April 2015 38 FTA’s Future retransmission consent payments have helped counter the challenges many broadcasters are facing with declining advertising revenues, the plethora of choices available to consumers and the impact on FTA TV cannot be underestimated. Some FTA channels have been around more than 60 years. Until a few years ago, those channels captured the lion’s share of video viewing. That status is changing — some would even say fading away. Nearly every broadcaster and cable channel’s ratings are down by double digits, year-over-year. Traditional TV usage, which has been falling among viewers 18-to-34 at about four percent a year since 2012, went into a free-fall of 10.6 percent between September 2014 and January 2015 in the U.S., according to Nielsen. There are almost 20 percent fewer young adults watching TV sets in primetime versus 2011. However,thataudiencehasn’tstoppedwatching “TV.” They’ve just found other sources — mostly over-the-top (OTT) services — for video rather than turning to FTA channels. They’re watching video on smartphones and tablets as opposed to television sets. One should not assume this is simply an anomaly, because data — coupled with the difference in generational behavior when it comes to consuming video — indicate that traditional TV viewing will continue to decline, in some ways like we have witnessed with fewer consumers buying newspapers. Naturally, many are asking, “what happened, and can the course of consumer behavior be changed?” Predicting the future is a challenge, but I would posit that the change was inevitable, particularly for the FTA sector, which has had little competition, aside from the launch of cable channels, most of which were a blip on the radar even if most cable channels garner a small audience share in relation to broadcasters. For a while now, primetime broadcast network viewing has been steadily declining, with broadcasters turning to expensive sports rights in hopes of drawing viewers and eviscerating DVR ad skipping. It’s a bit of “back to the future” as live TV has proven to be the “magic potion” to steady the broadcasting ship. Who would have thought that the early days of TV, when everything was live TV, would resurface and be the programming of choice for the broadcaster? Broadcasters and studios fought the videocassette recorders when they were introduced in the 1970s, all the way to the U.S. Supreme Court. Fact is, no one has ever offered ratings. In the past 20 years, fewer than five percent of broadcast network series survived the five years needed to go into syndication, where the real money awaits. That’s all changed. During an interview at the Consumer Electronics Show in January, CBS CEO Les Moonves said, “Overnight ratings are worthless right now. We have to be more patient. Our information is coming in from so many different places, over much longer time.” Netflix refuses to share an ounce of ratings data. Of course, they don’t sell ads as broadcasters do, so it’s a different game for them. But the manner in which Netflix and other services measure their success, and failure, are at the polar opposite of broadcasters. Netflix will invest in an entire season, or two, of a series before the first episode is shot. They give their subscribers full access to binge-view the series, even risking that a subscriber comes, watches the season in a weekend, then cancels the subscription. As counter to the norm as that may be, it’s working for Netflix. Netflix’s audience is growing globally, and its market cap exceeds $25 billion. In the meantime, many FTA broadcasters are watching their “ice cube melt” a little each month. FTA broadcasters can’t abandon the ship and attempt to mirror what the new kids on the block are doing. But they also can’t hang onto the past in hopes that their bottom line will magically improve. Every year the FTA broadcasters’ core audience is aging, and ultimately dying. That’s fact. Offering an OTT version of the FTA broadcast, as some are trying, and expecting to charge consumers more than a couple of dollars, will fail. That’s not even a genuine attempt to actually compete. While the spectrum they control is valuable, unless the end game is to milk the business for as long as you can, sell the spectrum and find something new, it’s time to adapt, or risk following the path of Kodak. Fox’s CEO Chase Carey summed it up well during the 21th Century Fox earnings call on February 3: “Realistically, there is an over-supply of mediocre programming, but hits are gold. There’s a ton of product out there, so a ton of competition. Who is best positioned to create the hit programming of tomorrow? There will be winners and losers,” he promised. “The business you see today will not be the business you see in a few years.” So true. By Blair Westlake proof that videocassette recording had adversely impacted broadcaster’s ratings or revenues. As for studios, the sale of motion pictures on videocassettes meant many movies not only broke even, butmademillions of dollars in profits, which would have been impossible without that technology. Technology delivered in a big and positive way for the media industry. Will history repeat itself? Technology has caused massive disruption for the media industry. While selling DVDs and Blu-ray discs of movies and TV programs will be around a while, sales have been declining since a peak in 2005. Digital transactions — particularly rental — are taking the place of physical goods, especially amongst the 18-to-34-year-old consumer, the same group that is turning the proverbial dial away from FTA, to alternative sources of video. It would be shortsighted to suggest that FTA stands alone when it comes to competition eating some of its lunch. To the contrary, the number of new sources for compelling video content has “spread the peanut butter” so thin over a massive surface, such that everyone is feeling competition, “new” and “old” alike. Video services that launched in the past few years, believing the biggest challenge is licensing content (since distribution, thanks to the Internet, is free of gatekeepers), are finding it’s more complicated than ever imagined, or stated on a business plan. Start with the business model. Is it adsupported, subscription, a hybrid, or using the service to support another business and not charge a subscription to sell advertising? For all that Netflix has achieved, surpassing 57 million subscribers worldwide since launching the digital service in 2007, many other services have struggled to reach even 10 million subscribers many years after their launch, or to break even. That’s only going to get more challenging as the landscape of video offerings expands everywhere. For most of TV’s history, success was measured on a program-by-program basis of overnight (Continued from Cover) Blair Westlake is a media strategist who began his career as an attorney in the law department at MCA and rose to become chairman of Universal Television and Networks Group. From 2004 to 2014, he was Microsoft Corporation’s liaison with the global media and entertainment. FTA broadcasters can’t abandon the ship and attempt to mirror what the new kids on the block are doing. But they also can’t hang onto the past.
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