Is it Time to Pull the Plug on the Broadcast TV Business?

In the battle of the TV families, Duck Dynasty's Robertsons outdraw Modern Family's eclectic mix. Credits: A&E, ABC Television.

The TV business is changing faster than ever. According to the Interactive Advertising Bureau (IAB), Internet advertising accounted for $42.8 billion in revenue last year versus $40.1 billion for broadcast TV. That's a first in the 60-plus-year history of the television business, and the clearest sign yet that broadcast TV is in decline.

But it isn't the only sign. Gone are the days when popular broadcast TV programs could be assured 20 million or more viewers on a regular basis. Last year, only two programs -- The Big Bang Theory and Sunday Night Football -- achieved that coveted plateau. For the rest, 2.9 million regular viewers were enough to crack Entertainment Weekly's most recent list of the top 100 most watched.

Think about that for a moment. Nowadays, a highly successful YouTube channel draws about as many viewers as a top 100 television show.

Worse, at least two of last year's top 10 cable programs would also rank among the top 20 broadcast shows. The Walking Dead's 16.2 million average viewers would rank it sixth overall while A&E's Duck Dynasty would rank 16th, displacing ABC's popular sitcom Modern Family. Viewers seem to be shifting away from the big broadcast brands on the belief they can find better programming elsewhere. Advertisers appear to be following.

How should investors respond to this change? Is it time to pull the plug on broadcast TV and the stocks that depend on it? We asked three of our top media and pop culture analysts to weigh in.

Leo Sun:  No, but cable shows aren't built to last forever
I don't think it's time to "pull the plug" on broadcast TV. Sure, cable shows are often higher-quality, higher-concept affairs, but broadcast TV shows are built to last and attract big advertising dollars over longer periods of time.

CBS (PARA -7.00%) and Twenty-First Century Fox (FOXA) programs are prime examples. CBS' The Big Bang Theory and Fox's American Idol are built to last -- The Big Bang Theory was recently renewed for two more seasons, while American Idol was renewed for a 14th season. Let's compare those two shows to AMC Networks' (AMCX 2.69%) The Walking Dead, one of the most popular cable shows among 18 to 49 year olds, in terms of viewership versus the cost of a 30-second ad:

Sources: Wikipedia, Ad Age.

At first glance, The Walking Dead compares quite favorably to The Big Bang Theory and American Idol.

However, The Big Bang Theory, American Idol, and other network shows like CSI and NCIS are sustainable. They can deliver stagnant narrative for years while retaining a healthy viewership. Popular cable dramas are usually serialized, higher concept shows and advance toward a natural conclusion -- as seen in The Sopranos and Breaking Bad, and as a result rarely last seven or 10 seasons.

Advertisers like to stick with the guaranteed results of popular network programs, which may explain why these blander shows persist. AMC clearly wants The Walking Dead and Breaking Bad to last forever with new spin-offs, but in my opinion, that could dilute the premium quality of cable shows and cause viewership, along with advertising revenue, to slip.

Steve Symington: Not yet, but time-shifting is a huge threat
For now, I think broadcast TV can rest easy. But the world of entertainment is changing, and audiences are also increasingly embracing delayed viewing options to enjoy the same programming on their own schedules. Over the long term, this will effectively mute the ability of broadcasters to attract crucial advertising dollars.

For example, nearly every ratings-related press release from ABC this season ended with a paragraph containing "a note about increasing DVR penetration and year-to-year rating comparisons." In short -- and despite solid live + 7 day ratings from the likes of Marvel's Agents of S.H.I.E.L.D. and Modern Family -- ABC continually made it clear increasing DVR penetration is skewing previously all-important live + same day results.

And it gets dicier when you consider the rising influence of online viewing and pay-per-episode options. Though I watched every single episode of Agents of S.H.I.E.L.D. this season, I only enjoyed half of them live on ABC. I watched another half dozen through ABC's website -- commercials and all -- and finally opted to forego advertisements altogether by purchasing the remaining five episodes for $1.99 apiece on Amazon.com.

Of course, this also demonstrates the willingness of consumers to stick with the content being produced by broadcast networks. But the way that content is being consumed is rapidly shifting. Sooner or later, broadcast TV will have no choice but to follow suit.

Tim Beyers: No, Twitter has changed the appeal of live TV
For as much as broadcast TV is under assault, there are success stories. NBC has shown huge improvement in each of its last two quarters, thanks in part to riskier bets on edgier properties such as The Blacklist. Operating income from Comcast's (CMCSA 0.86%) broadcast TV division increased nearly 56% year-over-year to $140 million in the December quarter. Another $122 million in the March quarter reversed a $35 million loss during the same period in 2013.

Meanwhile, Twitter (TWTR) has us tuning in to live TV again. We use tablets to follow along on social media and chat with stars while a new episode airs. The movement has given birth to Twitter TV Ratings and accompanying tools for measuring engagement in the digital era. All told, Nielsen says 36 million people sent 990 million television-specific tweets last year.

The message? Broadcast TV remains alive and (mostly) well. But new tools such as Twitter are changing consumers' programming decisions as competition gets fiercer. Networks will have to adjust to the new reality, or risk losing what remains of an already-shrinking audience.