With slimmer profit margins than their big city counterparts, broadcasters in markets like El Paso and Rockford feel they deserve fewer ownership restrictions and less heat on broadcast indecency.
Small-market TV broadcasters have a problem with Washington.
They know their business is much tougher than that of their big-market counterparts. If the inside-the-Beltway crowd understood that, they say, they would be subject to less regulation, not more, especially when it comes to media ownership and indecency.
All broadcasters have been dealing with diminishing revenue from network comp and national spot, stiffer competition from local cable and inexorably rising costs.
But the negatives hit small-market stations much harder because of their slimmer operating margins. The margin in a 150-plus market might be half that in a top 25 market.
The loss of those network comp checks is particularly hard to take. “For many stations, it’s a huge adjustment and the timing is not good because of the huge investment that had to made in digital,” says Ralph Oakley, vice president and COO of Quincy Newspapers, which owns a dozen smaller stations in the Midwest.
It’s left many small-market broadcasters praying for competitive political races and the advertising they generate. “If political doesn’t kick in soon it could be a grim year this year and 2007 could be even worse,” says Elizabeth Burns, president of Morgan Murphy Stations.
What bugs small-market broadcasters most are the media ownership restrictions. In effect, they permit large-market broadcasters to own two stations in a market, but prohibit small-market stations from doing the same. They also prohibit all broadcasters from owning two of a market’s top rated stations—that is, in effect, two Big Four affiliates.
If small-market broadcasters could own and operate so-called duopolies, they could enjoy economies of scale and offset some of the rising costs and declining revenue just as broadcasters in larger markets already can.
The FCC has opened a proceeding aimed at relaxing the rules, but it is on a slow track that may lead nowhere.
Without relief, broadcasters and viewers will suffer, Oakley says. Many third- and fourth-ranked stations have already given up producing news, and others are sure to follow as finances tighten.
“The truth is, if we continue to have a decline, some stations won’t be able to provide a voice at all,” he says.
“There needs to be consistency in the marketplace,” says Brian Brady, president of Northwest Broadcasting. “Cable inserts local ads on 25 to 30 networks in my markets. It’s like competing against 25 to 30 local TV stations.”
“What’s happened is that bigger markets have gotten relief and smaller markets haven’t and it’s the smaller markets that really needed it,” says Phil Lombardo, president of Citadel Communications and former NAB board chairman.
Small-market broadcasters are also upset by the FCC’s broadcast indecency rules. Last June, Congress increased the maximum fine for each indecency violation 10-fold to $325,000. That’s enough to wipe out the profits of some small stations or drive others into bankruptcy.
“The cost of these fines is higher than the valuation of some these stations,” said Patsy Smullin, the owner of California Oregon Broadcasting, which operates four stations in Southern Oregon.
Smullin hopes that Congress will provide some relief, mandating smaller fines in smaller markets.
“If the FCC keeps going the way they are going, they’re going to put the nail in the coffin of live TV,” Brady says.
Indecency has also created some friction between broadcasters and the networks. Broadcasters complain that the networks should be more careful about what they air and should pay any fines for network programming. At the very least, they should help pay to time-delay broadcasts so that affiliates can block or bleep out potentially offensive content.
Cordillera Communications, a group of small-market stations that includes five CBS affiliates, felt the sting last spring when the FCC handed it a $32,500 fine for CBS’s broadcast of an episode of Without a Trace that depicted a teenage orgy.
Cordillera President Terry Hurley claims CBS should pay for airing programming that was offensive not only to the FCC commissioners, but also to viewers in much of the country.
“With the networks’ unwillingness to indemnify us because of their need to push the envelope, maddening is hardly the word,” Hurley says. “They say delay equipment is a solution, but we’re scratching our heads as to why this should be our expense. This equipment costs as much in Billings as it does in Boston.”
Indecency and the question of who is going to pay for time-delay equipment is at the top of the National Association of Broadcasters’ Small Market Television Advisory Committee’s agenda. Also on that agenda: an FCC proposal that stations tape and make available their entire program days. It, too, is part of the FCC’s indecency crackdown.
But some small broadcasters have doubts about how effective the NAB is in representing their interests. They feel that the trade association is more interested in using its limited political capital on issues of interest to larger broadcasters and dues payers—issues like digital must carry.
Digital must carry doesn’t seem to matter as much to small-market stations. That’s due, it appears, to the success they have had in negotiating with cable for carriage.
Schurz Communications reached agreements for carriage of digital and low-power CW affiliates in Augusta, Ga., and Springfield, Mo., as well as a news and weather service in South Bend, Ind.
“Our experience has been that if the local TV station provides compelling content, there’s usually enough shared interest that you can come to an agreement,” says President Todd Schurz.
Broadcasters’ leverage with cable has been increasing as its subscriber rolls have shrunk.
“Cable penetration is dropping like a rock in smaller markets, at the same time as it’s gaining in larger markets,” says Jim Yager, president of Barrington Broadcasting. Consumers are turning to satellite, “which is good for us because satellite doesn’t sell ads locally.”
Small-market broadcasters think they deserve a better deal from Washington, but most also feel they will manage without it.
“We still believe that overall television in small markets is an extremely viable business,” says Yager, whose company just closed on the purchase of 11 more small-market stations. “Television is still the most effective advertising tool available for local businesses to sell products or reach a consumer base. We believe in its future as much as we did 20 years ago.”