For Broadcast March 18, 2009

Commercial television may need an entirely new business model.

A few weeks ago the talk was of when the depressed TV advertising cycle would turn – now it is whether it will ever get back to the old levels.

Michael Grade contends that the cuts in jobs and budgets at ITV are "entirely to meet the short-term horrors of the cyclical downturn", but others, including Gerhard Zeiler, chief executive of Five owner RTL Group, are less sanguine about the future of free-to-air TV.

Zeiler said last week that he expects to make "significant reductions" in RTL Group's costs to prepare for a future that may look very different from the good old days, when advertising might go up and down, but TV was always the first place for advertisers wanting to reach a mass audience.

"There is a significant fall in advertising bookings all over Europe and in America as well," said Zeiler on the day he wrote down the value of Five by two-thirds to €252m (£236m), from €589m in December 2007. "If this is not a short-term cycle – and I don't think it is – then we must be prepared to take significant costs out of our businesses to remain competitive."

That the industry is in crisis is no secret. Toby Syfret at Enders Analysis says that "the very viability of commercial TV is under threat".

Sky TV executives have long held that broadcasters could and should have diversified their business models better and faster, particularly into pay TV. Of course, Sky would say that. But rethinking the business model and diversifying revenues seems to be the lifeline that broadcasters need to grasp, and quick. Cost-cutting only gets you so far.

The current discussions about consolidating Channel 4 with Five or (parts of) BBC Worldwide continue, but although a bigger commercial broadcaster could withstand the downturn longer, just getting bigger is not enough.

Plus, putting knives to programming budgets – which all the broadcasters are doing – is a short-term fix but a recipe for future disaster. If the cuts go too deep, how do you attract audiences?

Quality content is essential, and the industry needs a model that combines the searchability of online with the serendipity of linear TV. Forget TV execs wondering where their next hit show is coming from – the tougher question is whether their business model is fit for purpose.