The two transactions, both expected to close before the end of the year, reflect an interesting strategy by newspapers, banking on recently raised retransmission fees. Following a 41 percent decrease in Tribune profits and recent layoffs of at least 11 L.A. Times employees, Tribune is likely hoping that the acquisition will turn around business. But this plan may backfire, as TV stations don’t necessarily seem destined for a bright future.
Though TV ads have recovered from their trouble during the 2008-2009 financial crisis, the Wall Street Journal reported, the increasing availability of Internet video and automatic ad-skipping DVR services darken broadcast’s future. A surge in cord-cutters, who rely on streaming services such as Netflix and Hulu instead of cable TV, seems a trend likely to continue. From March 2012 to March 2013, a record-breaking 80,000 pay-TV customers cancelled their subscriptions, BuzzFeed reported. Additionally, broadcast ratings for 18-to-49-year-olds fell 17 percent this winter compared to the year before, according to The Dallas Morning News.
“Local broadcasting is going to be the next big legacy media that undergoes what we like to call a painful paradigm shift,” Alan D. Mutter, media analyst and self-dubbed “Newsosaur,” told The New York Times. “I actually question why everybody would be rushing into the local TV business.”
Tribune’s purchase will allow the company to penetrate new markets in Denver, Cleveland, St. Louis, Kansas City, Salt Lake City and Milwaukee, giving the company reach in 50 million total homes, the Chicago Tribune reported. It will make the company the largest holder of Fox affiliates in the U.S., a move that Mutter said is designed to make them “unmistakably be a broadcasting company.”
Industry experts anticipate several more media consolidations this year, the New York Times reported. But companies should eliminate local TV investments rather than add to them, Mutter said. Allbritton Communications Co. is trying to do just this by putting its eight local TV stations up for sale to focus on Politico and other digital enterprises, according to the New York Times.
However, newspapers will benefit from access to TV stations’ video content, as “integrated news video and integrated web TV is more or less a must for a modern news site,” said Kalle Jungkvist, senior advisor to Schibsted Media Group. Videos are ranked higher on Google than text-only articles, further increasing the importance of topping every major story with a video, said Jeff Whatcott, chief marketing officer of video platform Brightcove.
“Consider a page without video as a naked page,” Whatcott said. Denise Warren, executive vice president of the New York Times’ Digital Products and Services Group, echoed this sentiment: “I think video has become an expectation among web users,” she said.
Despite this reiterated importance, many newsrooms are struggling to produce enough content to keep up with video advertising demand. Video ads carry significantly higher price tags than other forms of digital advertisements, and online video advertising brought in more than $1 billion in the first two quarters of 2012, compared to $891 million in the same period of 2011. Clearly the industry is growing, and newspapers can profit from it. Acquiring TV stations will indeed provide newsrooms a deluge of video content and more access to this promising revenue stream.
While Tribune Co. Chief Executive Officer Peter Liguori said the deal will have no bearing on the future of the company’s for-sale newspapers, he also recognized the purchase as “a perfect complement” to current holdings. He told the Chicago Tribune that the acquisition will help “achieve our goals of delivering great content,” suggesting the TV stations’ potential role in supplementing newspaper video content.
But several major news organizations have amped up their video offerings without risky TV station purchases. The Washington Post recently announced two new TV shows as part of its new video platform PostTV, Condé Nast is rolling out web video series for its magazines, HuffPost Live airs 12 hours of video per day and WSJ Live has been streaming video since September 2011. Many print-centric news outlets, including the Guardian U.S., have also invested in Smart TV apps.
Tribune Co.’s Monday deal will indeed be a “transformational acquisition,” as Liguori anticipates, though it might not be the game changer the company is counting on.