April 17, 2007

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Collectively, many of the attendees of the NAB (National Association of Broadcasters) conference this week are very concerned that local television stations and some major network affiliates will be the next business category to be severely threathened by the Internet.

Overall, the Internet could offer TV networks even more clout when cutting deals with their affiliates. However, the news isn't all that bad. As it relates to broadcasting, the advertising industry is going to continue to grow, and the switch from analog to digital could even mean a big payout.

But for many local television outlets, all the warning signs are there and cannot be easily discounted.

In March, News Corp. and NBC Universal established a new online video network that will help distribute movies and television shows across some of the top Internet portals.

For its part, CBS also announced its own video network last week.

Richard Jones, GM of Bay City TV says "many people are deeply concerned by all of this." Bay City TV is a Fox affiliate in San Diego. Jones added "it's still so early in the cycle that nobody knows exactly what's going to happen next. But there's really many worries about TV shows that have been seen on the Internet and whether it will affect future ratings in any way."

Overall, the mounting pressures on affiliates keep building and hit home for Jones on a recent flight when he noticed the man sitting beside him was watching Fox's 24.

Jones said "he told me he missed the show during the week so he downloaded the episode on his iPod. He simply wanted to get caught up by the time Monday's new episode aired! That's part of what we're dealing with and it's growing rapidly."

Clearly though, the market for regional TV broadcasters appeared troubled even before the advent of the Internet.

Over-the-air broadcasters have been challenged by cable and satellite distributors for decades and since 2002 by DVD sales. The Web is just the latest technological threat to come along and take another cut from the $75 billion market for television advertising.

A list of rivals, from mobile carriers, Apple, Joost, YouTube, NetFlix, TiVo, Sling Media and many others are all offering TV audiences some alternatives to traditional broadcast television.

Additionally, most of the startups can offer features like on-demand viewing. In 1987, it was a different story. Affiliates wielded much more clout because the networks needed local stations to promote and broadcast their shows around the country and paid dearly for that.

However, the affiliates also represented a bustling market for weekly reruns. Now some wonder whether the Internet offers networks even more clout when making deals with their affiliates.

Doug Wills, a former spokesman for the NAB said "it's simply a question of leverage." Wills is now a marketing executive for RedBack Networks, which offers video-centric routers.

He added "in 2006, virtually all the TV networks have announced broadband offerings. There is no question that even before 2017 viewers will be getting high-quality video from the Internet. The temptation is very high for the networks to ask their partners to come up with more money."

Among the U.S.'s top four networks, Fox has demonstrated the most willingness to include its affiliates on its various revenues coming from the Web.

In March, the company announced an important plan to distribute TV shows such as 24, Bones and Prison Break to the websites of 200 affiliates. On top of this, Fox will even share ad revenue generated from the online offering.

Still, some local broadcasters are trying hard in becoming creative as they continue to witness more challenges coming from the Web.

For instance, Diane Sutter, president of MyTv has asked viewers to produce their own shows. Her TV station will broadcast the rest.

Sutter said "it's ill-founded to focus on whatever formats or broadcast mediums are the best. Instead, we need to focus on enhancing viewer experience using broadcast, Internet, podcasts and whatever else we have at our disposal."

However, there is a ray of sunshine for local TV affiliates. In 2006, the industry grew by about eight percent and some observers are expecting a similar growth in 2007.

The expected switch from analog to digital signals could also represent a little gold mine for some local broadcasters as well.

Steve Carlston, managing partner of Vegas TV Partners said "in less than 20 months, U.S. television broadcasters must switch to digital signals, and some local affiliates may find a new market for the spectrum they own but don't use."

Carlston added "it's kind of a burgeoning territory. People have long said that mobile phone carriers as well as others may want our extra space.

Overall, it's still way too early and we haven't made it the highest priority for us, but we'll definitely start taking a second look at all that potential market very soon."

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Source: C-Net News