Is Broadcast TV Fading Out?

Did you watch Modern Family, Survivor, or Law & Order: SVU last week? If so, you were a member of a dwindling club -- the Nielsen ratings for all three of these broadcast TV stalwarts dipped to their lowest levels in years, if not all time. Competition from cable and other media continues to chip away at what used to be big TV's nearly unassailable market share. Now more than ever, it's critical for the top broadcasters to come up with new revenue streams. They've been slow to do so, however.

The eyeballs look elsewhere
Their most critical numbers are going down. In 2011, broadcast TV ad sales fell by 2% despite a good showing from strong revenue producers such as the Super Bowl and the World Series (which went the full seven games). That number would have been uglier had it not been for News Corp.'s (NAS: NWS) Fox, which saw a nice 15% year-on-year increase thanks in no small part to the Super Bowl it aired that year.

Otherwise the numbers were firmly in the red. CBS' (NYS: CBS) flagship network; Walt Disney's (NYS: DIS) ABC; and NBC, controlled by Comcast (NAS: CMCSA) , all suffered drops on an annual basis of 3%, 4%, and an uncomfortable 13%, respectively. Meanwhile "fifth network" The CW -- a joint venture of CBS and Time Warner's Warner Bros. saw an NBC-like decline of 12%.

The reasons for these declines are obvious. Unlike the old days, when broadcast TV was one of the very few sources for fresh programming, consumers have a raft of options now. Shows on cable channels are posting better viewership numbers than ever thanks to higher production and marketing budgets for what many consider to be more compelling content.

And of course the on-demand providers such as Netflix (NAS: NFLX) are proving to be increasingly popular viewing options. In spite of that company's most recent lackluster results, it still managed to draw 1.7 million new customers to its streaming service.

Turn the channel to a cable station
Compounding this is what the broadcasters have done to fight off the increased competition -- basically nothing. Although most TV devotees consider their offerings to be better quality than in decades past, they still lose viewership to more adventurous material on cable like horror drama series The Walking Dead or the often-brutal fantasy saga Game of Thrones.

Meanwhile, big media continues to pump out endless variations of tired old formulas. Every season sees a host of new sitcoms, one or two crime procedural series, and the occasional reality show. These onetime revenue pumpers aren't drawing like they used to -- the aforementioned Law & Order: SVU, for example, tied its lowest rating of all time last week.

Nor are the broadcasters making much headway in the on-demand sphere. Collectively, their big effort in this respect is Hulu, the online repository for much of their choice programming. The online "channel" is owned by a pool of investors including NBC, Fox, and Disney. Tellingly, Hulu is shy about discussing how much money it's making (or, much more likely, losing). It enthusiastically says its viewership is increasing, as is its spending on fresh content. However a quiet attempt by the partners to sell the service last year didn't pan out, implying a less-than-enticing business model.

A universe of options
Succeeding in broadcast entertainment these days is harder than ever. Much of this can be blamed on the Internet, where viewers demand and often get shows and movies for free or for a few pennies. No doubt there's still revenue to be made from the still vast TV-watching audience. The million(s)-dollar question is how to achieve this; so far the big broadcasters haven't figured it out.

Perhaps the answer is a more targeted investment in technology. That's a good strategy for any investor, particularly a Fool, as we write about in our report "The Next Trillion Dollar Revolution." Download it for FREE here.

At the time thisarticle was published Fool contributor Eric Volkman owns no stocks mentioned in the story above. The Motley Fool owns shares of Walt Disney. Motley Fool newsletter services have recommended buying shares of Walt Disney and Netflix. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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