NBC reports that Netflix will be investing billions of dollars into original programming in its efforts to overcome its traditional TV competitors. (See

Two years ago I predicted that this was already inevitable, and that the growth of online entertainment would eventually lead to the death of most local TV stations, as their support from the TV networks and the retransmission fees paid by cable systems declined.

My prediction was in a chapter of a book I co-authored (released in June 2016 but written in October 2015), that TV in America had hit a similar "tipping point" that newspapers hit 10 years earlier. Over the 10 previous years, U.S. newspapers had lost a large share of their subscribers, their remaining subscribers were spending less time reading their newspapers, and 2/3 of their advertising revenue was lost -- largely moving to the Internet.

My prediction was that America's TV audience was about to make a massive movement to online entertainment, including Netflix, Hulu and YouTube. A little-known survey I cited in the book (chapter "Local News and Mobile: Major Tipping Points" in the book Handbook of Research on Human Social Interaction in the Age of Mobile Devices) showed that about 10% of cable subscribers had recently canceled their subscriptions and another 10% were on the brink of doing so. The very nature of a "tipping point" is for certain trends to gain momentum slowly at first but to suddenly take society by surprise with massive new support. The trends I saw were leading to such a tipping point, and the inevitable results would be for new revenues to entice Netflix and other challengers to invest big before the TV networks and cable systems could devise a viable counter-attack.

Harvard's Clayton Christensen, the creator of Disruptive Innovation Theory, explains that traditional companies with seemingly all the advantages are caught off-guard by such tipping points and, thus, respond too late. The newcomers take control of the market that had previously been controlled by seemingly invincible monopolies. That is precisely what is about to occur.

Sadly, local TV stations will be killed in the crossfire.

The local TV stations 3 years ago were being sold for record amounts because of the high fees that cable systems pay them to retransmit their broadcast content to cable subscribers. This is typically required by local government before granting rights to cable companies to tear up city streets, etc., to lay their cable connections. However, those fees are based on cable subscriptions and revenues. As those fall, so will the transmission fees. The networks may similarly find themselves in such a financial bind as to 1) seek more revenue from the local affiliates, or 2) to provide more content directly to online viewers to bolster their income with viewer fees and/or online advertising. In either case, the local stations are almost certainly doomed. If their local audience watches prime time programming directly from the networks online, the local stations will lose audience and, with it, advertising revenue. If they lose cable retransmission income and in any way are required to support the networks financially, they won't survive that either.

As with newspapers, the local TV stations have never been able to achieve much advertising revenue from their own websites. The only hope for the local TV stations would be if the networks allowed them to carry all network programming on their websites without charging significant fees to do so. The networks would have to insist on embedding their own advertising into the programming for that to make financial sense to them. And that might be their best response to Netflix, et al, as well. But so far, none of the traditional media have made good decisions in fending off the attacks of online competitors.

Those decisions usually require taking a short-term loss to achieve long-term survival, and that's been a very hard decision for traditional media to make.

For example, the New York Times seemingly continues to believe that it can survive with little change to its traditional business model. Maybe, but even if it survives because of its brand, it will almost certainly continue to lose a large portion of its print subscribers and revenue not only from their subscriptions but from the corresponding loss of advertising. Getting its subscribers to move over to its digital version has been like pulling teeth. And as they lose print subscribers, the economic viability of the printed product will disappear. They, like other newspapers and local TV stations, have also had difficulty persuading their advertisers to move their ads online and pay a comparable amount per reader as they did with the printed product.

To survive in the long-term, even the New York Times may have to take short-term financial loss and look for new revenue sources. Here is my advice to the NYT:

1) Set a firm date now for ending their printed product while they still have high brand value.

2) Offer subscribers a free smart pad in exchange for a 3- or 4-year subscription contract to their online news and services (similar to how American cell phone companies offer free cell phones for long-term contracts). The cost of printing and distributing the printed newspaper is so high that they would actually save enough money in just one year to pay for the free smart pads. After that, they would actually have higher subscription profits, even if they lose half of their subscribers, and would have those 3-4 years to convince their remaining subscribers that their online services are still worth the cost of a subscription.

3) In anticipating this change, however, the NYT should create new services to increase both their subscription value and their own revenues. These could include their own discounted mobile phone service with one-touch access from their customized smart pad, and free online TV programming (a la YouTube but also with their own online news, commentary and discussion programming), again with one-touch access with their smart pad. They might also consider educational services by purchasing or partnering with an online university.

Meanwhile, the cable systems are trapped with a more expensive model than their online challengers. They have tried to enhance their positions by bundling entertainment, Internet and telephone services, but a variety of competitors have been able to offer separate services at a lower cost: for example, $25 per month for mobile services with Internet, $10 for Netflix, and YouTube for free. And the younger generation prefers the mobile option anyway. But many in the older generations are also replacing cable with desktop Internet, large digital screens, and online entertainment options.

This tipping point will lead to the end of broadcast TV, and those traditional media that fail to adapt and, if necessary, accept the short-term losses required to survive, will fail. For many if not most of them, it is probably already too late.





Last modified: Friday, 2 March 2018, 08:47 PM