CBS, Disney and TV Chums Need Digital Rethink

(Bloomberg Gadfly) -- America's media giants need to tune in to their TV troubles.

Last week, I explained the mess that has become the TV-streaming world -- a dizzying assortment of video apps that not only fail to make much money, if any, for the companies clambering to roll them out, but have also missed the mark when it comes to consumers wanting more choice. We asked for a la carte and got a la debandade.

Now, there's the strongest evidence yet that the industry leaders -- the likes of CBS Corp., Time Warner Inc. and Walt Disney Co., to name a few -- will need to straighten out this mess because crucial ad dollars are at stake. TV advertising spending in the U.S. fell last year for the first time since 2009 and will largely continue its slide for the foreseeable future, according to forecasts in a report this week by eMarketer. (The exception is in 2020 when the next presidential election and Summer Olympics will provide a small boost.)

There's not really anything the TV-network operators can do about this because cord-cutting is a trend that will inevitably continue. But the unfavorable outlook only goes for broadcast and cable TV. Total digital U.S. ad spending is, of course, set to climb -- and by a whopping 19 percent this year. This broad digital category includes the increasing number of over-the-top TV platforms.

It just goes to show how important digital will be for these companies, since advertising is one of two big revenue streams for TV-network operators.  But so far they're fumbling the opportunity. 

The network operators and distributors may think it's a good idea -- necessary, even -- to each offer their own branded TV app, or in some cases multiple apps. And on the face of it, that would seem to present more options for consumers. But in fact, more apps don't equal more choice. With each company turning more insular by saving some of their best content for their own products, consumers looking to ditch traditional cable instead have to subscribe to numerous services to configure the ideal set of shows and movies they want to access. Doing that might not be any cheaper than an all-in-one cable package at the end of the day.

The companies are focused on pushing their brands, while many consumers are more interested in picking and choosing individual series or would at least prefer to customize their skinny bundles. In ignoring this problem, they've left a major flaw in their apps: There's nothing to stop consumers from temporarily canceling subscriptions and restarting them once a new show is added that they really want to watch. Unlike the cumbersome process of canceling cable, which sometimes even comes with a fee or requires physically returning a cable box, it takes a hot minute to drop these over-the-top apps and later reinstate the service. Churn is bound to be volatile, even if signups are strong at the onset after launch.

It would be a mistake to assume that this is sustainable. Obvious mismatches between corporate interests and consumer preferences open the door for some tech giant or startup to come along and try to solve it (consider the industry dynamics that led to Netflix Inc. and Amazon.com Inc.).  All the media giants are distracted with megamergers right now, the idea being that scale will help protect their content and revenue streams. But what they really need to do is rethink their digital future because it's already here. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.

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To contact the author of this story: Tara Lachapelle in New York at tlachapelle@bloomberg.net.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net.

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