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The Model Is Broken, Now Where Is the Fix?

Recently minted News Corp. COO Chase Carey didn't waste any time publicly re-entering the News Corp. fray last week when he identified the industry's biggest problem: The free-TV model is broken and someone needs to fix it, and fast.

Carey joined a growing group of industry bigs now openly admitting that the broadcast model no longer functions for huge media conglomerates. “We have an ad-supported business model that doesn't work. We need to get value for our great event product like the NFL and American Idol,” he said, echoing comments by his boss Rupert Murdoch and previous statements from NBC Universal chief Jeff Zucker. “We need to build new distribution models in a digital world that generate real value for our product.”

Murdoch grabbed headlines across the globe last week with his swing-for-the-fences suggestion that all News Corp. Websites will move to a subscription model. A shift of some sort may not be so far away for broadcast television either. One senior broadcast executive told B&C last week, “There is room for the ad-driven model to work online, and the on-air part of the broadcast business model will see an incremental revenue stream....A two-revenue-stream business model is twice as good.” The person added: “The business model has to evolve. There is a real awakening to that. It's not, 'Oh shit, we've got issues.'”

For now—and this would ultimately be a first—broadcast networks won't offer up numbers of their final primetime upfront tallies, and some won't even say what airtime they've sold. The guesstimate is for a loss of around $1 billion, down from last year's approximately $9 billion of commitments booked. Whether that billion dollars turns up in the year-round market will decide how bad things look.

For the past three years, the networks have been under siege from numerous quarters including the emergence of the digital pipeline (thanks in part to their own Hulu) and the writers' strike. Then last year, the Great Depression Part II hit like a meteor.

It's not that broadcast networks can't make money. They still make boatloads; in fact, the lion's share of all TV dollars are still spent in network. It's just that sitting next to cable's dual revenue stream, the equation doesn't seem to make sense anymore. And things look much worse than they really are because last year media companies had low programming costs (thanks to the scribe standoff) and a stable ad environment.

A new deal this year

This year, it's the opposite. Higher programming costs sit across the ledger from ad revenue that might be down as much as 10% across TV. And those ad dollars don't look like they're coming back to pre-recession levels for many years.

Time Warner CEO Jeff Bewkes is the only person offering an industry-wide solution, and he should be given credit for his idea to try to authenticate pay-TV viewers to preserve the model while new solutions are found. His TV Everywhere initiative answers that in some ways by suggesting that programmers preserve and shift the ad load online to gain an apples-for-apples Nielsen rating for online video.

Over at CBS, chief Les Moonves is the lone voice in arguing that the broadcast model works fine, but even at Black Rock, executives are cognizant that the future is now. Research chief David Poltrack PowerPointed his way through TCA demonstrating why online video ads are worth more than those on TV. It's just a shame that digital operations seem to be having the same problem attracting ad dollars as everyone else.