My Two Cents

Digital television is making U.S. broadcasting more challenging and broadcasters are finally being put to work, albeit reluctantly. But even though digital is causing local TV broadcasters agida, it could also serve as their relief. Last July, NV Broadcasting, which operates 14 U.S. TV stations, filed for bankruptcy. Earlier, Young Broadcasting, which owns 10 stations, did the same. Even Sinclair, the country’s largest local TV operator with 57 stations, is on the brink of bankruptcy. So, the picture is far from rosy.

Last year, CBS Corp.’s CEO, Leslie Moonves, told an investor conference that moving the CBS network to cable [and eliminating local stations] would be “a very interesting proposition…[but would be] five or 10 years away.” After all, at this point only 17.8 percent of the U.S. TVHH receive television through aerials. Randy Falco, former COO of NBCUniversal TV Group assured the Wall Street Journal that “One of [the networks] will try to make a go as a cable network.”

You get the picture: local TV stations are seen as a problem, but the fat lady hasn’t sung yet, and the show ain’t over ‘til it’s over. As the WSJ pointed out, while their profits are down, a good number of local TV stations are still making money. They tap into their local advertising market and, more recently, have been getting carriage money from some cable operators.

With the analog switch off this past June, each of the 1,366 commercial TV stations in all 210 U.S. local markets was allocated space for at least three more TV channels. So, for example, local NBC stations began broadcasting their flagship station on multiplex 4.1; a program originally called Weather Plus (and later The Weather Channel, when NBC acquired it) on 4.2; and Universal Sports on 4.4. The space on 4.3 is used by their flagship HD channel.

Now the question most U.S. broadcasters face is what to do with the additional channels. Stations are in no rush to use the extra space, since they’re not sure what to do with it yet. What they do know, however, is that it’s an asset, they don’t want to spend any money on it, and, ultimately, they would prefer to take a self-contained feed. As it is, stations are complaining that it costs them $60,000 in technical start-up to begin broadcasting on each additional channel, on top of the regular administrative costs (like spot scheduling and trafficking). Furthermore, local stations view the extra channels as increasing time inventory, which will further lower CPMs (spot cost per thousand viewers) in an already depressed market.

Retransmission fees, however, could force local broadcasters to take chances. Cable and satellite operators don’t want to pay stations for signals carried over their platforms (and, when they do do it, most of the money goes to the affiliated network). As a negotiation tool, cable is using the “excuse” of limited space to exclude stations’ additional channels, but they’re willing to carry stations’ HD channels (hence the limited space excuse).

Now, if a station will negotiate retransmission fees for its flagship station and offers its digital extra channels for free, the MSOs will gladly make the deal if those extra channels show something meaningful in terms of attracting more subscribers or reducing churn. I doubt that MSOs will be carrying tens of weather, shopping, paid-for programming or religious channels (36 religious and six shopping digital TV networks are already available).

For a station, a set of well-programmed extra channels is an opportunity to be more competitive, to offer make-goods and/or extra spots to major clients and to deliver more cumulative audiences.

Stations, though, are only looking for pure 50-50 barter deals, meaning six minutes of commercial time each per hour on a rotating eight hour block. The station group rep will only be interested in selling their avails, so content providers have to look for their own sales rep. Now, if this rep could sell each “national” (or group of key U.S. markets) a spot at $10,000, splitting 50-50 with the content supplier, we’re talking about $ 240,000 per day to the content supplier alone. And for $10,000 per spot, the rep would only have to guarantee one million cumulative viewers in a 24 hour period with a $10 CPM versus an average of $30. Areas of growth? Local banks now returning to profitability, and the real estate sector, which now finds itself with a large inventory to liquidate.

Stations are reluctant to approach domestic (U.S.) syndicators, which are mainly studios, out of fear that their fare will be too costly, therefore digital represents a great opportunity for foreign content providers that have never been able to penetrate the U.S. TV market before. Unfortunately, most international distributors don’t know the U.S. syndication business and the few independent domestic syndicators left are not familiar with the international business. Plus, U.S. reps willing to take on a barter sale deal for a digital channel will only do it if they’ll see a real return, therefore there is no room for experimentation.

Types of programming that the international sector could offer are those that are digitalized and can mainly use voice over: documentary, children’s animation, music, sports and news (in English such as Germany’s DW and France 24). As Universal Sports has proven, bicycle racing is good digital channel programming, and I’m sure football will be of greater appeal to soccer moms and their children than such U.S. games as baseball and American football. The extra channel could also be utilized for a second language channel, such as Spanish.

Dom Serafini