JESSELL AT LARGE

OTA’s Silver Lining Also Has A Looming Cloud

As station execs plot strategy for the next 10 years, they need to consider the role that over-the-air broadcasting — especially in the advanced, more potent form contemplated by ATSC 3.0 — will play. In the meantime, they need to find the sweet spot. They need to encourage some cord-cutting so as to maintain a high percentage of OTA-only homes and their advantage over cable channels. At the same time, they don't want the percentage to go so high that it starts really irritating cable and satellite operators and cutting significantly into their retrans revenue stream.

One of the great things about broadcasting is broadcasting — the over-the-air technology that lets anyone, anywhere tune in for free (assuming the proper antenna).

OTA gives broadcasters an edge over all cable channels, which are restricted to the subset of TV homes that choose to subscribe to cable or satellite. Because broadcasters reach virtually every TV home, they continue to draw the biggest TV audiences.  They remain the favorites of the mass marketers as the returns from the upfront ad dealing will prove once again in the coming weeks.

OTA also makes broadcasters the go-to source for news and information when disasters strike and cable lines and cell networks are apt to fail. See Moore, Okla.

But OTA is not the unqualified blessing that it once was.

Over the past several years, broadcasters have begun receiving fees from cable and satellite operators that retransmit their signals. They are, in effect, cable programmers and partners of the operators.

And retransmission consent revenue is vital. Broadcasters’ digital media have been a disappointment and, as Nexstar Broadcasting CEO Perry Sook acknowledged in a speech at the MFM conference this week, spot revenue is increasing at a rate of only 2% or 3%  a year. “Admittedly, it’s not the kind of growth that investors or owners want to see.”

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By contrast, retrans has real upside. According to SNL Kagan, broadcasters reaped $2.4 billion from retrans last year and, if nothing untoward happens, should see the take increase to more than $6 billion by 2018.

So, here’s the rub. Retrans is based on the number of subscribers. Every time a viewer cuts the cord on cable or satellite and turns to OTA, it’s not just the operators who suffer. The broadcasters takes a small hit, too.

And cord-cutting is no longer a series of anecdotes. It’s a fact. The major operators recorded a net loss of 80,000 video subscribers over the past four quarters, the Leichtman Research Group calculates.

“First-time ever annual industry-wide losses reflect a combination of a saturated market, an increased focus from providers on acquiring higher-value subscribers, and some consumers opting for a lower-cost mixture of over-the-air TV, Netflix and other over-the-top viewing options,” explained Bruce Leichtman, president of the firm.

Aereo, the Barry Diller-backed service that is causing broadcasters so much angst, is using OTA against broadcasters. By claiming that it is providing a one-to-one antenna service, it is taking the OTA signals and packaging and reselling them to subscribers via the Internet without paying copyright holders or broadcasters.

At bottom, it’s a retrans-avoidance technology. If the courts don’t shut it down, Aereo could license the technology to cable and satellite operators, which would then be able to offer broadcast signals in a separate IP package to subscribers without paying retrans.

DirecTV is not waiting for the courts to rule on Aereo. Speaking at a J.P. Morgan conference in Boston last week, according to a report in Broadcast Engineering, CFO Patrick Doyle said that the satellite TV firm is working on a set-top box that would seamlessly integrate OTA signals with the rest of the cable offerings so that DirecTV would no longer have to pay retrans fees.

Given the rising cost of retrans, “it’s starting to make sense,” he said. “We’ll spend more time on it. We’ll probably test in some markets an over-the-air integrated tuner set-up and make sure the customer experience is there.”

This is another example of media jujitsu — turning broadcasters’ OTA strength into a weakness.

The problem with Doyle’s scheme is that it will require subscribers to hook up an antenna to the set-top box. In some cases, simple rabbit ears will do. In many others, however, it will take an outdoor antenna, perhaps a big array on the chimney.  So, I think the impact on broadcasters and their retrans revenue would be minimal. One of the reasons people sign up for cable and satellite is so they can get rid of their antennas.

Which leads me to ATSC 3.0. Many broadcasters have been lining up in support of developing and implementing a next-generation broadcast standard over the next several years. Its OTA signal would be far more rugged than that of today. You will be able to receive it inside homes or on mobile devices with small, inconspicuous antennas.

I have been a champion of such a standard, seeing it as a way for broadcasting to maintain its ubiquity in a world where viewing of primetime is as likely to take place on a 10-inch screen resting on one’s belly as on a 60-inch screen hanging on one’s living room wall.

But there is the downside. If OTA signals can be received easily on any device, including set-top-boxes with little whip antennas, why would cable and satellite operators or anybody else pay for them?

As broadcasters plot strategy for the next 10 years — and I hope they are taking time between the quarterly sales report to do so — they need to consider the role that OTA — especially in the advanced, more potent form contemplated by ATSC 3.0 — will play.

In the meantime, they need to find the sweet spot. They need to encourage some cord-cutting so as to maintain a high percentage of OTA-only homes and their advantage over cable channels. At the same time, they don’t want the percentage to go so high that it starts really irritating cable and satellite operators and cutting significantly into the retrans loot.

I don’t know what the sweet spot is. In fact, I’m not sure of the percentage of OTA-only homes today. Estimates range from 9% (Nielsen) to 18% (GfK Media). But my hunch is that it should be higher than it is. More millions of homes relying on broadcasting for TV would not only help in ratings and ad sales, but also in the battle to hang on to spectrum in Washington. Twenty-five percent seems like a nice target.

But as broadcasters mull the optimum OTA-to-non-OTA ratio, they should know this: As Aereo has demonstrated and DirecTV has now threatened, OTA can and will be used against them.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or [email protected]. You can read earlier columns here.


