Who Shot Network Television?

You don’t need a CSI team to see that the wounds have been largely self-inflicted, but the networks can pull through if they recommit to innovative programming, says a media veteran.

A couple of key developments have been overlooked among the job cuts and bankruptcy filings in Media Land of late, but they’ll have huge significance to the future of network television.

First were the executive changes at NBC and a restructuring that will put its studio and network under one management team. NBC co-chairmen Marc Graboff and Ben Silverman will have the newly combined operations under them.

Once again the big winners will be those who create and own great content.

Next came a speculative piece in TVWeek that Disney is considering having the ABC Network and ABC Studios report to a single executive, possibly merging its development teams.

A few years ago, when CBS separated from Viacom, CBS Network President Nancy Tellem was also given authority over the Paramount TV studios.

In each case, there are probably personality issues behind some of the changes and certainly cost issues behind the consolidation. But the real message here, the one that will resonate for years to come, is that network television is losing its grip over distribution and needs to concentrate its creativity on programming.

As it becomes ever easier to deliver video to a growing broadband audience, many more will continue to do so very successfully.

Many of the reasons television networks exist are over. Networks built a “network” of local stations around the country so they could deliver the same programming in each city and sell advertising at the national level around that programming.

How long has it been since you watched a TV show on a set getting its signal over the air through an antenna? The country watches TV on cable and satellite today, and both are capable of delivering nationwide programming without the need for a local broadcast partner.

The creation of cable entertainment networks like HBO, Showtime, TNT, A&E, and Discovery; sports networks like ESPN; and news networks like CNN, CNBC, MSNBC, etc., have all chipped away at the nationwide content monopoly once held by the big television networks. As distribution finally reached virtually every home in the nation through either cable or satellite, many of these networks were able to create original programming that could pay for itself. And for the first time, studios and producers could create television programming that didn’t have to be bought by a network to succeed. In the end, CBS, NBC, ABC, Fox, and even the CW are practically on an even par with the most successful cable and satellite networks. They can reach almost exactly the same audience.

When the Internet is hooked up to most home TV sets, which will happen over the coming decade, anyone with a website will be able to reach all the homes in the country. At that point, even cable and satellite networks will have diminished power. It will be possible, for example, for YouTube to create a scripted drama that appears every week and is viewable on every living room TV set. And YouTube and Google may have the marketing clout to bring the audience in for some innovative programming. It’s fair to assume, though, that none of this will provide for any change unless these new players produce content people ultimately want to see.

The TV networks will still exist, because it will still be more efficient to deliver a lot of programming down a point-to-multipoint network, rather than a fully interactive one. When scores of millions of viewers all want to watch one show at the same time—the Super Bowl is a good example—it would be incredibly expensive to have them watch over an interactive platform. So there will be pipes into our homes with one-way broadcast capabilities, using either cable or satellite technology. They will still have the advantage that they can cheaply deliver programming on a schedule to every household.

So don’t count out our TV networks entirely. It’s no accident that whether you can get 15, 60, 100, or 1,000 TV stations in your home, the four or five you watch the most are the traditional broadcast networks. They each spend a small fortune to develop dozens of shows each year, and only ultimately offer the best of the lot to the public. That system has created shows of increasing quality and, one hopes, will continue to do so. And it has created marketing machines that know how to promote the programs to broad audiences. And they can grow more revenue for those shows by making them available on all the other digital platforms, much the same way they profit from reruns and DVD sales today.

If they can keep creating first-rate programming (through their studio operations), the networks can still dominate the programming scene. Ultimately it’s Leslie Moonves’ enormous talent as a developer of great programs that can save CBS as a television powerhouse.

But the networks won’t have the advantage of being able to hold their dominant positions even if they screw up the programming, which they have enjoyed in the past. They won’t dominate the programming the public gets to choose from. And the competition will continue to grow as more and more content creators get access to TV views through the new distribution platforms.

So once again the big winners will be those who create and own great content. They will, as they always have, find the best way to get that content to people who want it. As for the networks, look for them to slim down to become more like studios.

Larry Kramer is senior adviser at Polaris Venture Partners, a national venture capital firm. He served as the first president of CBS Digital Media. Prior to joining CBS, Kramer was chairman, CEO, and founder of MarketWatch, Inc. Kramer spent more than 20 years in journalism as a reporter and editor at The San Francisco Examiner, The Washington Post, and The Times of Trenton.

