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Sinclair/Tribune and The Future of Broadcast Television

August 14th, 2018   ||    by Rick Howe   ||    No Comments

At TVOT San Francisco 2017, I shared a Fireside Chat with Sinclair Broadcast Group President and CEO Chris Ripley.   We discussed Sinclair’s plans to merge with Tribune Broadcasting, a move that would have resulted in an over-the-air broadcast audience potential of about 90 million homes – roughly 73% of US TV Households.   If the number of TVOT audience members who were madly taking notes is any indication, those were surprising numbers.

Doctor’s Note:  I will be doing another Fireside Chat with Chris Ripley at the Advanced Television Solutions Conference at NAB NY Oct. 17/18.  I am honored to be the chair of The Advanced Television Solutions Conference.   Here is a link to the schedule (so far):

 https://www.nabshowny.com/conference/all-access-programs/core-advanced-tv-solutions-sessions

Some believe that the demise of the Sinclair/Tribune deal is a negative reflection on the broadcast television industry.    I do not share that belief.  It’s just part of the process.  One deal doesn’t an industry make; one broken deal doesn’t an industry break.

Caesar was right:  Television est omnis divisa in partres tres.

The television distribution industry is following patterns observed by Julius Caesar in his “Commentaries on the Gallic War,” a tome beloved by Latin teachers and hated by Latin students the world over.  In my personal experience, Latin killed the Romans and it almost killed me.  I did, however, meet my wife and life-partner in 8th Grade Latin, and that was a VERY good thing.

Nonetheless, we are seeing three-part harmony (or dis-harmony) throughout the industry.  On the cable side, there are 1) Comcast, 2) Charter and 3) Everybody Else.  On the digital advertising side, there are 1) Google, 2) Facebook and 3) Everybody Else. On the wireless side, there are 1) Verizon, 2) AT&T and 3) Everybody Else.  On the streaming side, there are 1) Netflix, 2) Amazon Prime and 3) Everybody Else (but “Everybody Else” here includes Disney, and I expect them to move quickly up the chain).

And there is every reason to believe Broadcast Television will follow the same pattern.

First, let’s talk about the local broadcast television ecosystem.   It is comprised of hundreds of local markets with multiple local stations in each market.   Those stations are individually affiliates of ABC, CBS, Fox, NBC, PBS and CW, with a smattering of non-affiliated and low-power broadcast stations.

In the time since most of those stations were established (usually in the 1950s), ownership has aggregated to medium-sized station groups, then acquired by large-sized stations group and now accumulating into very large stations groups.

Those local stations have generally established predictable local advertising revenue streams that have been steadily losing ground to online and mobile digital advertising.  Companies like Videa, from Cox Media Group, are moving rapidly to modernize and automate the local broadcast television ad selling process, because the advertisers need accountability, reliability and speed.

It is that move to automated advertising sales that is partially behind the interest by companies like Sinclair Broadcast Group to grow ever larger.   And even though Sinclair’s plans to merge with Tribune Broadcasting collapsed recently, there are strong indications that their appetite for growth remains unabated.   The #2 and #3 slots in the local broadcast race are up for grabs, with Fox and the recent Gray/Raycom combination in the lead.  And recent rumors suggest that Disney is considering selling all the ABC Owned and Operated (O&O) stations.  That could add nearly $5 billion to Disney’s content-creation coffers, and get them out of a business where they do not dominate.

If a company like Sinclair Broadcast Group were to aggregate all their local ad sales revenue, they would have content buying power that would come close to those of ABC, CBS, Fox and NBC, which would in turn provide additional revenue (ad-supported or subscription).  And that observation has not escaped the notice of those traditional “major networks.”

One more piece:  we all remember the carriage-fee battles between MVPDs like Comcast, Dish, Charter and DIRECTV and the local stations (aggregated into station groups).  It’s never really about Network A vs. MVPD B.  It’s about the local broadcast affiliate of Network A (who probably has other stations and markets carrying all the “major networks”) vs. the MVPD.  And the more stations and homes you “own,” the more leverage you have in those negotiations.

And finally comes ATSC 3.0 – the new broadcast standard, expected to deploy in 2020 or thereabouts, that will enable each and every local broadcast station to have 6 or more secure “channels” that can deliver a wide variety of free, ad-supported or even subscription content to living rooms, mobile devices and even cars.  ATSC 3.0 will also provide massive local market over-the-air broadband spectrum that can be leased, traded and monetized in a dozen different ways.

And, by the way, when you add Sports Betting on Television to the mix, you are super-charging the valuation station groups.  Because, as we observed at TVOT SF 2018 (and will continue with at TVOT NY 2018), the latency of MVPDs and streaming severely limit sports betting options.   It doesn’t matter which service I watch if I’m simply betting on who is going to WIN tonight’s game.   But if I’m a Fantasy Sports fan (the predicted early adopters of Sports Betting on Television) and I’m betting on which wide-receiver is going to catch the next pass, I need to watch the game on  Over-The-Air BROADCAST television, with close-to-zero latency.   If I’m watching on cable, satellite, wireless or broadband (all of which have serious latency issues for live programming), the play will be over before I’ve placed my bet.

When it comes to the Future of Broadcast Television, my money is on 1) Sinclair, 2) Fox and 3) Everybody else.

Let’s check back in 2020 and see if I’m right.

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