5 Reasons Broadcasters Need Real Digital Strategies Now

Last week was hard on media stocks. For a couple of days it looked like the dire warnings about cord-cutting and millennial TV viewing had proven out. There was real evidence that cord-cutting had taken a bite out of cable revenues. Networks saw audience declines ranging from mild to massive. Wall Street concluded that no matter how well broadcasters perform, too much of that success comes from declining legacy businesses not growing digital ones, and there was no turning back.

Of course, media stocks may rebound. The political advertising windfall broadcasters expect may keep bottom lines healthy for the next 15 months. But the fears underpinning last week's massive valuation declines remain, and until broadcasters can show that they are truly focused on long-term solutions to today's challenges, a repeat of last week's beating is inevitable.

What did Wall St. see that broadcasters do not? We will never really know, but here are...

Five Reasons Broadcasters Need Real Digital Strategies Now

1. Core Revenue Will Decline
We've now had two soft upfronts in a row, and lots of discussion about how much TV money is being moved to digital. The reason: ratings declines, particularly among Millennial viewers ages 18-34, make it necessary for media planners to find other ways to reach those consumers. Digital is rapidly becoming the medium of choice to reach that demographic, so budgets are increasingly aimed that direction.

In the short term, broadcasters take heart that any declines will be offset by a huge political season. Except that...

2. Political Buyers Will Move TV Money To Digital Too
TV news viewers are voters, so broadcasters expect campaigns to spend massively on local TV news just as they have in past years. But is that really a given? The erosion in younger audiences has left mostly older voters watching live, linear newscasts. Older voters are less likely to be swing voters, so political buyers need to find young, undecided voters somewhere else - meaning on digital platforms - and they will use some of their broadcast money to do that.

But increasing retransmission fees should help make up for any declines in ad revenue. Unless...

3. Retransmission Negotiations Get Much Harder

While broadcasters expect retransmission fees to increase significantly over the next several years, that is not likely to happen for two reasons:
  • Now that cord-cutting is out in the open, there is tremendous downward pressure on programming costs. Cable and satellite companies will put up quite a fight to avoid increasing cable bills. Though harder for network-owned stations that are bundled with other channels, the cable companies will have some success. And...
  • Broadcast is not the only way audiences can get network programming, so their value to cable customers has dropped. Affiliates have lost exclusivity to their network's shows, and audiences can enjoy them online in a variety of ways, including Hulu and network web sites. Without exclusivity, broadcasters have less leverage in retransmission negotiations. If Hulu apps make it to cable set-top boxes, bringing prime time programming with them, stations will have an even tougher time arguing for more retransmission money.
Only live sports programming remains exclusive to the leagues' broadcast partners. Wait...

4. Pro Sports Leagues Go Over-The-Top
Major League Baseball was first, offering out-of-market games to online viewers. But now, they've been joined by the PGA Tour, Major League Soccer, the NBA and the NHL. For now, a complicated series of blackouts and restrictions protect broadcast contracts, but once the leagues have that customer relationship, things can only get worse for linear TV companies. And how long does the NFL sit on the sidelines?
All of this is why...

5. The Spectrum Auction Will Bring Blessed Relief
If things get worse in the coming months, some broadcasters will wholeheartedly participate in the auction despite their more circumspect stance today. Whether through repacking agreements or simply going dark, it's going to be hard to pass on the FCC's big payday rather than do the difficult and seemingly risky work of building a successful and profitable digital business.

Adapting to the changing needs of television audiences need be neither expensive nor overly complicated. But it does require that broadcasters think differently about what they do and how their product is consumed.

Last week was the wake-up call...now is the time for broadcasters to get serious about digital distribution and programming for local audiences.