The future of local TV

A few weeks ago, KMIZ launched “ABC 17 News This Week,” a newsmagazine-style program based in Columbia. It might not be a cash cow, but at least it’s less vulnerable to some of the new realities of the TV business.
Take retransmission fees, which cable operators, satellite companies and telecommunications companies pay to local stations for the right to retransmit their programming. In 2006, stations earned a collective $215 million, according to SNL Kagan, a research firm that tracks the TV market.
The annual tab was $762 million in 2009 and is on track to hit $1.1 billion this year. Another way of looking at this trend is in terms of how much retransmission fees add to a station’s bottom line: In 2009, they were about 4 percent of revenue, and by 2016 they’ll be 10 percent, SNL Kagan estimates.
It’s shortsighted to dismiss retransmission as industry minutiae that only TV insiders should care about. Instead, retransmission is an example of some of the trends and issues that will have a ripple effect throughout mid-Missouri, including employee levels and salaries at local stations, local TV’s effectiveness as an advertising vehicle and stations’ ability to provide original, local programming.
Time to pay up?
Not surprisingly, networks are eyeing burgeoning retransmission fees. At SNL Kagan’s TV and Radio Finance Summit in June, one CBS executive said his network wants its affiliate stations to fork over half of their retransmission fees.
Many industry watchers believe they’ll comply. For example, two days before that speech, the investment bank Caris & Co. raised its rating of CBS from average to above average, partly based on the belief that about 60 percent of CBS affiliates will pony up.
How much would a local station pay? The answer depends on several factors such as market size and the percentage that each network wants. Take Macon, Ga., the No. 122 TV market in terms of size. (Columbia-Jefferson City is No. 137.) One station there dropped its ABC affiliation after the network requested an annual fee of about $500,000.
Of course, not every station is willing to go independent.
“I do believe that most broadcasters think the next round of affiliation contracts will include some type of retransmission fee sharing, revenue comp, etc.,” said Randy Wright, who was general manager of KMIZ and its three sister stations until April, when the University of Florida named him executive director of its division of multimedia properties.
Wright’s successor, Gene Steinberg, said he sees a possible upside to the retransmission debate, particularly for broadcasters that aren’t owned by a large national conglomerate that has the clout to negotiate big retransmission fees from cable and satellite providers. Those small-group or individually owned stations could have the network negotiate on their behalf, with the network’s cable channels — such as ESPN in the case of ABC — thrown in for more bargaining leverage.
If that strategy pays off in the form of a higher retransmission fee than the station could have negotiated by itself, then Steinberg would be willing to share a bigger portion of that fee.
The end of affiliates?
The retransmission question has a corollary: Why don’t networks simply phase out their affiliate relationships and go straight to viewers?
“People ask, ‘Why not break the bond with the affiliates and go directly to cable?’” CBS CEO Les Moonves said in December 2008. “It is something that down the road could happen.”
It’s an option that becomes more viable as more households sign up for cable, satellite or telco TV. Estimates vary, but most say that less than 14 percent of US households are completely over-the-air, meaning all of their TVs rely on an antenna.
That percentage could dwindle even more if a Federal Communications Commission proposal is enacted. The FCC wants to reclaim some frequencies licensed to TV stations to free up spectrum for broadband wireless services. Under the proposal, households that lose broadcast service as a result would be eligible for free cable TV for life.
The FCC proposal is part of its National Broadband Plan, which aims to make high-speed Internet service available to every home. If that goal is achieved, it would bolster a second option for networks to reduce their reliance on local affiliate stations: providing their programming over the Internet.
Case in point: Hulu, the Internet video service that features programming from ABC, NBC and Fox, which co-own Hulu. In April 2010, US consumers watched 958 million videos on Hulu, according to comScore, a research firm.
Besides networks, local TV stations also rely on syndicated programming, but much of that is also available directly to viewers on the Web. Granted, they might tune into their local station if they want to see the entire episode of, say, The Oprah Winfrey Show, but if all they want is the Cameron Diaz interview, that’s available on demand at www.oprah.com/media.html.
The more the TV audience fragments, the fewer eyeballs each station or programmer can attract. That can make them less attractive to advertisers seeking to reach as many people as possible — a marked change from what the trio of KMIZ, KQFX and KZOU delivered in the May prime time ratings.
“Over 100 choices, and 24 percent of people were watching us,” Steinberg said. “That’s an important piece of the puzzle that we bring.”
The local angle
That viewership also funds local news and other original programming. Yet during the past few decades, TV stations have — with the exception of news — scaled back their original, local programming in favor of syndicated shows. That trend makes them vulnerable if syndicators, networks or both go straight to viewers via cable or the Web.
“Those stations that are cutting back on locally originated programming and going with less expensive syndicated fare are setting themselves up for a hard fall in the future,” Wright said. “While I do believe that the syndication model can survive, in the future it’s going to be tougher and tougher for stations to be able to afford ever-growing syndication fees as audiences become more and more fragmented.” Local, original programming doesn’t come cheap, but some stations are biting the bullet for reasons that include community service or a desire to give viewers something they can’t get anywhere else. One example is ABC 17 News This Week.
“I just thought it was the right thing to do to continue and fulfill our news brand,” Steinberg said. “There are some things you can’t do in a minute-and-a-half story in the newscast.
“Would we make more money if we did something else? In that particular case, the honest answer is yes, but I still think it’s the right thing to do.”