Part 2 of 2
Yesterday we looked at how local broadcast stations came into existence and why they still exist.
Today we’ll look at the future and the possibilities it holds.
The Bad (Let’s Get That Out Of The Way First)
Try telling anyone under the age of 30 how local stations came into being and why they’re still around, and chances are you’ll get an extremely sympathetic look. For a generation that grew up with 90% cable penetration and Netflix, the idea that TV is still being broadcast from giant antennas in a field and can be received for free over the air using nothing but a small antenna sounds like something out of Harry Potter.
What’s more, few people under 30 get their news from local TV stations anymore—they get it from the internet, and: as both local TV stations and local newspapers migrate online, it gets harder and harder to tell them apart, especially since they both frequently rely heavily on video.
And if all you want to do is go online to find out what the weather is tomorrow and if the local minor league baseball team won their game last night, there really isn’t a whole lot difference.
Then there’s the whole retrans thing.
A few years ago, Aereo almost tore the whole model apart by threatening to “lease” antennas (rather than the broadcast signals they carried) for a few dollars a month. Sensing that this might completely screw up their ability to collect (literally) billions of dollars worth of retrans fees if the Supreme Court’s ruling on Aereo went against them, the major broadcast networks all did the math on what things would look like if they pulled out of the broadcast game and went all digital or all cable. (There are numerous reasons, many of them legal, that make that outcome highly unlikely, but just the fact that they thought about it is something.)
Finally there’s the fact that the broadcast networks and their high retrans fees are feeling quite vulnerable given the current changes in the TV landscape. They are already being tarred with the allegation that their viewership consists of people too old or too poor to watch the new OTT services and vMVPDs, senior citizens who still come home and sit in front of the TV for four hours a night in a twentieth century version of binge viewing.
And while that may not be true and while network TV shows still bring in audiences multiple times the size of SVOD audiences, there is truth to the fact that many younger viewers no longer view the Big Four as the primary source of their television content or even as “must haves” on their list of networks.
Hence the recent launch of Philo, a sports-free skinny bundle that is also broadcast network free. And while Philo may be counting on its viewers to use an antenna to pull in those broadcast TV networks, the very fact that it didn’t consider those networks to be “must-haves” is very telling.
Measurement and Mergers
Another issue lies in the measurement problems that continue to plague local stations, particularly those in smaller markets. Nielsen’s panels often aren’t large enough to provide what the local broadcasters consider to be accurate measurement, which has lead to frequent battles, as local broadcasters have taken to looping in ComScore and other sourse to improve accuracy. (A few ratings points in the wrong direction can cost them millions of dollars, making their frustration more than justified.) Nielsen recently struck a deal with Comcast however, to include Comcast’s set top box data as a way to improve local measurement. And ACR data from smart TVs, which Nielsen can access via its recent acquisition of Gracenote, should help it to improve even farther.
Finally there’s the roll up that’s happening as larger station groups keep getting larger. Sinclair, the largest of them all, has been under attack from all sides for its plan to buy Tribune Media, another large station group—though given the DOJ’s recent decision to oppose the AT&T/Time Warner merger, the fate of Sinclair/Tribune is anyone’s guess.
Assuming the deal goes through however, a post-merger Sinclair would own 233 stations, which many claim puts it over the FCC’s 39% limit and, for all intents and purposes, turns it into a fifth network. It would approach Fox in size and reach and could easily turn its flagship station, Chicago’s WGN, into an all-news channel that, if Sinclair’s critics are correct, would sit to the right of Fox News.
The existence of a station with that much reach and pull, regardless of political slant, would severely undercut the notion that local broadcast is serving local communities. Combine that with the FCC’s recent rulings that allow the same company, likely a large outside conglomerate, to own multiple media outlets (radio, TV and newspaper) in a single market, something that was previously verboten, and you undercut that argument even more.
(That said, there’s a counterargument that the line between all three mediums—radio, TV and print—has gotten so blurry as they all move online that keeping them under separate ownership no longer serves the original intent behind the ruling. This may be true, but it doesn’t help the “support local media and allow them to present diverse points of view” argument as it will likely be large outside companies buying up all that local media.)
The Good: Next Gen TV (ATSC 3.0)
Local broadcasters have pinned a whole lot of hope on the advent of something alternately called Next Gen TV or ATSC 3.0. (The former is its consumer friendly name, the latter the official one.)
