Blog Post

Why the TV industry won’t go the way of newspapers and the music business

Digital forces blew billions of dollars away from the music and print advertising industries, and many predict the TV business is in for the same fate. Terry Kawaja, a well-known media and advertising consultant, isn’t among them.

Speaking on Wednesday at a BrightRoll event in New York, Kawaja described terms like cord-cutting and “a la carte” channels as “interesting flash words” that don’t reflect how the TV industry actually works.

He argued that the players in the TV industry, including the new digital entrants, are intertwined and interdependent — which means the business will be sheltered from the disintermediation and economic battering that befell newspapers and the music industry.

Kawaja pointed out that over-the-top tools like Roku or Apple TV are indeed taking over the living room; however, traditional TV companies are also making their presence felt in the new world of mobile devices through services like TV Everywhere.

Kawaja sees another bright sign in how TV and digital platforms are together eating more and more of the overall advertising pie, and will soon account for 70 percent of overall ad spending. At the same time, he noted that new entrants to the TV business are backed by well-heeled venture capital firms and also compromise giant companies like Google(s goog), Apple(s aapl), Intel and Microsoft(s msft). Together, they are coming to the game with billions in their pocket.

All this cash, Kawaja said, will reinforce a co-dependent eco-system where the advertising industry hands over fistfuls of money at upfront events to lock down access to high quality content. While the ecosystem will include disruptors like Aereo and comedian Louis CK, who find new ways to bring content directly to consumers, the basic equation won’t change.

“Premium quality content is a killer defense mechanism for television,” said Kawaja, arguing that mass amounts of money will continue to flow for high quality content creation. More of this, he said, will come from automated advertising, and pointed to AOL(s aol) CEO Tim Armstrong’s prediction this week that online video ad-buying will soon be a $100 billion market.

Kawaja also downplayed so-called “cord-cutters” and “cord-nevers,” who include a generation of college kids for whom buying a cable subscription makes about as much sense as purchasing a Betamax. He acknowledged that the overall number of pay-TV subscribers is declining for the first time ever, but predicts that the drop will only amount to 1 or 2 million a year — not enough to change the game.

Kawaja did sound one note of caution: YouTube’s dominance in the digital viewing space, if it continues, could hurt the growth of TV.

“Ecosystems do better when there’s a balance,” he said, adding that Facebook is the “best hope” to open up a mass new viewing platform.

Finally, Kawaja noted that the TV business will still be subject to sweeping changes such as the replacement of TV clickers with smartphones, and “black swan” moments such as Google’s possible acquisition of NFL rights (a theory floated this summer by media writer Peter Kafka and investor Mark Cuban).

The bottom line here, if you believe Kawaja, is that the industry TV is in the midst of a large scale transformation but one that will allow the incumbent players to stay in the game even an new entrants come in and money sloshes around in different ways.

Kawaja spoke at the BrightRoll Media Summit, one of numerous events that formed part of New York City’s Advertising Week.

Disclosure: BrightRoll is backed by True Ventures, a venture capital firm that is an investor in the parent company of this blog, GigaOm. Om Malik, founder of GigaOm, is also a venture partner at True.

7 Responses to “Why the TV industry won’t go the way of newspapers and the music business”

  1. Jeff Domansky PR

    I think the most important question is whether quality can win in the long run regardless of whether it’s traditional or digital media. The New York Times, the Economist and a handful of digital upstarts (HuffPo, Buzzfeed, etc) are surviving with quality content, though some would argue with the “quality” some of the digital publications.

    I think the biggest factors are more consumer choice, deeper niches and the impact of unforeseen technology in the future. PVRs and mobile being recent disruptor examples.

    Though you could argue that Netflix seems to be gaining ground by offering recent quality programming, I’m not sure it’s sustainable unless cable and others fail to meet the needs of consumers.

  2. randybennett

    Despite TV Everywhere initiatives, the key factor is engaging content. Emerging generations seem to be gravitating to much more niche interests on cable or on online video channels. As mass continues to fragment, TV advertisers will have to start aggregating various segments on niche channels to achieve mass reach. I agree that network TV has some runway — business is still pretty good. But as newspapers learned, there is a precipice.

    I also agree with Aghast that local TV is not so insulated. They are heavily dependent on a few major local advertising segments (e.g. automotive and political) which are quickly migrating to digital (at much lower CPMs). They can’t rely on retransmission fees forever.

    In my small focus group (a 12-year old and a 19-year old), broadcast TV is a non-factor in their lives. It’s Netflix, ESPN, Bravo, YouTube, Funny or Die and Lord knows what else.

  3. The only reason newspapers are circling the drain is because their corporate bean counters refused to allow them to continue advertising on television. Broadcast Television will always be recession proof. It already has perfect distribution. The FCC should mandate full coverage of DMA’s for stations to keep their broadcast licenses. Subscriber based media will always be hampered by subscriber fees. The clock is ticking on pro sports moving to cable channels. Cable subscribers do not have unlimited discretionary income to pay for ever increasing cable bills. Cell phone bills are starting to look like car notes. In my market, public transportation is severely underutilized so folks cannot read CNNSI while driving to work in the morning. American TV viewers shrinking incomes will not be able to support all this alternative delivery of essentially the same programming.

  4. He seems to be thinking only in terms of the US market and that’s almost irrelevant.
    The TV, the hardware can be killed soon,the cable companies don’t have much of a future.
    Content creators are needed but it is shifting from traditional players to others , it’s only slower because of costs. Most content is terrible as it is but viewers will become more demanding as they have better access to quality content and it will be harder to push low quality, “computer generated” shows (most of what airs now), So we are likely to shift to less content but much higher quality.Global players will also have a big advantage over traditional players.
    A few years ago , the TV used to be for breaking news and sports, today it’s just for sports but even some of that has shifted online.
    You also have regulators, if they would enforce a la carte programming it would change the landscape considerably.
    The shock here will be far bigger than what it was for the music industry ,it just takes a bit of time due to costs ,lack of proper regulations and lack of innovation from new players.

  5. He misses the point that newspapers are local and the television companies to whom he refers are national (and international). Local television stations are facing the same problems as local newspapers, I am afraid.

  6. Doug Ferguson

    This guy is still stuck at the first stage of loss: denial. I wish he could spend time with my teenagers, who barely watch traditional TV. Yes, people will always watch large glowing rectangles, but the local affiliate-network model is not long for this world. Maybe 15 years.

    • How they watch is becoming less important as the technology is becoming ubiquitous….

      WHAT are they watching? If it is Hulu, it IS traditional TV for example.

      What are they watching?