TV: The Next to Fall

Young Broadcasting, once - but no longer - a forward-thinking TV company, just filed for bankruptcy under the crushing $1-billion debt load. This follows the bankruptcy of cable company Charter and, of course, TV-station-owner Tribune company. And let’s not forget radio giant Clear Channel, with $19 billion in borrowing, tapping its last-resort debt and Sirius-XM (SIRI) (whose stock I own) nearing bankruptcy while even Muzak crosses the line.

We’ve been wringing hands over newspapers and magazines, but TV and radio aren’t far behind. Broadcast is next.

It’s a failure of distribution as a business model. Distribution is a scarcity business: ‘I control the tower/press/wire and you don’t and that’s what makes my business.’ Not long ago, they said that owning these channels was tantamount to owning a mint. No more. The same was said of content. But it’s relationships (read: links) that create value today.

Young tried to build relationships, once upon a time. At WKRN in Nashville, Mike Sechrist did amazing work starting blogs, building relationships with bloggers, training the community in the skills of the TV priesthood. But he left and all that disappeared. Been there, done that, I can imagine executives saying as they try to stuff the hole in the dike with borrowed dollars. Didn’t work.

The local TV and radio business, once a privilege to be part of, is next to fall. Timber.

Comments

[lcs:]

Good riddance.

Feb 17 04:12 PM

[findyourblue:]

I'm not so sure that we can say the bankruptcies are an indication of an industry model that is no longer relevant. Perhaps the bankruptcies in the media might be due to the same factors as bankruptices in other sectors - over leveraging and over spending. Would you say that the historic number of foreclosures indicates that living in a house is no longer the right approach in society? Of course not. Business models and strategies need to be refined, but I believe your logic is flawed.

Feb 17 05:29 PM

[k9s-4-k8:]

Stop!!! You're getting me all giddy thinking about broadcast TV facing the big BK. What I would give to see CBS, NBC, and ABC maybe ending up in nonpartisan hands. Imagine a world where news coverage is.....news, and not colored commentary with a news label on it. Ahhh, I have to stop dreaming.

Feb 17 10:19 PM

[sstro:]

When they tell the truth we will watch. NBC will be the first to crumble under the weight of GE's Debt. OO wait they get bailout money so tax payers get them out of trouble only to be brainwashed by their BS. DEATH TO THE MANIPULATORS.

Feb 18 08:21 AM

[Doug Poretz:]

TV isn't the only "next" to fall. The large publicly owned multinational ad/etc. shops are also going to face catastrophic issues. Fair Disclosure: I am in the communications business and we operate with a different model (we happen to be successful too).

OK. Consider this:

1. There has been a revolution in the communications business, but the big ad shops have not changed their models. They still bill on the basis of time, which is their biggest mistake. Clients do not care how busy (or not) their agency is -- they care about whether their agency is helping them achieve their goals. They care about value. But ad agencies, pr shops, even digital shops bill by the hour. They all keep time sheets. Dumb. Washington Post Steve Pearlstein wrote about the issue a couple years ago -- see this link: tinyurl.com/ylobdq

2. The revolution in communications also means that those who want to take a message to an audience have many distribution channels to use. But the agency business is defined by distribution channel -- that is, they are an ad agency (or the ad practice group) because they buy time or space on media owned by others; pr firms earn coverage on media owned and controlled by others; digital shops use digital distribution channels. But communications isn't about using a particular channel -- it's about getting the right message to the right targets using whatever distribution channel works. The agency business is irrationally organized on the basis of a tool that can be selected to achieve a goal instead of the goal itself.

3. Remuneration is wrong. People are paid based on how much time they and/or their practice group bills. This discourages collegiality in a creative endeavor when collegiality should be encouraged.

4. The multinational agencies are top heavy and economically trapped by their acquisition history. Companies acquired with earn-out agreements often left their own overhead in place. Acquirees became acquirers because it would often boost their own earn-out pay, and that created even more layers of overhead -- expensive and cumbersome and just what you don't want when you need to turn a big ship around quickly. Plus, some of a parent's agencies are going to meet the criteria to get paid on the basis of their acquisition agreements -- usually these payments can be made by either stock or cash, but they must be paid. How are they going to be paid in the future? With precious cash or with stock that has been dramatically devalued and therefore highly dilutive?

5. Some markets are totally dead: both certain geographic markets where the large agencies have offices and certain industry verticals for which the large agencies have dedicated offices. Those locations are going to have to be shut down or be significantly downsized. That is going to cost time, money, and disruption that will ripple through the morale of the entire workforce of all the agencies of the parent. That disruption will lead to clients fleeing to new shops with new models and the prospect of stability -- and the highest quality personnel (always in demand) will also flee to the new shops, and that will only continue the disruption. Loss of time, money, clients, talent -- all on the horizon.

As I said up-front, I am in the business and clearly have a bias. You can click on my name or blog above for more.

Feb 18 08:42 AM