A Dozen Items for Stations to Worry About

I was asked this week by a rather prominent member of the broadcasting community what I thought were some of the biggest challenges and opportunities facing TV broadcasters. Off the top of my head, I said continued national spot revenue erosion, cable's campaign against retrans and affiliates' loss of exclusivity to network programming.

Yes, they all belong on the list. But upon further reflection, I came up with nine other issues that broadcasters are grappling with — some more important than the original three.

In assembling the list, I discovered that eight of the 12 items fall more into the challenges category, but I hate to be negative especially on this delightful summer afternoon. So, let's at least start with opportunities.

DTV. OK, you've invested millions in your new digital transmission plants. Now, it's time to cash in. But how? I know of no broadcaster who hasn't labored long and hard over this question over the past several years. So far, nobody has come up with a solid answer, although all remain hopeful it will revive the business.

From where I sit, the most promising opportunity is mobile broadcasting. I like it because it's simple and costs little to implement. By encoding and broadcasting its same schedule over a small portion of its digital channel, a TV station can begin reaching on-the-go viewers wherever they are — in the park, in the car or in line at Starbucks. Assuming the mobile viewership can be measured, broadcasters can fold it into the viewership that comes through cable, satellite and off the air and get paid for it. No fuss.

A lot of stations are experimenting with secondary networks, things like MNT, RTN, NBC Weather Plus and LATV. That model is not so clear to me. That's a lot of new inventory with small ratings, hardly worth the effort to sell. And then you never know when some of these startups may disappear on you.

Simpler even than mobile is leasing. Stations that don't want to bother with operating a new business can simply lease their spectrum or portions of it to somebody who does. Sezmi is out there looking to lease 40 megabits from several broadcasters in each market for its planned wireless cable service. In an interview with me this week, Peter Mathes said that he has found that he can lease his digital subchannels for a monthly fee. All he has to do is keep the signals on the air and cash the checks.

The Web. Like DTV, the Web is all potential, sitting there to be realized by aggressive broadcasters. Retailers and other local businesses have already begun turning from yellow pages and newspapers to online outlets. They should be turning to sites owned and operated by TV stations. Right now, most aren't.

TV stations only have a sliver of the local online market. That's bad because it means stations have been lollygagging. But it's good because it means that there is a lot of upside for stations if they can get going.

Retransmission consent. Finally, TV stations are getting this revenue stream going by demanding cash payments from local cable operators. It's vitally important, even though it accounts for just a fraction of stations' total revenue. B&C's comprehensive piece on the subject earlier this month pegged broadcasters' total take from retrans at $1 billion in just two years, about 4-5 percent of total revenue. It's a double win for stations. The money goes straight to the bottom line and it's no longer available for operators to use to cut into stations' local ad business. A word of caution: Just as broadcasters have gotten the upper hand in negotiations, the cable operators are whining for changes in the rules (see below).

Automation, automation, automation. The best thing that station owners and managers have going for them these days is technology, particularly the kind that streamlines and automates. The latest products promise quantifiable return on investments that can help stations prop up margins when the revenue declines. Of course, automation is not good for the people who use to run the cameras and control boards. When management says "streamline," it means replacing people with machines. But that's been the history of civilization, hasn't it?

Newsrooms are benefiting by the rapid developments in production technology, acquisition and editing. The gear is cheaper, easier to master and increasingly capable. There's still a place for the $25,000 pro camcorders, but there is also a place and a growing need (given those Web sites) for the $1,000 cameras or even the $180 ones.

National spot erosion. This has been going on for so long that it is now more or less accepted by broadcasters as irreversible. Maybe. Maybe not. You never know what new category or categories may suddenly discover geotargeting as the presidential candidates did in the 1990s. Why the pharmaceuticals continue to shun national spot is a mystery, especially given that diseases and conditions are more prevalent in some areas than in others. You don't sell antihistamines in Arizona just as you don't sell snow tires in Florida.

I can't say that the national spot business will grow significantly, but it will start looking a lot better when the car companies start selling cars again. That will happen. Since WW II, the country has been built on the idea of personal transportation. That fundamental fact isn't changing, although there may be more Smarts and fewer Lincoln Navigators on the road in the years to come.

Return of heavy-handed government regulation. A couple weeks ago, I said I was hopeful that the Obama administration would not be the disaster for the broadcasting industry that most assume it will be. But hope is not confidence. The odds are the FCC headed by an Obama appointee will be disinclined to loosen local TV ownership rules and will bring back local programming quotas.

Some broadcasters have figured out how to get around the local duopoly ban in small markets, but it adds to the legal bills, complicates financing and makes selling difficult. Programming quotas will do nothing to benefit the public, but will waste air time and add costs.

Undermining of TV stations' retransmission consent rights. Cable operators are outraged that they now have to pay for local TV signals just as they do for Fox News Channel, Lifetime and ESPN. Consequently, they are working hard in Washington to gut stations' ability to negotiate for retrans payments. Their latest strategy involves winning the ability to import TV signals from other markets. So, if an operator can't make a deal with the local ABC affiliates, it can pick up the ABC affiliate in the market next door. This is a battle that the NAB absolutely cannot afford to lose.

Reverse compensation. This has been looming over Big Three network affiliates ever since they received their last network compensation check. The parent companies of the networks have been receiving fees from cable and satellite operators since the beginning of time, so it's been just a matter of time before they would demand fees from TV stations. This inevitability is moving closer to reality.

According to a report in TV Week by Michele Greppi, NBC will become the first of the Big Three to start squeezing money out of its affiliates. NBCU CEO Jeff Zucker, who apparently broke the news to the affiliates last May, also said that the network may cut back on the number of hours it offers in primetime. That's a formula that would make Jack Welch proud: Getting paid for less. Affiliates of ABC and CBS, don't gloat. You're next. This is going to take all the fun out of negotiating for retrans fees from cable operators. What comes in from cable will go out to the networks.

Lousy network programming. What makes the reverse compensative idea ironic is that it's coming at a time when the product the networks are serving up is at its nadir. The quote of the week, if not the year, comes from NBC programming chief Ben Silverman: "We're managing for margins and not for ratings." No wonder the NBC lineup packs as much wallop as the St. Louis Browns. But let's not pick on NBC. None of the networks is distinguishing itself these days. When folks say a network is having a great year, it really only means that it's doing better than the others. (See Shelly Palmer's column on the Silverman quote.)

The loss of network exclusivity. Regardless of the quality of the networks' shows, affiliates could at least say they had the shows exclusively. No more. For the past three years, the networks have been distributing their shows on the Internet every which way they can. The TV stations are now like the movie theaters in the film distribution chain. They still get the first run, but they have no guarantee they will in the future.

The end of the CW. Big Three affiliates who are upset with lousy programming, loss of exclusivity and reverse compensation should at least take solace in that they still have a network. There is growing expectation that the CW will soon go the way of DuMont. Smart CW affiliates are making plans for life after CW. If it survives, fine. If it doesn't, they'll be ready with something to fill those primetime hours.

The lack of programming creativity at stations. To better serve local and young audiences, TV stations are going to have to get into the business of creating their own programming, just as they did in the old days, something besides news. Yet, TV stations simply don't have the creative talent to produce any kind of programming other than news. Those people all drifted away years ago when station managers decided it was easier to fill in around the network fare with just news and syndication. Who around your conference room table could come with an idea for — let alone produce — a program that would entice the teenagers in your market?