The nation’s local television stations — with their viewership in decline and ad revenue on a downward spiral — face an uncertain future as the major networks consider taking their shows straight to cable or online.
In this tough economic climate, executives at the major networks are beginning to openly discuss options that once would have been unthinkable, even in private.
Last December, CBS’ chief executive, Leslie Moonves, told an investor conference that moving the CBS network to cable would be “a very interesting proposition.” Two days earlier, Jeff Zucker, chief executive of NBC Universal, warned that the entire broadcast TV model must change. “Otherwise it will be like the newspaper business or the car business,” he told the investors.
At the local level, where advertising revenue is at record lows, many stations are scaling back their original programming, cutting down on weekend news shows and trimming staff. Some are sharing crews and ENG equipment among stations in the same market. Nationwide, TV station ad revenue for this year is projected to fall 20 percent to 30 percent, according to industry consulting firm Bernstein Research.
The networks themselves are not fairing much better. CBS, with the highest overall ratings of any TV network, just reported a 52 percent drop in profit. The Walt Disney Co. reported a 60 percent slide in operating income in its broadcast segment, including ABC and 10 ABC-owned stations, for the quarter that ended Dec. 31. This was in part because of a 15 percent drop in revenue at its local O&O TV stations.
News Corp., which owns Dow Jones & Co. and “The Wall Street Journal,” recently reported that its local TV stations, including 17 Fox stations, will undergo “major” cost-cutting in the coming 12 months. The stations are looking at a 30 percent decline in advertising revenue for the second half of the fiscal year ending June 30.
The weakness in the local TV market could hammer the big broadcast networks, according to Randy Falco, former president of the NBC Universal Television Group and now CEO of Time Warner Inc.’s AOL. He said cable operators might lure networks away from their ailing affiliate model with the promise of steady subscriber fees.
At another conference, Moonves said cable operators have offered to pay fees directly to CBS, cutting out the local stations altogether. He didn’t name specific operators. “Down the road that’s something that very well could happen, but I think it’s five or 10 years away,” Moonves said, citing long-term agreements with CBS affiliates.
Local TV stations won’t vanish overnight. The networks’ parent companies still own some of the largest stations in the major markets, giving them some incentive to preserve that slice of the business.
At a time when many local newscasts are now being broadcast in HD, others are feeling the pinch. Stations have pulled the plug entirely on some news shows in Lexington, KY, and Yakima, WA. In November, stations owned by News Corp. and NBC Universal said they would begin pooling their newsgathering resources. Others say rather than shrinking local news coverage, they’re expanding it, because it’s the only original content they still have.
The endgame could come sooner for stations where affiliation agreements with networks are due for renewal in the next three or four years. Over-the-air broadcast deals between NBC, CBS and Fox and the NFL, for example, expire after the 2011 season. Some sports events — like college football’s Bowl Championship Series — have already signed more lucrative deals with cable networks like ESPN.
As local earnings plunge and media companies take massive write-downs on the value of their broadcast licenses, the networks have fewer incentives to hang on to the stations they own and operate.
In a recent column on the daily “ShopTalk” online newsletter Erik Sorenson said,“Ask a friend working at any O&O whether she thinks her network gives a hoot about her station. You will get an earful. Iger, Zucker and Moonves have heard the infamous sucking sound and it's coming from the revenue side of their stations' balance sheets. That's what they care about.”