Friday, November 9, 2012

The Media’s “Fiscal Cliff”

With the election behind us, there is a lot of talk about the “fiscal cliff” in Washington, the scheduled spending adjustments that combine with the expiration of temporary tax breaks to cut into the federal government’s deficit spending. In a very real sense, the “fiscal cliff” is a non-story. Congress has tied itself in knots and is unable to take action, and the negative macroeconomic effects of the spending cuts are offset by the gains from the expiration of the special-interest tax breaks that, I will remind everyone, got the economy into this mess in the first place.

The “fiscal cliff” story is so big in part to distract from a bigger story that you won’t be hearing so much about: the effect of the automatic post-election spending cuts that have already gone into effect. You must have heard that this was the most expensive political campaign season ever, with mostly anonymous corporate donors spending billions of dollars to influence voters’ opinions. Most of this money was spent on advertising, which means it was revenue for the businesses that carry advertising. This windfall revenue especially boosted television and the U.S. Postal Service. As a consequence, you didn’t hear much about broadcasting bankruptcies this year, and the financial exhaustion that the USPS groaned about in the first half of the year didn’t seem so bad in the second half.

But the party is over. Even after draconian budget cuts in 2013, USPS will continue to operate at a loss. It is in a financial hole so deep it risks a General Motors-style unscheduled shutdown. Fights between cable systems and TV channels, a growing problem before August, will return with a vengeance, until the cable blackouts that occur when TV channels refuse to renew contracts become a daily part of the TV experience. As content providers cut spending to make up for lost revenue, hundreds of television and radio programs will wind down. Cuts are likely in other media too: newspapers, Internet advertising syndicates, social media sites, and others got a one-time revenue boost and now have to fall back on their not-so-rosy regular business plans.

That’s the media’s “fiscal cliff.” You won’t hear too much about it in the news, but no industry can watch this much revenue walk away without feeling the pain.