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.
Retrans, Mobile Will Save Broadcasting
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:
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.