Gray Digi-Station Rollout a Success

Apr 10, 2006  •  Post A Comment

Gray Television’s strategy to leverage its digital platform by creating digital television stations in the markets where it already owns a broadcast station is receiving a significant boost, thanks to the pending arrival of The CW Television Network and MyNetworkTV.

The Atlanta-based station group, which has been launching digital stations since fall 2004, is accelerating the pace of its digital-channel rollout to accommodate the new start-up networks. Plans call for the broadcaster to have 22 digital stations in place by the time the networks launch in September, up from 11 last month. That number could increase to 25 by the end of the year.

Robert Prather, Gray’s president and the architect of the company’s digital-station strategy, said Gray has long had plans to increase the number of digital stations it owns. Indeed, Gray added three digital stations between January and March alone. But he admits the company sped up the rollout once the opportunity arose to secure CW and MyNetworkTV affiliations.

“We developed a formula that makes us able to put stations on the air quickly,” Mr. Prather said in an interview. “All of our stations are cash flow-positive in 90 days. We’ve been very, very successful. … I’ve been amazed others haven’t done it, frankly.”

Mr. Prather said Gray as a matter of course does not begin the rollout of a new digital channel unless the company has secured carriage of that channel on a cable or satellite provider’s system in that market. The new stations tend to focus on younger audiences and often include college sports coverage. The main broadcast networks, many of which are a strong No. 1 in their markets, are used frequently to promote the digital channels.

The concept of a broadcaster creating digital channels is not new. A number of station groups have turned to digital-channel launches as a way to create duopolies without the expense-or potential regulatory hang-ups-that come with buying an actual station. The strategy also offers substantial cost savings, as the digital channel can rely extensively on the broadcast channel’s infrastructure to get on the air.

However, Gray, which owns 36 broadcast stations in addition to the 11 digital stations, is seen as the most aggressive company in the space. Mr. Prather said that in the early stages of the channel launches, the company relied on its close relationship with CBS to help start new UPN affiliates.

As of January, before the announcement that UPN and The WB Network would be merging to create The CW, Gray had seven digital UPN channels and one Fox channel. With recent agreements that Gray has struck with The CW and Fox Television Stations’ alternative network, MyNetworkTV, Mr. Prather said he hopes to have 15 MyNetworkTV affiliates, seven or eight CW affiliates and five Fox affiliates-all on digital channels tied to broadcast stations Gray already owns.

Digital Stations’ Potential

Mr. Prather sees the potential for the digital stations to generate profit margins that mirror those of Gray’s over-the-air stations, using a programming strategy that augments UPN’s schedule with sports content, specials and repurposed syndicated fare.

Gray’s aggressive push to launch digital channels comes at a time when station groups are searching for ways to make money off of their digital broadcast spectrum, which, among other things, has the ability to stream multiple television signals simultaneously. It also coincides with a broader trend in the entertainment industry of media players looking to generate new revenue streams using the newest delivery platforms.

“Use of the digital spectrum is one of the spear points on the digital trident,” said Lee Westerfield, a broadcasting analyst at Harris Nesbitt Gerard, who noted that in addition to more advertising revenue, digital stations might also offer opportunities for retransmission consent compensation. “The others are mobile video partnerships and webcasting. You’ve got to be involved in all three or your organization will not be an emerging video company.”

Gray does have a deal with a mobile phone services company to deliver news and weather reports to viewers’ cellular phones, and, like many station groups, the company has bolstered efforts to drive up advertising revenue at station Web sites.