The Diginet World Is Having A Moment
Since its emergence in the early 2000s, multicasting has never been a major source of revenue or profits for broadcasters, but it has been a steady one and broadcasters continue to strive to make the most of mini-medium.
Spectrum, they know, is a terrible thing to waste.
Over the past year or so, leading stations groups have highlighted the importance and vitality of multicasting by taking a more active role than they have in the past – acquiring popular diginets and partnering in the development of new ones.
“I think the economics do favor the station groups,” says analyst Peter Leitzinger of S&P Global Market Intelligence. “Station groups can easily leverage their extra bandwidth across their portfolio of affiliates.”
What’s more, improved encoder technology and the new ATSC 3.0 broadcast standard are promising new opportunities for new channels.
“You obviously have new programming coming all the time,” says Mark Fratrik, SVP and chief economist at BIA Advisory Services. “You always have new entrants with a certain twist, a new idea.”
The mini-renaissance for multicasting began late 2017 when Scripps went from a 5% minority owner of Katz Broadcasting to sole ownership, paying the other investors $292 million and valuing the entire multicasting network company at $302 million.
At the time of the closing, Scripps said the four networks—Bounce, Grit, Escape and Laff—were expected to generate about $180 million in revenues and $30 million in segment profit in 2018. Katz founder Jonathan Katz has remained with Scripps to run the business.
“That was a warm feeling when that happened for me,” says Sean Compton, Tribune Media president of programming. “The Scripps acquisition made multicasting ‘legit,’” he says. “It said that this is a true business and there’s a marketplace for it.”
The nine-figure valuations validated Tribune’s own investment in Antenna TV and hushed the doubters, he says. “They never saw the success that it would become. None of us did.”
Scripps/Katz launched its fifth channel in May, resurrecting Court TV with its original mission – coverage of live trials. Tribune has said it will dump MGM’s This TV to make room for it at the end of October.
Underscoring Scripps’s moves, Tegna in May acquired the Justice Network and Quest from Cooper Media, paying $77 million in cash for the 85% of the two networks that it didn’t already own.
The deal, which closed in January, valued the two at $91 million. Although Tegna has not released detailed financial details, it said that the acquisition would be immediately accretive to cash flow.
Another strong of vote of confidence in multicasting is coming from CBS. The network, which partnered with Weigel Broadcasting in the Decades diginet in 2015 and Start TV in 2018, will go it alone with the launch on Sept. 9 of DABL (pronounced “dabble”).
“Weigel’s been a great partner of ours. And we love those guys over there,” says Steve LoCascio, chief operating officer and CFO of CBS Global Distribution Group. “But look, it’s better to own the whole thing.”
DABL’s focus is lifestyle, which LoCascio says is a “sweet spot” for CBS’s in-house ad sales team. Programming will cover such topics as home improvement, cooking and pets, tapping into CBS’s vast library for shows hosted by the likes of Martha Stewart and Emeril Lagasse.
At launch, LoCascio expects DABL to reach 70% of TV homes through the CBS O&Os and other affiliated stations.
Also in the pipeline for early 2020 is a new “country lifestyle” multicast network from 50/50 partners Gray Television and Opry Entertainment Group, a subsidiary of Ryman Hospitality Properties.
It’s the first multicast network for both companies. A companion, premium OTT channel is to follow a few months later.
The operation will be based in Nashville, with digital media veteran Drew Reifenberger as general manager.
Another group bullish on multicasting is Sinclair.
It now has four diginets on the air: Stadium (live sports); TBD (videos culled from the web); Comet (science fiction); and Charge! (action/adventure). Partner Jukin Media supplies the programming for TBD. Partner MGM contributes the programming for Comet and Charge!
Scott Shapiro, VP of corporate development, says Sinclair has secured streaming rights to all content on the four networks so they can be simulcast on Sinclair’s ad-supported Stirr OTT streaming platform.
“We take a multiplatform approach wherever possible, wherever it makes the most sense,” he says.
The trend is clearly toward station groups’ owning all or part of the diginets they carry, but that has not deterred independent NewsNet, a 24-hour news network launched in January.
“The two main reasons that people keep cable are news and sports,” says President Eric Wotila.
