TV news viewership (stations’ cash cow) is also declining across all key time slots (these numbers reflect broadcast viewership only). But audience trends are perhaps more troubling for TV stations than newspapers because of the expanding array of media choices for TV’s bread and butter content.
The biggest audience challenge today for newspapers is engaging young adults who are not building an affinity for traditional newspaper brands, in part because, while they may be viewing newspaper-produced content, they are not viewing it on newspaper sites. Local TV will face the same issue as TV content becomes increasingly accessible on non-TV sites.
Nielsen confirms this trend reporting that 18-24 year olds are moving away from TV viewing at an increasing rate (although they still watch more than 23 hours a week). Teens are also moving away from traditional broadcast TV. According to Nielsen data compiled by MarketingCharts.com, in 2012, teen TV consumption “decreased by 45 minutes in Q4, dropped by 98 minutes in Q3, by 47 minutes in Q2, and by 127 minutes in Q1…. Perhaps more significant is when the major drops in viewership occurred. Q1 and Q3 were the heaviest TV viewing periods for teens (coinciding somewhat with TV seasons), but those showed the biggest consumption declines.”
Part of newspapers’ turnaround strategy is to focus on more original reporting. Local TV appears to be heading in the opposite direction. Weather, traffic and sports information — local TV staples — is available from multiple sources, many of which are more robust and more engaging than what’s shown on broadcast TV. (Twitter and the Weather Co., for example, recently announced a deal to embed weather reports and videos in users’ Twitter stream.)
According to Pew, the time local TV stations devoted to weather, traffic and sports increased from 32% of airtime in 2005 to 40% in 2012. Crime stories dropped from 29% to 17%. Meanwhile, original packaged stories — which would be a differentiator for local news — dropped 20% during that period.
Trends for broadcast TV generally are troubling, including continued audience fragmentation across TV channels, the growth in second- and third-screen viewing, emergence of connected, smart TVs, increased programming from non-traditional sources and threats to retransmission fees. As consumers shift viewing habits away from broadcast, the impact will trickle down to local TV as well.
Clearly, audience and advertisers are moving to digital platforms. But TV stations confront the same challenges as newspapers: digital is returning significantly less revenue than the core product and advertisers don’t yet know how to effectively buy across media channels. Digital revenue, while accounting for 11% of newspapers’ total revenue, is growing at an increasingly lower rate (4% in 2012 compared to 15% growth for total Internet ad revenue).
BIA Kelsey reports that the rate of digital growth for local TV slowed from 20% in 2011 to 10% 2012. They forecast that digital will grow from 3% of total TV revenue today to only 4% in 2016.
So where does local TV go from here? Certainly, newspaper companies have not found a silver bullet and financial challenges remain. But after years of decline, newspaper revenue is beginning to stabilize. Local TV is much better positioned today than newspapers were in 2006, but ignoring marketplace trends is a recipe for disaster.
Here’s what TV can learn from newspapers:
Revenue diversification: Lessening reliance on traditional advertisers is driving a strategy of diversifying revenue streams, which includes the creation of digital agencies to attract dollars from non-traditional advertisers, sponsored content and “native advertising,” daily deals, e-book sales, local events and other new sources of revenue. The industry recently reported that 8% of revenue is now from new sources.
Newspaper “paywalls” are also part of that diversification strategy. But those paywalls also open an opportunity for local TV stations to steal audience share by aggressively marketing to those print and online newspaper readers who choose not to adsorb increased costs of accessing newspaper content.
Cost Reduction: Newspaper executives conceded that revenue would not return to pre-recession levels anytime soon and made the difficult decision to streamline operations to better align costs with revenue. While TV may not experience the same dramatic revenue declines, cost containment and operational efficiency should be top of mind.
Back to Basics: As newspapers continue to explore new platforms, many are re-focusing resources on increasing sell-through rates on the traditional website. Increasing the percent of direct inventory sold will yield better returns, in the near term, then still-emerging ad-supported platforms like mobile and video.
Collaboration: This is one area in which newspapers have not excelled. Few local sites on their own provide enough scale to interest major advertisers. Many newspaper companies are attempting to broaden digital reach by packaging inventory from other sites (often through third-party companies such as Centro and Simpli.Fi). With collaboration, TV stations have an opportunity to drive more national advertising by offering inventory across all broadcast stations in a market and across multiple markets.
The rapid emergence of programmatic buying offers another opportunity for collaboration. Rather than dumping undifferentiated inventory into public ad exchanges, TV stations could develop an industry-wide, private exchange of premium inventory, particularly for video ads.
Digital Natives: After many years of expecting traditional newspaper sales reps to sell both print and online or to migrate to digital-only sales, they now realize digital selling requires a unique set of knowledge and skills and are hiring sales people with extensive digital experience. TV stations should do the same.
Leveraging New Platforms: While newspapers have had a degree of success at driving audience through mobile, video and social platforms, monetization of those platforms, so far, has been a long, hard slog. TV needs to be in the game today to capitalize on increasing shifts of ad dollars to those platforms. (BIA Kelsey forecasts a $2.1 billion increase in local mobile ad revenue in 2013 and for double digit growth in local video to $3.9 billion in 2016.)
Embracing User Content: The need for more differentiated, original content is expensive if news organizations rely solely on professional journalists to create that content. Newspapers are increasingly integrating vetted content from the community or aggregating content from other sources to offer deeper context and background on certain news stories. With video capabilities in almost every smart phone owner’s hands, TV stations could create a compelling package of news content on an ongoing basis (and not just during major news events).
Many TV stations are stepping up their digital media initiatives — beefing up websites, creating new mobile apps, integrating social media, offering cross-screen advertising opportunities. But disruption of the core business will continue and likely accelerate. TV stations should continue to build out their digital offerings and aggressively experiment with new business models while traditional revenue is still strong.
Ultimately, as newspapers have learned the hard way, strategies based on historical trends rather than innovation and diversification will eventually make the local TV business unsustainable.
Randy Bennett was most recently SVP of business development at the Newspaper Association of America. He is a 30-year veteran of the digital media business and has spent the past 20 years helping newspapers understand and leverage new business opportunities, particularly on digital platforms. He can be reached at [email protected] or on Twitter at @randybennett.