Local TV Facing Revenue Crisis

May 26, 2010

Editor’s note: This is John Reinan’s weekly marketing column for MinnPost.com. To view the original, go to http://bit.ly/bxyQZJ.

The financial meltdown of the newspaper business has been astonishing. From an all-time high of $49 billion in 2005, U.S. newspapers lost nearly half their revenue in just four years– to $28 billion in 2009, a drop of 43 percent.

But this item isn’t about newspapers. It’s about local TV, which is facing its own financial crisis.

During that same time– 2005 to 2009– local TV revenue fell nearly 24 percent, from about $21 billion to about $16 billion, according to the Pew Project for Excellence in Journalism. And the slide is picking up speed.

Newspapers have been hammered by the loss of lucrative classified advertising to free sites like Craigslist, as well as continuing consolidation by large retailers, which leaves fewer retail advertising customers. For local TV stations, the biggest hit has come in the auto business, and with brutal swiftness. In just one year– 2008 to 2009– local station revenue from automakers and auto dealers plunged 43 percent, according to the Television Bureau of Advertising, an industry trade group. That’s huge, because auto advertising historically has accounted for nearly a third of local station revenue.

Other categories of local TV spending were hit nearly as hard in 2009: prescription, medication and pharmaceutical advertising was down 35 percent from the previous year, home centers and hardware stores down 26 percent and furniture stores down 24 percent.

Like newspapers, local TV stations for decades enjoyed virtual monopoly status in their medium. Cable began making serious inroads on local broadcast TV in the 1980s, offering more channels and more entertainment choices. But local stations maintained their exclusive grip on news programming– which historically has provided 40 to 50 percent of station revenue. That’s why there are so many local news programs. They’re relatively cheap to produce and advertisers like them.

But adding another half-hour local news program– at 5:30 a.m., at 5 a.m., even at 4:30 a.m. (as KMSP and WCCO have done recently)– isn’t going to stop the bleeding. As one longtime local TV producer told me over drinks recently, “you’re just trying to put together a bunch of ones now”– meaning, advertisers looking for local reach have to buy across multiple, low-rated programs drawing 1 percent of the viewing audience.

Yet the biggest threat to local TV still looms. As media analyst Alan Mutter notes on his “Reflections of a Newsosaur” blog, the advent of IPTV, or Internet Protocol Television, may be a giant nail in local TV’s coffin.

“Once 50 to 100 megabits per second of Internet power is barreling into the high-def centerpiece of the family room,” Mutter writes, “consumers equipped with elaborate, iPad-like remote controls will be able to mix and remix anything– news, shopping, entertainment, games, music, messaging and much more– while leaning comfortably back in their easy chairs.”

Under this model, much of the programming will be free– except consumers will pay monthly or one-time fees to the cable or Internet provider that delivers it. Meanwhile, the creators and providers of programming will be able to sell ads within the content. Both scenarios cut local TV stations out of the revenue picture.

As local TV revenue drops, stations will have fewer resources to devote to local news. And with two-thirds of Americans saying they get most of their local news from TV, that will mean an ever more poorly informed public.

The news delivery model that anyone over the age of 30 grew up with– newspapers and local TV news– is broken. Whether it can be fixed is anyone’s guess.