Comments (10)

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Maria Black says:

May 24, 2013 at 2:27 pm

Should we be campaigning for the next census to include TV sources? And what emergency information sources they use? I know I’d like to see actual numbers on Deaf/HOH and Blind people in this country, which would make for better ammunition when people are trying to have equal access to media. The way they had it last time was an unhelpful joke.

Joel Ordesky says:

May 24, 2013 at 4:07 pm

The antenna is not a problem for DirecTV. Doyle said that he would consider applying the technology first to new subscribers. The OTA antenna goes up as part of the satellite antenna installation. Ironically, this is what they did before they were able to deliver local programming.

What’s wrong with broadcasters going back to being broadcasters? As the OTA percentages increase, so will the reach of the broadcasters into their market. Rather than hiding from it, they should be promoting their OTA signal. Every OTT cordcutter would be another OTA viewer if they knew of the existence of free digital HDTV. Many in the younger generation don’t.

    Christina Perez says:

    May 28, 2013 at 12:30 pm

    ” Every OTT cordcutter would be another OTA viewer if they knew of the existence of free digital HDTV. Many in the younger generation don’t.” — EXACTLY. Today’s OTA/ATSC standard works great with a rooftop antenna, and often works just fine with strategically placed rabbit ears. Comcast has purposely misled consumers in past TV advertising campaigns, making it seem that only cable can deliver HDTV. Waiting for 3.0 makes no sense — broadcasters should be promoting OTA right now. And they should be working with antenna makers to cross-promote OTA on air and in stores. Try to find a roof antenna at a Best Buy — the chain doesn’t even carry them.

Blair Faulstich says:

May 24, 2013 at 4:27 pm

Any revenue lost as a result of diminished retrans fees will be more than made up by flex-use of spectrum. Flex-use will allow broadcasters to finance content they actually desire, which will actually put affiliates in a stronger position regarding network affiliations. I would be able to make mucho dollars leasing my excess spectrum to whomever I want to, then select content as I see fit, not necessarily from the Big Three. This is what the FCC and wireless carriers fear, as should major TV networks.

Ellen Samrock says:

May 24, 2013 at 7:17 pm

ATSC 3.0 will definitely bring with it new revenue-generating opportunities that will offset any loses from retrans fees, not to mention a more robust signal. And you can’t beat the overall reach of OTA. In my market, cable has about a 55% household reach while OTA the figure is over 97%. There’s no way cable, with its wired infrastructure, can match that, especially not in the rural areas which we have. No, broadcast television is about to enjoy a renaissance even if the catalyst for it is the greed of the networks and their ever-escalating retrans fees. A Direct TV box with an antenna input? Bring it on! And, frankly, I don’t see much of a future for Aereo. Why pay for OTA TV everywhere when you can get it free, particularly after ATSC 3.0 is rolled out? Need a DVR function? Stand alone and computer-based OTA DVRs are already available and will get even better and cheaper as time goes on. The networks need to keep from getting side-tracked by Aereo (and Aereokiller). All of us broadcasters, including LPTV, must keep our focus on future standards and on what the FCC proposes to do about preserving OTA TV in a post incentive auction/repack world.

    mike tomasino says:

    May 30, 2013 at 5:22 pm

    Last week I purchased a OTA DVR from Amazon for $38.97. I had to provide my own USB hard drive, and the firmware is a bit glitchy, but the potential is quite amazing. I bought a 1TB drive at Walmart for $69 plus tax, so for around $114 I’m able to record over 120 hours of HD programming. It’s pretty difficult to beat that. Oh, but I have to actually see what’s going on in the commercials when I fast forward through them. 😉

Trudy Rubin says:

May 24, 2013 at 10:17 pm

This is a mute issue. Regardless of what the FCC states on record, their is no way they can repack the spectrum on the Canadian border without stations powering down and moving into low VHF. The bottom line cable will be the only way many homes will have access to local station’s, keeping cable and satellite subs up.

Blair Faulstich says:

May 25, 2013 at 12:27 pm

Moot point or not, the fact remains that instead of bemoaning the loss of retrans fees broadcasters should be embracing the possibilities that will become available after the auction, if it truly happens. The FCC should have a parallel path that opens up flex-use today, rather than waiting until later. Congressman Joe Barton said that there is a lot that can happen in two years, so let’s see where we are two years from now.

Tom Wolzien says:

May 29, 2013 at 9:40 am

Proposing the notion of a “sweet spot” for an OTA-to-non-OTA ratio of households seems like the wrong way to think about OTA services. Regardless of subscription service numbers, the goal for OTA capability in homes should always be 100%, not an either-or proposition of OTA versus MVPD. Why? The list is long: second and third sets in homes that aren’t connected to cable or satellite, access to emergency information when subscription services fail (or block broadcast signals in cable-override mode), battery-powered TVs that still work when the power is off, access to multicast programming that isn’t carried by MVPDs, equipment failure in MVPD plants or consumer premise equipment, loss of MVPD service because you forgot or couldn’t afford the subcription bill that month, continued service when your neighbor digs a hole and cuts the cable line or the rain fade from the thurnderstorm takes out satellite service. Best of all, you get equal or better picture quality through OTA . ATSC 3.0 won’t change the items on this list, but it will certainly make the case stronger that OTA should be a universal necessity now and in the coming advanced media world that’s bearing down on us at a rapid pace.

Wanda LaCroix says:

June 1, 2013 at 7:21 pm

And let’s not forget the “ubiquity” created when your tablets and PDAs are capable of receiving the OTA signal (not through your local cable or telephone carriers). This will expand TV reach the same way transistor radios expanded
radio’s reach in the early 60’s.


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