EXECUTIVE SESSION WITH JEFF SMULYAN

Retrans, Mobile Will Save Broadcasting

Jeff Smulyan, the CEO of Emmis Communications, says he ended his company's short tenure in TV station ownership because of the lack of retransmission consent revenue. He says that radio's big challenge is countering the perception that listenership is down. The salvation of both over-the-air radio and television, he claims, is mobile. Broadband is ill-suited for the delivery of audio or video entertainment to mobile devices. The broadband infrastructure can't handle it and consumers won't want to pay for it once they begin being charged the real cost.

Figuring that broadcast TV was a natural next step for a prosperous radio company, Jeff Smulyan and Emmis Communications started buying TV stations in 1998 and within a few years had amassed a substantial group of 16 stations in mid-size markets.

But the TV experience was not a happy one. No sooner had he built the group than he started to disassemble it, selling off the last of the stations a couple of years ago.

In this interview with TVNewsCheck Editor Harry A. Jessell, Smulyan, the CEO of Emmis, explains his decision to get out of the TV business at the same time a of private equity firms were getting in. It all comes down to retransmission consent, he says. Broadcasters were not getting their fair share of cable programming fees and, without them, they eventually wouldn’t be able to compete.

Smulyan also discusses the continuing challenges of the AM and FM business, not the least of which is the “perception” that radio listenership is dwindling, particularly among young people.

Opportunity for broadcasting is in mobile, he says. Broadband is ill-suited for the delivery of audio or video entertainment to mobile devices. The broadband infrastructure can’t handle it and consumers won’t want to pay for it once they begin being charged the real cost.

An edited transcript:

BRAND CONNECTIONS

You got into the TV business and then you got out fairly quickly. Why?

We really thought that you had to have a significant amount of retransmission consent revenue to be competitive. If TNT gets a $1.10 a subscriber and ESPN gets $4, they are going to take your content away. The absolute future for the American television business industry is a meaningful dual revenue stream. The networks have to have it and the affiliates have to have it.

And it’s got to be a big number.

It’s got to be a number that that reflects viewership. Listen, you have got a massive cross-subsidization. People are paying largely for what they don’t watch and they’re not paying for what they do. It just doesn’t make any sense and you can see it every day. How many articles do you have to write about sports or movies or comedies or Oprah migrating to cable? Hey, listen, the entire American television business can be summed up by one phrase from Watergate: “Follow the money.” Wherever the money goes, that’s where the product is.

What’s the solution?

As part of a recognition that over-the-air broadcasting is very important in this country, Congress and policymakers could have a comprehensive solution where the broadcasters could give up some spectrum for some form of compensation.

What kind of compensation?

You can have some sort of a comprehensive settlement where the cable operators would agree to pay broadcasters based on some sort of viewership formula.

That sounds like a tough sell.

Yeah, it’s just a different way of looking at the problem. The customers are paying to watch you, but their dollars are going to someone else. Do you think that the average consumer when they pay their $75 a month cable bill thinks that ch. 4 is getting some of that money? Of course they do.

I think the cable operators probably tell them that they’re paying for everything else and that broadcast signals are free.

Yeah, but nobody has an antenna anymore. That’s the most disingenuous argument in the history of the world.

Emmis is a public company. Why are you now trying to take it private?

Because I would rather be private than public if it’s humanly possible. It’s hard to be a public broadcasting entity these days.

Why is that?

Because Wall Street doesn’t love us all. They don’t love TV, they don’t love radio, they certainly don’t love newspapers and magazines.

Why should it love radio?

We just had some massive studies that Nielsen did with Ball State that looked at media consumption and it shows radio consumption is at an all time high.

Yeah, but it’s been abandoned by the kids.

It hasn’t been. The perception is it’s been abandoned by the kids.

You can clearly define the problems of the three industries. The newspaper business is incredibly capital intensive and it lost the gravy, which was the classified business, to people like Craig Newmark, of Craiglist. More than that, it’s got a consumption problem. People are not consuming daily newspapers, young or old, in the same way.