Based in Cadillac, Mich., the network is already profitable, operating “lean and mean,” at a fraction of what major networks spend on news, he says.
News video comes from AP, Reuters and other sources, with Skype used for feature interviews. As it grows, NewsNet is preparing to open three bureaus across the country.
The network relies mostly on low-power TV stations for distribution, especially in larger markets, Wotila says. With some full power outlets in small markets, the network puts its distribution at 32 million homes.
“There is a value in low-power TV,” says Wotila. “The viewer doesn’t know the difference. A TV station is a TV station.”
Driving the investment is the maturation of the multicasting business. In the beginning, diginets were supported almost entirely by direct-response advertising.
But as their distribution swelled past 85% and their viewership rose, many of the diginets have begun to subscribe to Nielsen national ratings and sell to general market advertisers.
Nielsen confirms to TVNewsCheck that 16 diginets are now subscribing to its ratings, although it says it may only name 10 publicly – Sinclair’s Stadium and Comet; Scripps’ Bounce, Laff, Grit and Escape; NBC’s COZI; and Weigel’s Heroes & Icons, MeTV and Start TV.
It’s not clear how big a business multicasting is. Diginets generally split their ad inventory with their affiliates or keep all the inventory and pay affiliates a fee for carriage. BIA Advisory says that station group revenue from multicasting was $470 million in 2018, but nobody tracks the diginets’ national sales.
In most cases, independent channels obtain distribution by offering affiliates a share of the ad inventory – the barter model. But some have opted for simply paying stations for carriages – the leasing model.
Sony’s Get TV bought its way on stations when it launched in 2013 and is not looking back. “In earlier days, it’s probably more expensive to be leasing, but at some inflection point in revenue, you’re probably better off preserving the upside for yourself,” says Tom Troy, general manager, distribution.
Owning a long list of TV stations covering 68% of TV homes, Ion Media never had to worry much about distribution for it diginets, qubo (kids) and Ion Plus (classic TV formerly known as Ion Life).
But the broadcaster is a keen follower of multicasting and sees barter as the way forward. “The monetization learning process will evolve from barter (traditional, but too early) to cash (current), back to barter (once revenue is big enough),” an Ion executive said in an email to TVNewsCheck.
Multicasting is benefitting – and some would say contributing – to cord-cutting – consumers cancelling their cable and satellite TV services or never signing up in the first place.
Brian Weiss, who joined Tegna from Cooper Media to continue as president and general manager of Justice and Quest, says that when Justice launched in 2015 about 10% of homes were using antenna as their principal TV viewing platform. Now that’s grown to 15%.
“That still seems small, but that’s 50% growth, just about, in a matter of four and a half years,” Weiss says. “If you look at the number of people that have an antenna in their home — in some cases many antennas — but also still have a cable subscription, it is closer to a third of the country.”
Although bandwidth is still tight, forcing some diginets to scramble for carriage, improved encoders are easing the shortage. Four SD multicast channels in addition to the main HD channel are increasingly common.
“This has been phenomenal for the industry,” says Tegna’s Weiss. We even came across one low power independent delivering nine channels of digital TV—none of them in HD.”
Sinclair is taking the lead in rolling out ATSC 3.0 and hopes to have it up and running in many of its markets in the next couple of years.
Not only will 3.0 bring extra capacity, it will allow the upgrade of some SD multicast channels to HD, targeted ad insertion and potential new business models, Sinclair’s Shapiro says. “For example, if you wanted to remove the commercials from TV and charge a subscription, you could do that in an ATSC 3.0 environment.”
With technology expanding the channel capacity of a 6 MHz TV signal, it’s a good bet that the number of players in the multicasting space will continue.
“We could easily see ourselves doing more in this space, but that could be tomorrow or two years from now,” says Get TV’s Troy.
CBS, for one, is prepared to expand deeper into the space. “DABL is our first foray into this,” says LoCascio, “so, if we’re successful, I think there’ll be others coming down the pike after that.”
“The last 10 years have been a terrific business,” says veteran media executive Barry Wallach, who was one of the founders of Justice Network.
“New businesses have been created and viewers are very much enjoying it,” he says. “These digital networks are only going to grow in viewership. The business is rock solid and growing.”