If you think newspapers have it bad, TV’s business model is flawed too

It’s no newsflash that the newspaper business has fallen on hard times. The reasons may include the high costs of printing and distribution, poor management, high cost of debt, the recession — but the biggest long-term problem may be that newspapers give away much of their content for free on the Internet.

Yes, online versions carry ads, but they bring in far less revenue than print ads.

A further problem is demographics. Young people are less likely to read newspapers than older people. The vicious cycle is that as revenues decline, newspapers cut back on content, making them less desirable. 

There are no easy answers. Life without newspapers seems unthinkable, but a more economically viable business model has yet to be found. Making more money from the Internet version is probably a key.

But there’s been little media attention about the possibly more ominious future of the broadcast TV business model.

Commercial TV content serves only one purpose — to bring viewers to the advertisements. But thanks to technology, fewer ads are being viewed.

Since about 1980, viewers who are paying attention (the ones advertisers like) are most likely to change to another station rather than watch the ads. To make things worse for advertisers and TV stations, millions of people have bought digital video recorders (DVRs) that allow viewers to record their favorite shows for later viewing and either fast forward through the commercials or eliminate them altogether. About one-third of all U.S. households have a DVR, and millions more are being sold each year. 

Yet the industry is still trying to convince advertisers that people are watching and paying attention to all the ads.

To determining who is watching what, the TV and advertising industry depends largely on Holland company Nielsen Research, which has its own dubious model that relies largely on hand-entered viewer diaries. I even received one a few months ago, with $5 to encourage me to fill it out for a week.

I really intended to, but found it just too burdensome. I could easily see how someone might be enticed to just fill in their favorite shows. After all, a few diaries can make the difference between a show being renewed or canceled.

Nielsen also uses some set top boxes that record when the channel is changed. But the viewers are supposed to check in and out when they enter or leave the room. Who would do that?
I can’t imagine why advertisers have allowed such a questionable system to be the primary determinant of who is watching what program, let alone how many ads are being viewed.

Nielsen is not the only game in town. Tivo, one of the pioneers of the DVR, can provide far more accurate data from its 3 million subscribers on who is recording what. But the only way for advertisers to know for sure if you are paying attention to their ads is to put a wire in your head — and they’d do that if they could.

In recent years, people have been getting more of their video and TV experience off the Internet with services such as YouTube and Hulu. But it is unlikely that current Internet infrastructure will be able to support traditional TV via the Internet due to bandwidth restrictions. Anyway, it’s clear that TV ads are reaching a smaller and smaller audience. 

So what will TV look like in 10 or 15 years? When advertisers finally realize that fewer people are actually paying attention or even watching their ads, they will be disinclined to pay top dollar.

If networks can’t get as much money per minute of ad, they will likely increase the number of ads and/or reduce the quality of programming. Eventually we may even see some kind of subscription service to replace the ad revenue.

Both newspapers and broadcast TV will look a lot different in the next few decades, but I think the changes in TV will come a lot more rapidly than for newspapers.
Legge’s column runs every other Thursday on the editorial page.