Television has a different problem. Television’s consumption is at an all-time high. People spend more time watching TV than ever before, but the problem with TV is that it’s fragmented and the dollars go to too many different places.

Radio’s issue is totally different. Consumption is at an all-time high. Time spent listening is down a little bit, but we have more people listening to radios today in the United States than ever before. We have five million more listeners in radio in the United States than we’ve ever had in our history, but nobody understands that.

Radio’s problem is perception. If you ask the average person they will say well everybody has iPods and every kid is streaming audio. Here are the facts: Seventy-nine percent use radio every day, 46% use CD and tapes, 13% use satellite, 21% percent use iPods, 20% use MP3s stored on their computers and 11% use streaming.

By far the most minutes are spent with radio. The 13% percent that use satellite spend 57 minutes with it. The 21% percent that use iPods spend 68 minutes them. The 79% percent that use AM and FM radio spend 104 minutes listening.

You have been in the local online media business through your Emmis Interactive division. What’s it going to take for TV and radio stations to become dominant online players in their markets?

The most important thing they should be doing is integrating their terrestrial and digital services, which provides particular challenges. The other thing is really understanding your audiences and trying to provide them with content that’s really relevant to their lives. It sounds simple, but it’s different in the digital space than it is on air.

Let’s talk about streaming. Is that a good business for radio stations to be in?

We’re a little bit skeptical. We do it, but it is a very inefficient distribution model. We’ve known in radio for many years that when I send my signal to a streaming customer, it costs me for every stream I have.

Now, the problem with that is that it’s very hard to monetize that and the recipients have never really paid their share of the cost. They say, look, I have got a $30 a month unlimited data plan and I can do whatever I want to do.

The problem with that is smart phone traffic is increasing geometrically and the carriers are saying that they can no long allow people to pay $30 a month for all that bandwidth. So, if a user is listening to Hot97 for 40 hours a week, what happens when the carrier says he has to pay $150? That’s the question with streaming. Consumers haven’t paid their cost yet.

Pandora is the hottest thing in the world. When people stream Pandora for 40 hours a week as part of a $30 a month unlimited data plan, they love it. Now when you go to them and say, hey, wait a minute, you have got to pay for the bandwidth, the actual bandwidth you use, the price may be $90 a month. Do they still love it? Listen, I love Dairy Queen when I get the free root beer float, but, if I have got to pay for it, it’s a little bit of a different exercise.

The problem is compounded by mobile video, right? Video is a bigger, fatter signal.

Of course it is. Listen, the greatest economic guessing game this year is does YouTube lose $2 billion or $600 billion. You know, it’s the old story: We lose money on every transaction, but we make it up in volume. That’s Google, which theoretically has the lowest bandwidth cost of anybody in the world.

This raises a couple of questions. Is the FCC then correct in saying that more bandwidth is needed for broadband?

Yes. The problem is nobody can comprehend the growth. There’s a reason AT&T stopped selling iPhones for awhile. The network was just jammed. Now the other networks really haven’t seen that yet because they’re just ramping up in smart phones, but 50% of the phones will be smart phones in the next few years.

The first iteration of this has been with the iPhone and the growth has geometric, staggering. Do I know how much bandwidth we need? No, but it’s clearly an issue and that leads to another question, which is, is the wireless space really a place for entertainment. There’s no question it’s the greatest information transfer mechanism that the world has ever known, but there’s a real question as to its efficacy for entertainment purposes.

You seem to be suggesting that broadcasting is the solution.

It is for the radio side. The problem is on the TV side. The ship sailed. We actually had an incredibly efficient distribution mechanism in TV. We had the capacity. We had the spectrum, but the game was lost to cable and satellite. People took their antennas down and they forgot about over-the-air broadcasting. I don’t know if you can put that genie back in the bottle.

