I read a WSJ article a couple of weeks ago that spoke of the problems that local TV affiliates are facing. I also just noticed a recent announcement about Fox redeploying local TV affiliate sites under a blanket brand of MyFox. All of these efforts are in response to local affiliates watching their revenues and margins begin to plateau (and in some cases decline.) These businesses have traditionally been cash cows, reliably turning out substantial earnings for their stakeholders with little variance (except for 4-8% growth) year over year. But all of a sudden this nice protected enclave is being disrupted. It started with newspapers and radio before hitting television, but it is happening at an escalating rate and the local affiliates don’t really know what to do about it. (WOOD-TV, the affiliate in the WSJ article, even spoke about taking classified money away from the local newspaper, like that’s a strategy for growth…)
My original thought late last year was that these businesses were doomed to obsolescence. Back in the days when a tower was needed to broadcast signal to all those rabbit ears, the local affiliate served a valuable role. But the rabbit ears are gone (or at least in the process of disappearing) and the broadcast tower is disappearing along with them (unless Wi-Max brings them back). But my general feeling was that they were a middleman in a world that is getting rid of unnecessary middlemen (or at least automating the function of the middleman upstream or downstream in the supply chain.) “Local affiliates are doomed!” I used to say. “iTunes, Google and Yahoo are going to crush them,” or some such derivative would follow.
Well, I’ve changed my mind. The role of a television affiliate is not just that of physical broadcaster, the role of the affiliate is also that of an aggregator. Local affiliates essentially take nationally syndicated content from their affiliate (say ABC) and combine it with locally syndicated content that they have produced (largely local news, sports and advertising.) They then “broadcast” this content over the air and, due to carrier regulation, over cable and satellite. But they serve a very specific constituency, the local market. And regardless of how the Internet works to drive efficiency in this model, relationships with constituencies that are organized around physical location are still very valuable. These are all things that the big 5 portals don’t do very well right now.
The problem that the affiliate has is that they are limiting their aggregator role to broadcast content (or largely anyway.) You’ve seen some local affiliates begin to explore the (re-)release of assets via streamed video within their websites, but these have been experiments with repurposed broadcast content. These efforts still position the affiliate as content producer, not content aggregator. This is a dated strategy, doomed to marginalization in the world of edge production and distribution.
Aggregators must stop looking at user-generated content as a threat and start looking at it as an opportunity. (Hey, cheap free content guys, just waiting for a channel/brand to call home!) The affiliate’s role as aggregator in the broadcast world was relatively easy. Pick which stories to cover that are important to your local constituent and do not piss off any advertisers. Plug in the national stuff and you’re done. The filtering process was straight forward. But the role of the video aggregator is expanding and becoming more complex as the quantity of content explodes. They don’t just have to select which stories to cover and send out the crew; they now have to begin filtering thousands of outside video sources for those stories that will most appeal to their local constituency. They have to begin allowing their constituency to select the stories and contribute to the dialogue (shocking, right?) This is a difficult job, especially for those that have grow up hogging the microphone, but the role of filter is where the value is now accruing in a big way.
The new TV affiliate must now carry Desperate Housewives, the Giants game, and the YouTube video of a random guy interviewing a city councilman about proposed zoning changes to a street in the Mission. It is no longer good enough to draw arbitrary boundaries around what video is deemed acceptable or unacceptable for broadcast. The boundaries must now be drawn around what is relevant and irrelevant to some portion of your constituency (even the small ones who may draw them for you). This is a much more difficult proposition, but this is precisely why those that do it well will be enormously valuable to their local constituency. Do this well and watch your brand and customer base grow.
If they can overcome the cultural issues, the advantage of the affiliate is substantial. Most importantly, they already have a very big megaphone. I can’t tell you how many times a potential investor has asked me how CozmoTV is going to get our audience. The older guys ask about marketing dollars and the younger guys ask about viral strategies, but they all ask. The problem with all Web 2.0 businesses is that they are not working with large marketing budgets, they must build killer product and wait for the buzz to build through word-of-mouth. But even with the best product this can take time, and time is a scarce commodity today. But TV affiliates already have the audience. It may be getting older, but it’s huge. All they need to do is release good new product and extend their brand in directions that feed viral growth and you’ve got a monster success. Viral growth strategies work that much better and faster when you start with a large base.
The bottom line is that TV affiliates must start aggregating content beyond broadcast, beyond what the nationals are syndicating, beyond the same tired newscasts. They can do it through new relationships (CozmoTV?:), or they can do it on their own, but they must figure out a way to do it fast. The choice is new growth or a slow death while some hedge fund holds your hand on the left while they dig the pit with their right. Many of these guys will choose death, but I think a lot have aspirations for new growth. But they better get their asses in gear or someone else is going to start doing it first and in 12 months those millions of captive customers won’t look so impressive anymore (they also won't be so captive.)
UPDATE: Terry has a great essay out about the idea that TV affiliates have to sell against themselves in order to make this transition. It's similar to the push back I heard from CBS about polluting their brand (which I'll talk about in a post in the next day or so.) I think these guys need to set up separate Web properties where they can experiment with the brand without necessarily altering their existing Web properties. As Terry says, they sometimes need to create children that are willing to kill the parent. Brutal but sage advice.