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You Have to Fight Scale with Scale

October 11th, 2018   ||    by Rick Howe

The other day I sounded off on LinkedIn about some of my key findings from the TVB Forward conference in New York on Sept. 27.

I was there as a guest of Videa, and my eyes were opened about the large-scale trends in the local broadcast television ecosystem.

I am, admittedly, a fan of scale – boxcar distribution and viewership numbers. My personal definition of “boxcar” numbers is simple: line up a bunch of zeros (like boxcars on a railroad track). Add one zero to a cluster of five, and you’ve gone from hundreds of thousands to millions. Not bad. But add another zero and you are in the tens of millions. One more and you are at least at one hundred million.

Like it or not, those are the kinds of numbers the industry needs to thrive (some would say to survive).

At the start of the conference, Fox Television Stations CEO (Broadcasting and Cable’s “Broadcaster of the Year”) made his opinion very clear: “The best thing for the industry and for all of us in the industry is the full relaxation of ownership standards.” In addition, he said it’s the best thing for employees and consumers; “arguments to the contrary are defensive, self-serving, misinformation or a combination thereof.”

The discussion about political advertising suggested both the critical sources of advertising funding (and some of the inequities therein), along with the opportunities right now for the midterm elections:

  • Brad Perseke, Partner at GMMB pointed out, “In North Carolina, the competing Super PACs had 80% of the advertising voice; the candidates only had 20%. That’s not right, but that’s the way it is.”
  • And just a few minutes after that, USA Today reporter Fredreka Schouten noted, “We have to remember it’s not always about the money in elections; candidates matter!”
  • And just to give the television industry some perspective, Nexstar Media Group EVP and CFO Tom Carter said, “Politicians are price insensitive when it comes to TV ads.”  And just to whet the investors’ appetites, he pointed out “At Nexstar we throw of 20% free cash flow from every dollar – that’s huge!”

Last month I published a post here on MediaWave revealing my respect for the traditional relationship between broadcast television networks and their local affiliate stations. But now we see that relationship could be in jeopardy.

We know that at least one major broadcast network has introduced a direct-to-consumer subscription service: CBS All Access. In that case, CBS goes to great lengths to include and integrate their local broadcast affiliates. Case in point, as a DIRECTV subscriber my service goes out with just a hint of rain. But I can always fire up CBS All Access to watch my local CBS affiliate live.

When I interviewed PBS Chief Operating Officer Jonathan Barzilay last December at TVOT New York, he was careful to emphasize how their PBS Passport service supports local PBS broadcasters. PBS Passport is a member benefit from participating PBS stations that gives donors and supporters extended access to an on-demand library of PBS programming online.

Disney’s own “Netflix Fighter” OTT service has unknown support for local ABC broadcasters, and NBC (Comcast) plans remain a mystery.

But at TVB Forward it became clear that “New Fox” (who by the way has named former White House Communications Director Hope Hicks as Chief Communications Officer), intends to move its broadcast network to include more live sports, to the point that at least one media analyst worries about the future of the network and its local affiliates.

At the TVB Forward conference, Michael Nathanson, Partner and Senior Research Analyst for Moffett Nathanson Research, said “I’m concerned that the move by Fox to go toward more of a national sports play. At some point will the network just say ‘you know what? We realize the value of local is local, but we’ll fill in the rest of the country with a national feed. We’re going to go with the nuclear options.'”

In that same investor’s panel, Nexstar’s Tom Carter reiterated, “The local broadcast business model is underappreciated.”  Broadcast groups have low capex and throw off the above-mentioned 20% free cash flow.

In the face of competition from digital players (Facebook, Google, Amazon et al) and unprecedented competition from their own “home” networks, local broadcasters may find they have extra incentive to up their technology game and look to automated platforms to deliver scale and audience reach. There are many solutions and resources out there for local broadcast to not merely survive, but thrive. In the end, you have to  fight scale with scale.


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