But the broadcasters are now talking about mobile DTV, which could be a substitute for mobile broadband video.

It could be. There’s a question though as to the real value of video in a portable environment. How much do they value it? Listen, they value audio and they value video to an extent. The question is, is there a real business there? Do I think that it may be a better business than on a wireless system? Yes, because there’s less cost, but the real question is what percentage of the population is going to watch video in a wireless environment.

But to the extent that there is demand for mobile video, you would agree that broadcasting is a more efficient way of delivering it.

Absolutely. Streaming has costs that people have not fully grasped yet. I promise you, Google understands those costs. When it sends YouTube out, it has giant bandwidth costs. Every radio operator that streams audio understands those costs

Does any of this give you comfort that radio is going to have a renaissance?

Yes, because people are going to realize that the terrestrial distribution mechanism is an incredibly efficient distribution system. The thing we have in radio that we don’t have in TV is, we have that one-to-everyone link that’s efficient. There’s no filters, there’s no third party, there’s no satellite, there’s no cable.

One of your goals is to get FM receivers in all the mobile devices, right?

Right, it’s pretty much becoming ubiquitous around the world. There have probably been a billion cell phones sold around the world with radios in them.

Where are we in the U.S.?

We’re making great progress. We have gotten great interest from the FCC and Congress about this issue.

Do you want the government to mandate FM receivers in cell phones?

I don’t know if you want to call it a mandate or a very serious discussion about why it needs to be done. I hate to use the word mandate.

Why do you have to twist the arms of the carriers to do this?

In the rest of the world, manufacturers wanted to put [the receivers] in because it’s a value-added feature that consumers like and are willing to pay for. The cost is nominal. It’s probably less than 30 cents a phone. But the carriers control the system in the United States and they have said that nothing else goes in the phones.


Comments (16)

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Gregg Palermo says:

May 25, 2010 at 8:36 am

“we have more people listening to radios today in the United States than ever before” — what a load of B.S.

of course we have more listeners, we have more people in the U.S. A better measure would be the PERCENTAGE of AQH listeners. That’s going down for young people, and it’s not all TSL. Young people are still in love with their iPods. I’ve never met anyone who can listen to the radio and an iPod at the same time. The students in my college courses stopped raising their hands about five years ago when I ask, “what radio stations do you listen to”! It’s because they listen less.

But trotting out the old saw “we have more people listening to radios today in the United States than ever before” is a trick, Jeff. It’s like saying more people are working at jobs than ever before, which does not refute the dwindling employment rate. What are the percentages (minus the over 35 crowd)?

Elaine Scharfenberg says:

May 25, 2010 at 9:55 am

My kids are IPODS or XM. When Radio lost the Local connection they may as well been a juke-box of the 50’s era.

TV mobile? ATSC is terrible on the go. Even at a lower data rate. I believe we made a big mistake not at least considering COFDM seriously. No reason to revisit that debate however, but its an example of how badly TV screwed up ignoring low power levels, lack of outdoor antennas, ghosting, impulse noise when going for the “All-American” 8VSB standard.

    Kathryn Miller says:

    May 25, 2010 at 2:09 pm

    COFDM modulation was actually a U.S. invention. DVB’s implementation of it, of course, was not. And, it came later as well.

Teri Keene says:

May 25, 2010 at 10:26 am

Congrats Mr. Smulyan on making Chicago radio radio even more unlistenable with the way you run The Loop (WLUP-FM) and Q101 (WKQX-FM). For one thing, why do you let both stations be run from St. Louis? So you and your greedy company can save more money? And why there were no local jocks on the air on the Loop over a week ago the day rock legend Ronnie James Dio died? You talk all this crap how much radio is growing but yet you repel longtime listeners of both stations with your idiotic moves! If you don’t care about Chicago radio, then sell the stations and get the hell out of town!!!!!!