More Bad News For Tribune

UPDATE: Tribune filed for bankruptcy Monday, Dec. 8

They all knew better, or at least should have.

When several private equity firms were looking at the Tribune Company early in 2007, they came to the same conclusion. Even though they would be taking over some of the biggest and most influential newspapers in the United States, including the Los Angeles Times, the Baltimore Sun, the Chicago Tribune, Newsday and several TV stations—the media industry was foundering and the acquisition would collapse under the pressure of the debt that would have to be taken on to buy it.

But billionaire Sam Zell was just a bigger gambler than they were. And why not? He had bet on real estate for decades and been breathtakingly successful. With this deal he even found a way to use the Tribune Company’s employee pension and stock ownership plans to finance the billions needed for the acquisition. By risking only $315 million of his own money he would still get controlling interest of a company valued at $8.2 billion. Zell also took ownership of the Chicago Cubs in the package, which he said he would sell off to insure he had enough money to pay off the debt.

But now it appears – according to reports Sunday night in the online editions of the New York Times and Wall Street Journal — that the company has hired bankruptcy advisors to map out the next steps. It looks as if Tribune can’t maintain certain covenants that were placed on it when the company borrowed nearly $12 billion to buy the business from the previous shareholders. Essentially that means the company isn’t earning enough money (before interest, depreciation and amortization) to justify the size of the loans it has.

The biggest surprise to everyone involved is that it only took a year for this deal to crash and burn. During that year there have been massive layoffs throughout the company, Newsday was sold to Cablevision, and still the losses grew. In November, Tribune declared a third quarter loss of $124 million, vs. a profit of $85 million a year earlier. Even the sale of the Cubs has become problematic with the drop in the economy.

Many of you are familiar with this problem. It’s not all that different than having a home loan that is larger than your income would suggest you should have. It means you earn less money than it takes to make your monthly housing payment. How did that work out for all of you?

To be sure, when the potty-mouthed Zell came along there weren’t a lot of alternatives for the Tribune Company, which had given up the fight itself. They lost control of the management process and were firing editors and publishers at their marquee newspapers regularly because they couldn’t get them to support whatever corporate plans were presented in order to survive an industry downturn.

Since 2000, when Tribune went out and bought Times-Mirror Corporation and its stable of large newspapers (The Times, Sun and Newsday all came with that acquisition), it appears they were never able to absorb that acquisition and make it work. They didn’t use their new size to do what had to be done in the news business: Retrench and begin to develop new markets for their content.

But even Zell, the eternal optimist, didn’t anticipate how quickly the media industry would fall into deep trouble. In November, the company announced that total revenue for dropped 10% in the third quarter, to $1 billion, from a year earlier, while advertising was down a stunning 19%, to $584 million.

Around the country, once towering regional businesses, large metropolitan dailies like the San Francisco Examiner and the Boston Globe are losing huge amounts of money for their respective controlling companies, The Hearst Corporation and The New York Times Company. And the private companies that borrowed money to buy newspapers are all struggling. The local company that bought the Philadelphia Inquirer and Daily News, as well as the one that bought the Star Tribune in Minneapolis have recently suspended their debt payments, but neither has filed for bankruptcy.

So what happened?

The problem is that the media industry hasn’t paid enough attention to its customers. As the public continues to get more news, information, and even entertainment when they want to, as opposed to when news and entertainment companies want to give it to them, the industry didn’t moved quickly enough to react to that trend.

Meanwhile, newspapers, broadcasters and the advertising industry all under-invested in digital platforms. So while there were new messages every day – the growth of Craigslist, the dramatic uptick in digital video recording (and fast forwarding through commercials), the rapid growth of Google’s advertising platform—the media industry didn’t look outside the box for answers. By and large they kept doing everything they could to protect the huge profit margins they built when they controlled most of the distribution of their products.

To be sure, they are all trying to catch up now, but they still don’t know how to do it without jeopardizing their existing revenue streams, which while shrinking, are still quite large. The media industry needs to move quickly and learn how to create and deliver content across all platforms—and get paid for it.

The good news is that there is still great demand for news and entertainment content. And today’s generation is absorbing more content through more forms of media than ever before. Unfortunately, when it comes to developing creative, industry-changing ideas, many of our mainstream media companies already seem bankrupt.

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Larry Kramer, the founder of CBS’ Marketwatch.com, spent 20 years in the newspaper business as a reporter and editor at The Washington Post and San Francisco Examiner.