Channel Surfing, Erosion & Networks Treading Water

At the same time, the Internet is giving rise to a grass-roots video revolution. So-called video logs, or "vlogs" (pronounced vee-logs) are Internet-delivered video clips, usually created by people from outside the TV mainstream. The current king of the form may be Rocketboom.com, which offers a daily three-minute Webcast of slightly snarky news, quirky features and (Democratic-leaning) commentary. Produced with off-the-shelf equipment by two full-time employees -- co-owners Andrew Baron, a Web designer and grad-school teacher, and host Amanda Congdon, an actress -- the New York-based vlog first appeared in October. It now attracts about 60,000 viewers daily from around the world. The venture has proved so popular that Baron and Congdon are considering selling subscriptions and advertising and linking up with other citizen vloggers to create "an Internet CNN or ABC," says Congdon, 24. "One of the great things about this is that people can watch [the daily program] anytime, anywhere," she says, decisively adding, "unlike regular TV."

People have been turning away from broadcast TV for years, of course, as the number of TV channels grew. The erosion has been gradual, like beach sand disappearing in the pounding surf, but the cumulative effect has been substantial. A decade ago, when "Seinfeld" and "Home Improvement" rode atop the Nielsen ratings, nearly two of every three viewers (65 percent) were tuned to network shows each night. Last season, the average was 47 percent--an all-time low. In fact, the average has hit all-time lows in nine of those 10 years.

The networks still have some unrivaled competitive advantages. Their signals reach into virtually every home in America, a claim no other medium can make. What's more, after a decade of dealmaking, each is part of a conglomerate that owns a major movie and TV studio (ABC-Disney, CBS-Paramount, NBC-Universal, etc.), which gives the networks first claim on the best Hollywood has to offer.

But with audio and video content in digital form, the barriers protecting conventional TV networks fall away, says Jeff Jarvis, a former TV Guide critic and media executive who writes a popular blog on the media called Buzzmachine.com. Now, he says, ordinary people can create and produce their own programs and distribute them without the help of a giant network of TV stations or cable systems.

"The networks aren't going to die tomorrow," says Jarvis, "but they're not going to grow. The fact that they are such cash cows will distract them from the reality that the mass market is dead, and it's being replaced by a massive number of niches."

If Jarvis and his ilk are correct, it suggests some profound changes in more than just viewer behavior. Since their inception, the broadcast networks have entertained and informed, and have played an important economic role, too. By regularly attracting the attention of tens of millions of people each day, they have facilitated the marketing of everything from toothpaste to cars to politicians. Advertisers, in turn, have provided the money to underwrite the ever-increasing production costs of TV programs.

"There's no question the outlook is and has been challenging for a number of years," says Garth Ancier, a former top executive at Fox and NBC who is now chairman of the WB network, home to series such as "Gilmore Girls" and "Smallville." "There are opportunities ahead," he says. "but there's also no doubt the picture will become more complicated."

The networks' economic model still works -- one 30-second ad on "American Idol" or "Desperate Housewives" reaches as many as 25 million people at once. But the gradual defection of viewers has made network advertising less efficient and effective with each passing year.

In another five or 10 years, network television could reach a tipping point in which advertisers no longer find it cost-effective to spend millions of dollars on 30-second spots that reach relatively few people, says Bob Garfield, a critic for Advertising Age. With the mass audience scattered across a thousand, or perhaps a million different "channels," the traditional network TV ecosystem would fall apart.

The problem, he suggests, is that none of the new technologies emerging now may be sufficiently developed by then to replace the old networks. Garfield caused a stir in advertising circles earlier this year by projecting a "chaos scenario" -- a world in which advertisers, who now pour $70 billion into local and national commercials each year, no longer have any effective way to tell masses of consumers about their products. While viewers might appreciate not being bombarded by ads, Garfield says such a scenario would roil the national economy. At the very least, the makers of expensive network programs, such as "CSI" or "West Wing," would have to find a new way to pay for their productions.

Broadcasters say that day isn't likely to arrive soon. Even as network audiences shrink, they point out, the ad market is still fundamentally strong. During the advance ad-buying period known as the "upfronts" this spring, for example, advertisers committed $9.3 billion to network programs this fall, essentially the same amount as in 2004, a boom year. Among the six broadcasters, only NBC, whose ratings plummeted 17 percent last season without "Friends" and "Frasier," suffered a decrease in ad sales.

Moreover, network officials aren't panicked about the future. The WB's Ancier says broadcasters can capitalize on VOD by convincing cable and satellite operators to offer network affiliates as pay-per-view options -- creating, say, "WB50 on demand" in the Washington area.

"If I was in the car business, I'd ask myself the same question: Who are our customers and what do they want?" says Ancier. "The answer, I think, is they want to watch what they want on a timetable they [set]. This is a direction we have to move in."

The key may be the networks' ability to produce hits, shows that people will want to watch on whatever new device hits the market, says David Poltrack, CBS's top researcher. His network, for example, has found that the programs most often recorded by DVR users are the same broadcast programs that typically rate as the most popular in the weekly Nielsens, such as "CSI," "Desperate Housewives" and "The Apprentice."

As new technologies proliferate, the networks can use those hits to stand out in a field cluttered with vlogs, mobisodes and other upstarts. As Poltrack's boss, CBS Chairman Leslie Moonves, recently told Wall Street analysts, "Where others see adversity, we see opportunity."

Ultimately, it's not just the ability to distribute a program over a network that counts, but the ability to produce and own the hit shows that run on those networks, says Douglas Gomery, a University of Maryland professor of media studies who is writing a history of American broadcasting. By merging with Hollywood studios, he says, the networks have ensured themselves access to the best programming. As long as these studios continue to supply a steady stream of highly polished programs, Gomery says, their network TV subsidiaries will do just fine.

"My argument has always been that [the networks] perform the same function in the TV industry as movie theaters do in the movie industry," Gomery says. "The studios don't make any money from the movie theaters. But if they can create a hit there, they'll have a hit all the way down the line -- in home video, in DVDs and so on. It's the same way in TV. If you can create a hit series on a network, the reruns will play for the rest of eternity."

And that, he says, will be just as true in the brave new TV world to come as in the old one now fading.