NAB Board: Go For Auction; Split On ATSC 3.0

Members of the NAB TV board left their winter meeting this week in Fort Lauderdale, Fla., unified on how to proceed on the FCC incentive auction. Going forward, the NAB will represent broadcasters who are interested in selling spectrum as well as those who are not.

But this being the NAB TV board, known for its periodic dysfunction, the members couldn’t get together on the other critical strategic issue before the industry: ATSC 3.0.

While most affiliates want to go full bore on developing and implementing the next-generation broadcast standard, the networks want to slam on the brakes. That’s too bad. If ATSC 3.0 is to have a chance of saving broadcasting, it’s going to need all the help it can get.

But first, the incentive auction.

From the moment in 2009 when the FCC first floated the idea of buying back TV spectrum and then selling it to wireless carriers, the NAB has been fully engaged in making sure the initiative did not adversely affect broadcasters who had no intention of selling.

It saw to it that the authorizing legislation for the auction included safeguards for the non-participating broadcasters. In repacking the TV band after the auction, the FCC would have to make “all reasonable efforts” to preserve their pre-auction coverage. The NAB even persuaded Congress to earmark $1.75 billion from the sale of the TV spectrum to cover costs associated with the repacking.

Now, the NAB is working hard at the FCC and in a federal court to insure that the FCC carries out the congressional intent. The association has hired an expert team led by Rick Kaplan to protect broadcasters from loss of service and, from all appearances, it has done an excellent job so far.

But attitudes about the auction among broadcasters began to change last fall.

On the first day of October,  the FCC released its so-called Greenhill report with estimates of what broadcasters might make if they choose to sell spectrum. In major markets and smaller adjacent markets, the estimates ran into a hundreds of millions of dollars for a single 6 MHz channel. Altogether, the report says, the auction could generate $45 billion.

Really? Could the FCC buy-back of TV channels really generate that kind of money?

As if to answer that question with an emphatic yes, the FCC on Nov. 13 opened bidding on its AWS-3 spectrum. From the start, the bidding for the 65 MHz  in play was aggressive. The bids quickly piled up. By the time it was over yesterday, after 341 rounds, the FCC had recorded nearly $45 billion.

The big numbers of the Greenhill report and the AWS-3 auction had every broadcasters looking over their portfolios figuring out whether it would make sense to sell at least some of their stations. Protecting coverage would no longer their sole concern.

At an investment conference in New York in early December, CBS CEO Leslie Moonves and 21st Century Fox Co-COO James Murdoch placed themselves among those considering selling.

“We own 27 television stations — 13 are CBS and the rest are CW or independents. When you see the numbers being thrown out there for the spectrum of a local television station — in the $200-million range — suddenly that looks pretty attractive to a CW duopoly,” Moonves told the investors.

Somewhere around this time, NAB got the message. If it was to serve fully its membership, it would have to open a second front in its incentive auction campaign. It would have to represent not only the broadcasters who would not sell, but also those who would.

At a conference call with the NAB’s spectrum committee a couple of weeks ago, NAB President Gordon Smith signaled that the association would take up the cause of spectrum sellers and reassured them that it would not try to stall the auction.

That position was reaffirmed this week in Fort Lauderdale. “When it became apparent that some of our members who had previously not been interested in the auction now were interested, it was natural for the NAB to get involved on their behalf,” said NAB spokesman Dennis Wharton after the meeting.

I now wait to see what action backs up the NAB talk.

If the association really wants to help the sellers, it should commission fresh research  on just how much the TV spectrum in worth. The Greenhill report is an attention grabber, but the means by which it come up with its estimates are highly suspect.

I’ve heard conflicting opinions of what the AWS-3 auction means to broadcasters. Some, like FCC Chairman Tom Wheeler, say it means that demand from wireless carriers is limitless and that broadcasters can count on equally aggressive bidding when their spectrum goes on the block next year.

Others say that the AWS-3 auction has exhausted the wireless carriers and their financial reserves and that they will not be able to bid so feverishly in the broadcast auction, at least not if it proceeds on schedule.

The NAB also needs to plunge immediately into the current proceeding in which the FCC is writing the rules of the broadcast buy-back auction. How much broadcasters walk away with from the auction will be determined in large part by how the rules are written. The right rules could translate into additional billions for broadcasters.

Right now, a small group of spectrum speculators led by Preston Padden is alone in fretting about those rules and trying to optimize them for broadcast sellers.  As I wrote in December when it became apparent that many broadcasters were potential sellers, Padden needs help.

To do it right, the NAB should hire an auction economist, someone expert at the gamesmanship of auctions. The FCC has all kind of experts, but they are working to create an auction that recovers the most spectrum at the least cost.

If it were all about the incentive auction, the NAB TV board meeting would have been a day at the beach … or awfully close to it. Nothing is far from the beach in Fort Lauderdale.

But, according to my board sources, ATSC 3.0 split the board along the network-affiliate fault line with CBS, ABC and Fox adamantly against it. With the merger of its parent Comcast and Time Warner hanging in the regulatory balance, NBC stayed out of the fray trying not to rock any boats. Ion Media, for reasons of its own, sided with the networks.

This is no great surprise. We ran a story last November saying that CBS and ABC were down on the standard and that Fox and NBC were ambivalent at best.

I can understand where the networks are coming from. They are primarily national program producers now. To them, ATSC 3.0 may be too good. With digital platforms proliferating, each one a separate source of revenue, the idea of broadcasting valuable programming to everybody on every device for free has little appeal.

And there will be considerable cost associated with ATSC 3.0 with no clear business plan promising a return. Stations will have to replace exciters in every transmitter. And if stations want to beam their signals to smartphones, the great promise of the standard, they will have to build and maintain secondary transmission sites, requiring more capital and operational costs.

Broadcasters may also have to pick up some of the cost of moving the 114 million homes to the new standard, which is incompatible with the current standard. That’s an enormous undertaking.

For the most part, the affiliates understand these costs and say they are willing to bear them.

But they correctly see ATSC 3.0 as their best hope of reconstituting the mass audience and delivering to them ad-supported programming with the best possible pictures and sound. They also see additional opportunity in enhanced multicasting, data broadcasting and targeted advertising.

The engineers hope to have a standard in hand by the end of this year or early next. That’s when the real challenge begins. Proponents will have to begin the arduous and costly process of implementation. Part of Digital Transition II will involve winning the support of Congress and the FCC.

To do that, the proponents will need NAB at the vanguard. It has the resources and proven expertise to convince policymakers that broadcasting is worth preserving — and enhancing — for the next generation of Americans.

Who knows? Maybe the networks eventually come around to the affiliates’ way of thinking. If not, here’s hoping that they don’t try to use their muscle within NAB to somehow sideline it.

Sitting out the big game is not what a trade association is for.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or [email protected]. You can read earlier columns here.