Network TV’s house of cards

The traditional TV networks are getting it from all sides these days.

Three of the four major broadcast networks have seen sharp drops in aggregate ratings since the beginning of the current TV season, raising alarm bells among analysts and investors. Network executives argue the ratings slide overstates the actual loss of viewership because some of those lost viewing is simply shifting to unmeasured platforms, such as DVR playbacks beyond the 3-day post-broadcast window counted by Nielsen.  Data compiled by the Wall Street Journal last month, however, showed equally sharp declines in total viewership even counting DVR playbacks up to a week after initial airing.

Apart from the loss of viewers, traditional TV networks are also losing their monopoly on A-list creative talent. On Thursday, Amazon formally announced it was beginning production on the first six pilot episodes for a series of web-based sitcoms it plans to launch on Amazon Prime Video.  The fledgling shows boast writing talent from The Daily Show, The Onion and The Big Bang, as well as Doonesbury creator Gary Trudeau.

Last month, Netflix released the first trailer for its original series House of Cards, starring Oscar winner Kevin Spacey, while Hulu’s newest web-original series, Up to Speed, features Oscar-nominated writer/director Richard Linklater.

At the Hollywood Radio & Television Society’s new media lunch this week, Allen DeBevoise, CEO of broadband network Machinima, said the combination of online video channels’ growing creative ambitions and their ability to target niche audiences on a global scale would further erode traditional TV audiences.

The Walking Dead is a loud, screaming example of a super-targeted series, DeBevoise said, noting that the the AMC series has often bested broadcast TV shows in the ratings. “I think the problem only gets worse when you start thinking about the online world.”

Former Yahoo CEO Ross Levinsohn was even more emphatic. ”I think network ratings, be they broadcast or cable, will be absolutely shredded within five years,” he predicted.

An even bigger threat to the traditional TV networks, however, may start to emerge in the first half of 2013. That’s when Facebook plans to roll out a new plan for inserting video ads into users’ news feeds. According to a widely discussed report in AdAge this week, the social network was been explicitly targeting current TV ad budgets in its presentations on the new capability to ad agencies.

“The assumption is that these would be widespread campaigns,” one agency exec told the trade publication. “They are looking to grab big chunks of money … millions of dollars.”

Facebook actually began laying the groundwork for its assault on TV ad budgets last year, when it partnered with Nielsen to launch the Online Campaign Ratings service to measure ad exposure on the social network.

Those efforts won’t  bear fruit overnight, of course. Traditional TV ad budgets, like the traditional TV production system, have a lot of inertia behind them. But together, the shifts in advertising and production budgets represent a greater long-term threat to the networks than any technological shifts in how TV programming is distributed.

The networks have long played a dual role in the TV ecosystem: both programmers and distributors. While media, investor and regulatory attention tends to focus on their role as distributors, their role as the leading programmers is their real source of their power. So long as the networks could produce shows that attract the biggest audiences, and they have the means to monetize that audience, their position is secure.

Start to take those capabilities away, however, and the networks could start to look like a house of cards.

 

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Paul Sweeting

Principal Concurrent Media Strategies

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