Traditional media companies that refuse to invest in the Internet and withdraw into old business models are destined to fade away, opening the door for entrepreneurs to take advantage of the lack of innovation.

That was the message from Merrill Brown, a media consultant and former editor in chief of MSNBC.com who was speaking this morning at the Drilling Down on Local conference in Seattle.

Brown said that there are some examples of media companies -- citing Seattle's Fisher Communications' recent purchase of Pegasus News -- that are thinking creatively about the Internet. But he said the "macro trend" does not point to much innovation coming from traditional media.

Brown is especially skeptical about television, saying the business models for the big networks and their affiliates will make it difficult to make the transition. "For my money, they are treading water," he said.

Brown also addressed the failure of the hyperlocal news site Backfence.com, saying the stock options he holds as a former board member are worth less than a glass of water.

One of the big reasons why the startup failed is that it did not offer "self service" advertising tools that made it super easy for local companies to create and deploy ads. Instead, he said Backfence had to rely on a pre-1999 business model of sending a sales force door-to-door in the local communities that it served.

But that concept is fading away, partly because a number of companies are working on the problem. (That's right in the sweet spot of Seattle companies such as AdReady and Mixpo.)

Brown also said that media will continue to be sliced and diced in different ways, noting that there are still plenty of opportunities to create new media niches. "We've only seen the tip of the iceberg," he said.

What does that mean for old media?

Brown said he has been involved in some recent discussions where media companies are asking large endowments for support, with the idea that the old media brands should be propped up as part of the public trust.

Brown doesn't think that will work, saying that failing businesses should be allowed to fail.