Cloud Computing and the Death of Local TV
The Internet has changed the newspaper business irrevocably: Will it do the same to local TV news? And what does this teach us about cloud computing adoption? CIO.com's Bernard Golden explains.
Wed, May 26, 2010
CIO — I came across a really interesting set of two blog posts on the future of local TV written by Alan Mutter (with whom I am slightly acquainted). Alan is a long-time media executive and consultant who tracks and opines on developments in this area. He has a particularly strong background in newspapers, having worked for them for many years.
A telling quote comes right at the top of his first post:
"The tipping point is not yet at hand, but the economics of local broadcasting may begin to unravel as dramatically — and irretrievably — in the next five years as they did for newspapers in the last five years. The reason in both cases will be the unparalleled consumer choice made possible by a growing mass of (mostly free) content on the Internet."
He goes on to review the economic wasteland that the newspaper industry has turned into over the past five years — and how dramatic the descent from record profits has been. In 2005, newspaper advertising set a record at $49 billion; by 2009 that number had dropped by 43%, to $28 billion. It wasn't that long ago that running a local newspaper was, so to speak, a license to print money. In 2000, it made sense for Hearst to pay $600 million for the San Francisco Chronicle; by 2009, things had gotten so bad that Hearst was threatening to shutter the paper if unions didn't restructure their contracts. Mutter discussed this topic in his blog as well.
Furthermore, given the breathtaking speed in which the newspaper industry has been hollowed out, it might not take long for the same phenomenon to occur in local TV. Noting how the revenue drop has gutted the content of local papers, Mutter fears the same thing will happen to local TV — and, crucially — to local TV news. And, even compared to newspapers, owning a local TV station was really a license to print money, with pre-tax profit margins at 50% or more.
One thing Mutter didn't discuss is that many of the financial woes of companies in these markets is due to their financial structure — many of them were acquired with high debt loads, because, in a monopoly or oligopoly with stable markets, it makes sense to load up on debt to purchase assets. The Chronicle might not have been reduced to threatening closure if it hadn't carried so much debt — but in a pre-Internet market, it made sense to finance an acquisition. A local TV station, KRON (yes, formerly owned by the Chronicle), declared bankruptcy after a heavily-leveraged acquisition led to inadequate cash flows.
