TV stations need survival plans

Jan 28, 2002  •  Post A Comment

Television stations will need to collectively negotiate with cable operators, seek program-access safeguards, better leverage their local ties and bond more with broadcast networks if they want to survive more deregulation and deteriorating economics.
That was the consensus of companion panel discussions on deregulation that I moderated at the National Association of Television Program Executives convention last week. Panelists also warned that the much-anticipated next wave of deregulation can hinder as much as help local broadcasters while certainly reshaping their destinies.
Deregulation likely will be one of the few growth catalysts for media in a year when the industry continues to be plagued by recession, technology-driven competitive shifts and unstable advertiser and consumer behavior.
While more deregulation in the form of cross-ownership, large-market TV duopoly and higher TV station ownership caps could be favorable to local broadcasters, it is no universal panacea. In fact, the only beneficiaries of deregulation to date have been the big media players. In many cases, more deregulation will just make it easier for struggling midsize and small broadcasters to exit the fray through merger or acquisition.
Marketplace forces
Surviving TV stations still face all the heavy lifting: developing second non-ad-based revenue streams; increasing their audience and ad-dollar share against intensifying cable and satellite competition; and creating more effective local content.
None of it is imminent, but it can’t come too soon with local network TV affiliates having lost between 10 percent and 15 percent of their viewers during the past five years and struggling to reverse a declining ad share in a glut of lower-priced ad time.
The fact is more deregulation may bring with it the need for other new regulation.
“Program-access rules, for example, may play an increasingly important role in light of the vertical consolidation,” said panelist Kevin Martin, a Federal Communications Commission regulator. The FCC may have to rethink how to count media “voices” in a market-not just TV stations-in governing mergers.
Tony Vinciquerra, newly appointed NATPE chairman and new Fox TV Network president, said stations will likely need to seek waivers allowing them to collectively negotiate with local cable operators on program and advertising matters.
Brian Cobb, president of Cobb Corp., agreed. “You want all these little television stations to fight off all the Huns without the ability for them to combine their resources, and I’m not sure that’s really a level playing field,” he said.
NBC TV Stations President Jay Ireland didn’t rule out joining the charge for such an antitrust exemption, but he said the bigger challenge for stations is to create compelling enough local fare to air from 10 a.m. to 3 p.m. daily to retain advertiser and viewer shares.
“Take the rules away and let the marketplace forces make it work,” Mr. Ireland said.
But Deb McDermott, executive VP of operations at Young Broadcasting, took direct aim at the broadcast networks. “We gave up a great opportunity years ago when we first didn’t go after the cable companies for distribution fees while the networks used their retransmission rights to leverage themselves in cable,” she said.
Strong local presence
In fact, the only way stations can “move offensively in a local market” is to pursue regulatory provisions that “allow them to create a strong local presence that will be difficult to penetrate,” said Bear Stearns senior managing director Victor Miller.
For local broadcasters especially, more FCC-sanctioned deregulation will redefine the status quo in ways that may not be comfortable for all.
FCC Commissioner Martin bristled at the notion that traditional free over-the-air broadcasters could develop subscription businesses on their new digital tiers to generate a much-needed second revenue stream, especially with cable operators balking at carrying all of their signals. Broadcast panelists said there simply is no alternative.
“A cable MSO is paying a cable network that does a 0.1 rating 35 cents or 40 cents per subscriber per month, and they refuse to pay a broadcast station that is viewed by 95 percent of the audience in the market,” Mr. Vinciquerra said. “That is complicated by the fact that we’re now dealing with cable monopolies in virtually every one of our markets.”
In fact, the real complication is that, increasingly, local TV stations and cable MSOs are owned by media conglomerates that have no allegiance to or economic dependence on either broadcasting or cable. So they can operate these properties with a bit more callousness than if they were “pure plays.”
Fewer voices
But Mr. Miller said broadcasters might be their own worst enemies. “The broadcast business, whether it’s the owned-and-operated group or an independent group, has to figure out a way to stop playing defensively,” he said.
Broadcast networks and their affiliates need to put aside their animosity to focus on “blowing away the competitive networks.” If affiliates get the “right to reject and right to assign” on issues of newspaper cross-ownership and duopoly, then they should be willing to support increased TV ownership caps. “A deal should be struck that puts them both on the same side of the fence,” Mr. Miller said.
But more deregulation and economic weakness will bring new consolidation not welcome by all. Young Broadcasting’s Ms. McDermott said negotiating for syndicated programs has become more difficult even for groups with large-market stations, which may view consolidating for scale as their last line of defense. “Let’s say we get folded into one of the bigger media companies. Is that necessarily good for viewers? I don’t think it is,” she said. On the other hand, Young and others are having to combine station news operations to reduce costs and stay in business, even though “that eliminates some voices in the market,” she said.
The harshest view of deregulation was leveled by the dean of Hofstra University’s communications school, George Back, who said content is the ultimate victim. Noting the preponderance of repurposing shows (didn’t we used to call them “reruns”?) and leasing time periods to advertiser-sponsored programs, he said, “We have inadvertently placed television content in the hands of about eight gatekeepers who are in the content business and own the outlets and are now discussing whether they should own more outlets.”
“There’s no evidence of new business models-only duplication of 50-year-old techniques,” Mr. Back said.
But that may change as marketplace and economic forces continue challenging and reshaping broadcasting more quickly than deregulation.
Bill Cella, chairman of Magna Global USA, said the upfront could be a harbinger of new advertising strategies from which stations could benefit. Given the glut of content, low-priced advertising time and free-falling viewing levels, “Advertisers are looking at things very differently now,” he said.
Local content is key
But it’s unclear just how quickly advertisers will rethink, shift and redefine their pricing and buying parameters. Local TV station ad dollars are increasingly being siphoned by emerging local cable interconnects, a dominant EchoStar-DirecTV satellite player and bundled broadcast and cable TV networks.
Panelists generally agreed that enterprising local content can be stations’ saving grace. But stations struggling with loan payments and possible bankruptcy don’t have the resources or predisposition to pursue creative content. They’re just hanging on.
“Strong local content will be the key to broadcasters being able to survive. And potentially finding other mediums for distribution of that content could be critical,” Mr. Martin said. “I think we need to see how some of the further potential deregulation at the local level plays out, whether local broadcasters take advantage of it.”
But some panelists questioned whether enough local broadcasters can survive long enough to get that chance. “H
ow much do we choke off the oxygen of the local television business to the point where it is not a vibrant industry anymore?” Mr. Miller said. “That is what will drive the consolidation discussion over the next year.”