Next Gen TV (NGTV, for simplicity’s sake) is a very well-thought out, well-designed broadcast transmission technology that promises to bring over the air broadcasting into the twenty-first century. It’s got all sorts of bells and whistles: it’s partly delivered over IP, so it can be viewed on smartphones and tablets, it supports 4K and high-quality audio, it can handle addressable advertising (video and audio are sent over the air, ads via digital), it gives broadcasters the option to put out more than one stream, it provides full, accurate, and above all, instant measurement, it slices and dices and juliennes.
Only it’s not backwards compatible.
That means that in order to be able to receive NGTV (which was approved by the FCC this week) you’ll need to buy a brand new TV. Which, given that Americans change their TV sets around once every seven years, means that it will likely be quite some time before NGTV reaches any sort of critical mass.
While it’s possible that someone may come out with a Roku-esque dongle capable of receiving NGTV on older TVs (perhaps even Roku themselves) it’s unclear how much demand there will be for such a device, particularly on its own—in the Venn diagram of “people who watch a lot of network TV” and “TV tech early adopters” there isn’t a whole lot of overlap. OTOH, if Roku were to introduce a cord cutter package with NGTV plus the ability to stream Netflix, Hulu, Amazon et al, it might see some more takers. Our fear though, is that without CNN, ESPN and other popular cable networks, that combo still won’t have a whole lot of takers.
But there is still hope.
It seems that the FCC, in its infinite wisdom, decided that while MPVDs don’t need to include NGTV in their interfaces (and trust us, none of them will) there was no reason to put anything in writing to preclude local broadcasters from bringing it up during retrans negotiations and, you know, maybe even making it a prerequisite for those retrans deals to get signed.
While this may not be much of a problem with family owned stations in small markets, if a large group like Sinclair decides to make it an issue, we could see much faster adoption.
Not to mention a whole raft of lawsuits.
While MVPDs talk a lot about their addressable capabilities (and while TV[R]EV believes that addressable is indeed the wave of the future) the MVPDs still make the bulk of their revenue from selling non-addressable ads during the two to three minutes per hour they get from the cable networks. National advertisers are able to turn these local buys into national (or almost national) buys via companies like NCC (National Cable Communications.) Thus they maintain a frenemy position with local broadcasters, as they are both frequently chasing after the same customers. As consolidation continues, we’re seeing big groups like Sinclair, Tribune, Nextstar and Tegna teaming up to create their own version of NCC (this one’s called TIP or TV Interface Practices) and, combined with NGTV’s addressable capabilities, this can help local broadcasters to more than hold their own. Which is yet another reason the MVPDs are not keen on NGTV and why so many of them were unhappy with the FCC’s decision.
The Next Ten Years
As we noted yesterday, the existence of local broadcast stations makes no logical sense. It would be far more effective for the Big Four broadcast networks to operate like cable networks, with all the efficiency that offers.
That’s not going to happen though and it won’t be the first time political capital and previously invested capital trumped logic. There’s just too much of both invested in local stations, not to mention civic pride, and so we don’t see local broadcast disappearing anytime between now and 2030. (That’s as far as we’re going to take it, because who knows what technology will look like by then.)
What happens to local TV over the next five to ten years is going to hinge on two things: the speed of NGTV adoption and the degree to which the DOJ allows Sinclair in particular, and large network groups in general, to take over smaller independent stations.
NGTV, and the ability to introduce addressable TV advertising will allow local broadcasters to remain viable against the MVPDs and their cable networks. We’re still not overly optimistic that NGTV will take off, for all the reasons outlined above, but never underestimate the power of a cheap dongle and free content, so we’re not completely comfortable writing it off.
The merger mania is more troublesome. If it seems that local broadcasting is being taken over by large national corporations, especially large national corporations with strong political agendas (looking at you Sinclair) all those arguments about local pride and independence go out the window. Local becomes just another network, and that may be what it takes for the Big Four to decide they have the political capital in hand to try and abandon the affiliates and O&Os and move their content to cable and OTT distribution platforms, from which they can also easily push out their own local news and weather broadcasts.
With everything going on at the FCC this week (including the dismantling of net neutrality) developments in this area will continue to be interesting, to put it mildly, over the next few years.
And in the immortal words of Martha Stewart, that’s a good thing. (For TV[R]EV, anyway.)