Broadcasting Changes Channels
Broadcasting Changes Channels
By Jon Sinton
April 12, 2010
The National Association of Broadcasters will gather in Las Vegas for their annual convention. This one will be unlike any in the past.
Brokers will assemble as usual at the posh hotels, but there will be few buyers to match with hopeful sellers. The broadcast station market has collapsed from a combination of unavailable financing and uncertain future earnings. The high purchase price multiples assured in the past by the government-enforced scarcity of broadcast licenses is gone, replaced by the glut of content on the low barrier-to-entry, scarcity-destroying Internet.
Convention floor buzz has traditionally revolved around sleekly liveried trucks and helicopters, custom news sets and the latest weather animations. This year it will more closely resemble a Silicon Valley technology show with lots of servers, digital renderers, huge storage devices and of course, this year’s tech avatar, 3-D.
In the conference rooms, the convention will concern itself with the future of broadcasting, whose high-margin, half-century run is officially over.
Twin Turbulence
The recession, fueled by the automotive crisis (automotive has historically represented a significant chunk of broadcast advertising), took a big toll on top line revenue. In a typical recession cycle, those revenues would return, along with the high single digit growth rates both Madison Avenue and Wall Street like to see. But the explosion of Internet content took eyeballs away from the mass media, and, except for huge events like the Oscars and the Super Bowl, those eyeballs will not be returning en masse. This downturn is less cyclical than secular.
So licensees are in search of new business models. They look enviously at the pay TV industry’s dual revenue streams of subscriptions and advertising sales. They fear the worst from the convergence of Hollywood and Silicon Valley. Specifically, they fear the time—now upon us—when computers perform the tasks of televisions. For years at this gathering they have whistled past the graveyard of convergence: first denying it, and now outwardly embracing it even as they lobby to slow it.
And They Have Suffered
Beginning in the Eighties, cable fragmented the outsized audience numbers, bending the once helium-filled curve downward with each successive year. This past January through March, for instance, was the lowest rated network news quarter in history.
In the Nineties, the government issued an unfunded mandate forcing television broadcasters to convert their analogue transmission facilities to digital at significant cost without any (to this day) demonstrable offsetting revenue plan. Stations now have the ability to send one high definition digital signal, or as many as six standard definition signals, through the air. Two problems: the vast majority of stations are not using the additional spectrum, and only about 15% of the audience watches over-the-air television anyway.
The Federal Communications Commission recently reevaluated spectrum usage and issued new directives for the future of over-the-air broadband transmissions in the United States. In this reapportionment, television licensees would give back precious bandwidth.
The looming battle begins with jurisdiction
Broadcasters will try to hang on to the currently unused real estate. They are as unlikely to fill it with new (or old) shows, as they are to give it back without a fight. It has become a matter of faith among broadcasters that the government gave them this spectrum eighty years ago for free, and it should remain free. And theirs. Ad infinitum. As a fallback, they will likely try to co-venture with, or lease to, cable and Internet companies for data, point-to-multipoint Internet Protocol (as opposed to one-way broadcast) coverage and other uses not yet contemplated. It all raises the question, "Whose spectrum is it, anyway?"
The FCC will argue that the Internet providers are modern day "Common Carriers" (the phone company in the days of yore), and subject to the commission’s authority. Providers like Verizon and AT&T will argue that regarding data as opposed to voice, they are not common carriers, and therefore are not subject to FCC rule. They want the Congress to sort it out.
There are other players too who would like a slice of the electromagnetic pie. Former FCC Chairman Reed Hunt has long been an advocate of staking emergency first-responders to a consistent grouping of frequencies nationwide so that the tragic communication problems endured by police and fire during their response to the 9-11 attacks never happens again.
Both John Dingell (R-MI) and Fred Upton (R-MI) vocally oppose a forced television spectrum giveback. Rep. Upton cites the millions broadcasters paid to upgrade to digital. Rep. Dingell expresses concerns over a loss of localism—broadcasting’s chief calling card in its heyday. (I would argue that localism gave way to a cynical formula of chalk outlines, house fires and nationally syndicated fare long ago.)
A century ago, when newspapers ruled, the admonition was never pick a fight with a guy who buys ink by the barrel. Now the moneyed interests include wireless carriers, hardware and software manufacturers and chipmakers. But I still wouldn’t bet against the broadcasters. They may be down, but April in Las Vegas has always meant renewal to them. Updated mantra? Never pick a fight with a guy who buys electrons by the billions.