The CEO of VCI Solutions says if TV stations are to survive the new economic realities, they need to focus on putting their investment into their content — producing more of it that’s more local — and get away from spending large sums on how the content gets to the consumer. To do that, she says, stations should move to sharing master control functions, not just within groups, but with competitors as well.
The way Sarah Foss sees it, TV stations have to get out of the plumbing business.
With revenue and margins shrinking, the president and CEO of VCI Solutions says in this interview with TVNewsCheck, broadcasters have to quit pouring so much money into master control.
Such “plumbing” is still absolutely vital, but, with today’s scalable digital technology, stations no longer need their own master control, she says. They can share master control — and the associated capital and operational costs — with other stations.
Several station groups have already implemented centralcasting, shared or hubbed master control, among their own stations. But Foss would take it one step further. She thinks stations ought to think about sharing across company lines and outsourcing master control to third parties.
Not surprisingly, VCI has developed a product that jibes with Foss’s thinking. Verity is an integrated master control and trafficking system that will allow a station to continue to operate independently or, if it chooses, begin what Foss calls “baby steps” toward getting out of the plumbing business once and for all.
An edited transcript:
Good marketers are good listeners. What are you hearing from TV broadcasters these days?
That the uncertainty that they thought would be resolved by June 2009 is not resolved. There is a lot of uncertainty turning itself into some real fear about what really is the future of broadcasting and advertising. Is it going to come back or rebound a little bit? Or, because of the declining advertising market and changing consumer habits, do business models have to change to survive?
How are you responding to that?
I actually think that this is an amazing opportunity for broadcasters to reinvent the business model because I think we have been extremely lackadaisical in embracing some of the things that technology can bring to bear from profitability and efficiency standpoints.
We still have work flows that were in place when I was in a station almost 20 years ago. The times have so radically changed — the way that we program, the way that we sell, the way that we spend, the way that we distribute the content.
So, I really think that the broadcasters who will not only survive this economic downturn, but who will thrive in the years to come are those who have utilized technology differently and have changed how they distribute content.
Please elaborate on that. How should stations be using technology differently?
A TV station today needs to take a step back and ask what is the core. What do we do? I would say a broadcaster creates and aggregates content for geographic distribution to reach consumers in a way that is of value to advertisers.
Well that’s a fine definition of what a broadcaster is, but what should the broadcaster of today be doing differently from the broadcaster of 20 years ago? What should the new broadcaster look like?
Well, if that is the core business strategy, then all of a sudden, the need to own the operational facilities, the need to be spending millions of dollars on capital expense for distribution purposes, is no longer of any value because that’s not what helps the advertiser. In fact, the core suffers because they’re putting money into rebuilding the same infrastructure 1,200 times across the country.
You asked how things are changing. The LMAs [local marketing agreements] that are so in vogue, the sharing the news facilities that is so in vogue are evidence of broadcasters who get it. They recognize that they need to focus on the content that is of value to consumers and let someone else get it to them.
OK, who is that someone else going to be?
What we’ve seen over the past five years in some of the very forward thinking [TV station] groups is the hubbing model. You can actually focus on creating content and then share infrastructure, what I call the plumbing facilities.
The hubbing concept is critical because, again, it allows the broadcaster to focus on the content for the region. That’s of value to advertisers. And the shared plumbing really is much more cost effective and delivers content in a very efficient manner.
We have so many inefficiencies in the current work flows. Hubbing is the first stop. Let’s share the infrastructure, the plumbing facilities, in a local market. You focus on your news and I, as your competitor, will focus on my news, but, frankly, let’s share our maintenance engineer for the transmitters, let’s share master control. Digital technology is highly scalable. The more scalable the infrastructure, the more channels you can add and the more cost effective it becomes. That brings the capital expense down.
In my interview with Tony Cassara a few weeks ago, he suggested the same thing: competing stations in a market sharing master control, the plumbing as you call it.
Absolutely, because a lot of other industries have done the same thing. Infrastructure, the plumbing, is not a competitive differentiator for a lot of broadcasters anymore. Someone else who can put a lot of capital infrastructure together can manage that effectively and get the content to my consumers.
But wouldn’t broadcasters be wary of turning over the sales and other proprietary information in the trafficking to a third party?
There are some folks that would advocate that even traffic could be something that’s hubbed, but there is this fine line between where a broadcaster’s core business ends and where an outsource or a hub begins. The groups that have been very aggressive on hubbing have centralized traffic to a point.
If you look at the Comcast Media Center, which is a huge hub for cable programming in Denver, you’ll find some channels that basically rent space and traffic capacity from Comcast. Cable networks and satellite providers have been much more accepting of the hubbing model than the television station groups.
Broadcasters feel that the more that their stations are regionally concentrated, the easier it is to hub. Yet, we have customers today that are breaking down those geographic barriers, that now have stations from the Northeast being hubbed from the Midwest because technology affords the capability to do that.
So, you think hubbing within station groups is where we are now and that hubbing among competing stations and station groups is where we are going?
Absolutely. Another change from five or 10 years ago is the number of private equity groups or financial investors in broadcasting that are not emotionally connected to the old work flows. That has significantly changed.
When the large private equity groups started to come into the space, they looked at the broadcast balance sheets with ideas they had from other industries. They said, I have an inefficiency in this system that technology can solve, which means I can increase my profitability.
Now, you make your money by selling master control and trafficking systems. How is it better for you to have one master control per market rather than five? You just knocked your potential market down from 1,200 units to 210.
That’s the reality of the industry. The industry is seeing such a contraction whether it’s because stations are being bought by other groups or because they’re making a single purchasing decision. It would be naive of me as a business leader to not recognize the way that the industry needs to move so that we can actually avoid the fate of newspapers.
What we have done is we’ve created Verity. Verity is a truly integrated system that absolutely allows that first step towards hubbing. It also allows the groups that don’t believe in the hubbing, or the outsource model, to still utilize technology effectively, remove heads, increase revenue and decrease costs. I call that the baby steps for our broadcasters.
But Verity is not the product if you do want to outsource master control, but want to retain traffic, because Verity is an integrated product combining traffic and master control.
No. Verity absolutely could be the product because it is not based on having all of the users or all of the servers in one location. It can be geographically distributed. In fact, I think it would be quite seamless for a station group that wants to use Verity on the traffic side to know with full confidence that their business rules are driving some of the decisions at the outsourced hub or that master control facility. So it absolutely plays in that model.
What most groups are doing is taking the first step, which is, how do I transform my existing operation today because I’m not prepared to shut down and move everybody to a single facility. There is going to be a staged approach that allows the broadcast work flows to quickly migrate into more efficient uses with technology and software systems. Verity is one of those things along that schedule. It’s how do you get from point A to point B.
Then point C would be to outsource master control?
That’s where the industry is going. It makes sense. If we look at what other industries have done, we see that they have outsourced the plumbing, the infrastructure, because that is not a competitive differentiator. What are differentiators are how is the news produced, how are those connections with local advertisers, how is that brand marketed within the community. Those are core. How the content gets to the consumer should be outsourced.