Patrick Burns says:

May 25, 2010 at 11:12 am

Radio needs to re evolve it would seem. I asked my daughter who is educated with a Masters etc what she thought of the AM stations in NY City & she seriously shot back what is AM radio.

Now ask a 14 year old what they think of local FM signals & formats & I think they would say is that part of a IPOD app ???

In short our delivery systems & tech gadgets keep evolving & the media company that stays & longs for the good old days is doomed .
As they say – stay tuned or is it stay apped. ( not a verb yet but maybe soon)

mike tomasino says:

May 25, 2010 at 11:21 am

When people talk about mobile DTV they aren’t talking about the normal standard, they are talking about the new 16 channels per 6 MHz channel mobile MPEG4 DTV standard which doesn’t break up even at 75 mph on the highway. What I can’t stand is when people say that no one has an antenna anymore. Few people have antennas now, but as more people realize that they can get their most watched channels for free, they will cut the coax. It is just a matter of time.

    Kathryn Miller says:

    May 25, 2010 at 2:11 pm

    actually, Snap, one can do more than just a/v with ATSC MDTV (mobile DTV) and it’s been tested and works at speeds much higher than 75 mph.

mike tomasino says:

May 25, 2010 at 12:00 pm

How will the current generation of teens pay for toys to which they have become accustomed? The current economy isn’t sustainable. Just because a person has certain costly behavior patterns at 14 doesn’t mean that they will have the same patterns at 21, when they have to support themselves, or that they will maintain them at 25, after their first bankruptcy. Wages and earnings are going down for most Americans. That doesn’t bode well for subscription service industries. Ultimately people will be forced to rely on whatever free services are left.

Ellen Samrock says:

May 25, 2010 at 12:51 pm

Smulyan is clearly showing a fear of competition here. Mobile DTV can carry as many as 50 radio channels. Of course he’d like to see broadcast television crippled by a spectrum grab. What radio conglomerate needs that kind of competition? FM in mobile phones? Forget it. Neither major player, Apple or Google, has shown any interest in putting it in their handheld operating systems. And HD Radio, purported to be the industry’s only real hope, is a total bust.

He whines about the public misperceptions of radio, a dying industry if there ever was one, while perpetuating his own about broadcast TV. People are taking down their antennas? Statistics show that over the last couple of years, cable has lost over 5 million subscribers, and the number is growing. People are putting up antennas. Just ask Antennas Direct. No, the problem is that Emmis got out of television a little too early and Smulyan is obviously annoyed by it.

Ivea M. Augstums & Tim Paradis says:

May 25, 2010 at 2:04 pm

Where do people spend the most time with radio? Their cars. Biggest threat? Cellphones. How often to you see people in their cars talking on cellphones? Better question: How often do you see people NOT talking on their cellphones? When they’re talking on cellphones, they ain’t listening to the radio.

    Kathryn Miller says:

    May 25, 2010 at 2:13 pm

    texting in cars (ugh) would seem to permit radio listening.

Richard Sabreen says:

May 25, 2010 at 2:08 pm

Jeff’s statement re: one on one distribution is on target. He is also correct in pushing for FM reception on phones. Those two factors can and should change the equation. Again he demonstrates insight.

kendra campbell says:

May 25, 2010 at 2:25 pm

Just curious why anyone would subject themselves to the glut of commercials on FM radio? I haven’t in several years. Neither have my wife and teenage children.

Ivea M. Augstums & Tim Paradis says:

May 25, 2010 at 4:03 pm

When I got XM satellite radio in my car, I became literally unable to listen to commercial radio with their 3-4 minute “cluster” commercial breaks. Their commercial loads make their stations impossible to listen to but they don’t seem to care.

Kathryn Miller says:

May 25, 2010 at 4:35 pm

I thought Emmis’ exit from TV was what would save it. I know a few people at previously-owned Emmis stations who thought that.

Al Ming says:

May 25, 2010 at 8:16 pm

Dan Brown’s response is right on the money and.well said.


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