nonlinear

The weight of supporting a network, coupled with the flight of audiences will point the way to a new, cheaper delivery system and the end of traditional network TV.

In Fast Food Nation, Eric Schlosser says that a two percent drop in sales on a particular food line or product gets quick serve restaurants like McDonalds to change their ways. For example, those seeming small drop in sales helped eliminate the Styrofoam packaging for Big Macs and other sandwiches.

Television faces a far greater loss in audience, thanks in part to the current 8 percent installed base for TiVo-like digital video recorders. These devices eliminate the main strength of broadcast networks: Delivering a buyer’s ad to a large audience at a specified time.

Peter Drucker, in Management Challenges for the 21st Century, has another explanation for how and why internet-based, on-demand viewing may crush TV networks:

Again and again in business history, an unknown company has come from nowhere and in a few short years has overtaken the established leaders without apparently even breathing hard. The explanation always given is superior strategy, superior technology, superior marketing, or lean manufacturing. But in every single case, the newcomer also enjoys a tremendous cost advantage, usually about 30 percent. The reason is always the same: the new company knows and manages the costs of the entire economic chain, rather than its costs alone.

With the cost of moving digital video dropping, and the costs of maintaining a broadcast tower increasing as networks and affiliates switch to HDTV transmissions, it’s easy to see that internet distribution will soon enjoy a 30 percent cost advantage. That’s in addition to the superior technology used by Comcast to deliver on-demand programming or the cutting-edge efficiency of Google’s ad network.

So why is traditional TV still around?

One factor keeping networks afloat even as audiences dump scheduled programming and advertisements: Buyers are just as slow in recognizing the Teutonic shift in user habits.

Unlike McDonalds, television stations take advertising money in through the back door and serve up unwatched spots at the counter, while television ratings, controlled by an outside source — Nielsen — miss the mark in tracking which ads are watched and which are not.

McDonald’s controls the whole chain, and has fewer audiences — shareholders and customers — to please. Networks deal with advertisers, affiliates, audiences, shareholders, content producers — in short, the system of TV advertising is keeping traditional, linear broadcast television afloat.

Traditional networks are only now moving to eliminate the added costs of supporting an affiliated network of broadcast distributors — by reducing or cutting the amount of money given to local affiliates and, more creatively, by offering shows via internet distribution, whether through outlets like the iTunes store or by streaming the shows on their own web sites.

These experiments must grow larger and bring bottom-line returns quickly if networks are to avoid advertiser irrelevance.

Categorized as advertising, television