COVERING THE CANADIAN retail scene as a reporter/editor in the 1990s, right about when Wal-Mart bought what was left of Woolco and began its major Canadian push, the concept of a “loss-leader” crept into the mainstream lexicon.
Basically, the loss-leader is the carrot on the stick to help get a consumer in the store and hopefully buy more than just the carrot. The ridiculously low-priced items on the front of a flyer and found at the end-cap on store aisles – like 50-cent motor oil or a case of bottled water for two bucks, or the various dirt-cheap thingies IKEA has in bins around its stores, are examples.
These are low- to no-margin or negative-margin products retailers sometimes take a loss on in order to try and sell you high-margin items like winter tires or to get you to switch grocery stores or to buy that new leather chair when you buy the Swedishly-named, but mega-cheap, picture frames.
Listening to Canadian broadcasters like Canwest and CTV and Rogers complain this week at the Commission that’s there’s no room in the market for another over-the-air television station, they all cited rapidly declining margins on their conventional broadcast outlets when in front of the commissioners, whose task it is now to decide whether or not John Bitove’s HDTV Network gets a license or not (and after listening in on the two-day hearing I’m leaning towards not, btw).
I won’t recite the numbers here, but thanks to the rising costs of U.S. programming and the vast and various new places in which advertisers can now spend their money, profits at Global Television, CTV and Citytv are slimming, to say the least, even while overall revenues are still very healthy.
Then later on, during the CFTPA’s presentation on Wednesday, when they grumbled about the consolidation in the industry, and then mentioned the various platforms the broadcasters are able to take advantage of nowadays, from specialty to digital to video on demand to wireless – all of which can command far greater margins than OTA television thanks to their targeting or subscription fees – or both.
Together, this brought me back to my retail experiences and to the idea of a loss-leader parallel.
Now, I’m sure broadcasters won’t much like this parallel (who wants to be compared to 99-cent paper towels?) and they surely don’t want to start taking losses as the norm in their largest divisions, but OTA television owners just might have to accept their new razor thin margins as the new normal – in exchange for potentially bigger, better earnings elsewhere in “their store.”
What if the main CTV network or Global Television or Citytv become the $1.99 mini-blinds of the electronic media world – pulling in viewers with popular programming, and then cross-selling (up-selling?) them into the various other platforms in which their shows – and many other shows – as well as other things like interactive games and contests are available.
It’ll be a painful, complicated new way to do business (already is!) – especially since conventional broadcasting demands so much in the way of costs, but in our fragmented media world, this is the way it may turn. The cross-selling is already done, of course, but committing to a loss-leader idea is not yet part of the overall bargain.
Of course, broadcasters are doing their level best to push it in the other direction, wanting to use the web and cell phones to drive people back to their TVs and the big advertisers who pay the freight. Heck, that’s the way it works with me as a viewer right now. But looking down the road, the broadcast outlet may become the primary vehicle for driving the mass market to the various other on demand content platforms where margins earned will be much healthier because ads can and will be targeted to individual users.
Look at some of the programming now. Degrassi is on CTV Broadband, where the broadcaster earns additional revenue on ad sales there. Corner Gas is on CTV and Comedy Network and Broadband. Global offers Survivor and da Kink in my Hair on broadband. Clips of various shows are made available for podcast or wireless. Cable VOD has a number of TV shows on offer, too.
The parallel is even more apt with Rogers, as it can use Citytv to not only tweak viewers to what’s on Sportsnet or The Fan radio station if it wanted, but to also sell Rogers digital cable and Rogers Wireless phones.
And with dynamic ad insertion technology, TV shows stored on DVRs or on VOD (pending the right regulatory approval, of course) will be able to carry new, hyper-targeted ads directly to the proper viewer. Ads which buyers will pay a premium for.
Broadcast TV has always been like that billboard or flyer, pulling viewers in front of their TVs in order to be upsold to other things they didn’t know they wanted. But it always had a healthy margin attached to doing it, and they’ve never been the loss-leader itself.
The future way of doing it, using the broadcast station to drive the largest number of people to varied content on a wide variety of multimedia platforms under the same corporate umbrella or the same brand – while swallowing slim margins or even a negative ones in the process, might be worth it as a loss-leader if revenue comes and margins grow (as many predict they will) in the multiplatform world.
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