JESSELL AT LARGE

What’s In Store In ‘19? Jessell’s 8-Ball Knows

TVNewsCheck’s prescient editor, Harry Jessell, asks his infallible Magic 8-Ball to reveal how 2019 will unfold for various aspects of the television business, including core advertising, political advertising, retrans, mergers, FCC ownership caps, Big-4 duopolies and ATSC 3.0. He then expounds on the answers since, while all-knowing, the 8-Ball is notoriously terse.

’Tis the season for columnists like me to make forecasts, but, frankly, with the incredible pace of change and overwhelming complexity of the mediasphere these days, I felt I needed some help. So, I dug out my infallible Magic 8-Ball.

We will proceed thusly: I will ask the ball a question, give it a shake and then, through my own power of divination, elaborate on the answer that slowly emerges from the ball’s inky depths. The ball is all-knowing, but notoriously terse.

Harry Jessell

Will there be a resurgence in core advertising this year?

Magic 8-Ball: Very doubtful.

Me: Yes, the economy, spurred by last year’s tax cuts, is strong with employment and wages rising. But there are a bunch of negatives out there — a volatile stock market, an equally volatile president, unrelenting competition from cable and digital media, declining ratings, no Olympics and a cyclical decline in auto sales, which translates into a commensurate decline in auto ad buying. If any station can eke out a few percentage points’ growth this year, it will be doing about as well as can be expected.

BRAND CONNECTIONS

Can broadcasters count on a record political advertising windfall in 2020?

Magic 8-Ball: It is certain.

Me: Broadcasters had a far-better-than-expected political haul this year. According to its Kantar Media-assisted reckoning, TVB says stations reaped more than $3 billion during the midterms. That’s up from the $2.4 billion Kantar Media forecast in 2017 and up from the $2.65 billion it reforecast just last September.

“We’re drunk on political,” blared Sinclair’s Steve Marks during the company’s third-quarter conference call, oblivious to the political ramifications of such remarks as only Sinclair execs can be.

So, 2018 bodes well for 2020, elections super-charged by a contentious presidential race. Unlike in 2016, the Republican nominee, be it Trump or another, will fundraise prodigiously and spend heavily to retain the White House. The Democrats will match him or her dollar for dollar. The money will come so fast that memories of the hard days of 2019 will quickly fade.

Will broadcasters be able to continue to grow retrans revenue at a healthy clip?

Magic 8-Ball: Most likely.

Me: By some measures, broadcasters have not come close to tapping all the value they have in their signals. A big gap still persists between the percentage of people who watch broadcasting and the percentage of MVPDs programming budget that goes to broadcasters.

Of course, there is no law that says that there must be parity between broadcast viewership and MVPD programming dollars. And the MVPDs continue to wage a nonstop campaign to convince Washington to step into the retrans negotiations in some fashion and curtail the growth of their retrans payments. But so far, those efforts have come to nothing and I don’t expect that they will anytime soon.

If you’re unhappy with the Magic 8-Ball’s answer, finding it too wishy-washy, you can choose to believe the great soothsayer Perry Sook of Nexstar. “We don’t see anything in that [retrans] landscape changing,” he told analysts on his third-quarter analysts call. “So, we think that again — as far as our eyes can see, five, six years out — that we’ll see double-digit increases in both the top line [retrans] revenue and in the bottom line net retrans, which is what drives the increase in free cash flow for us.”

Speaking of Nexstar, is it going to be able to close on its merger with Tribune by the end of the third quarter as it said it would when it announced the merger on Dec. 3?

Magic 8-Ball: Outlook not so good.

Me: The regulatory approval process is already a month behind schedule. On the day of the announcement, Nexstar said that the transfer application would be submitted to the FCC the next day and that the “comprehensive divestiture plan” needed for complying with the FCC’s local ownership rules would soon follow. We’re still waiting.

Also, keep in mind that it took the FCC and the Justice Department six months to OK the Gray-Raycom merger in December, even though Gray had carefully structured the deal not to trip any regulatory alarms.

Nexstar, too, is trying to anticipate and avoid such trouble. That’s what the divestiture plan to spin off overlapping stations in 13 markets is all about.

But Nexstar’s deal is far more problematic than Gray’s since it will produce the largest group of Big 4 network affiliate stations ever by taking advantage of the archaic UHF discount. We’re talking a reach of 60%-70% of TV homes.

That fact will draw opposition from cable and satellite operators as well as Democrats inherently suspicious of big media. Newly installed as the majority, Democrats in the House will try to rein in what they feel as deregulatory excesses wherever they can. What’s more, there are some prominent broadcasters who don’t like the idea of mega-station groups.

One other complicating factor: Fox is likely to exact tribute from the merger by demanding that Nexstar sell it some of Tribune’s prime Fox affiliates. Fox is in a strong position to make such demands as Nexstar’s Fox affiliation agreements are up for renewal at the end of this year.

Will FCC Chairman Ajit Pai impose a new hard cap on national ownership?

Magic 8-Ball: My reply is no.

Me: Pai is a marketplace, laissez-faire kind of guy who believes in minimal regulation and would probably prefer no cap. He opened a rulemaking to eliminate the cap or come up with a new one. He found there was no consensus on what it should be, even among broadcasters.

With the UHF discount, the current cap is somewhat nonsensical, but it aligns with Pai’s regulatory (or non-regulatory) thinking. Any group that doesn’t have a lot of big-market VHF stations can extend its reach to as many as two-thirds of TV homes or maybe even three-quarters. Revising the rule makes no sense for Pai. It gains him little and it opens him up to a lot of political and legal blowback.

Will broadcasters get any further relief on the local ownership rules?

Magic 8-Ball: Don’t count on it.

Me: In approving the Gray-Raycom merger last month, the Justice Department’s Antitrust Division said in effect that it wasn’t going to allow any combinations of Big 4 affiliates because they would have too much leverage in negotiating retrans and ad rates. The ruling is based on the notion that broadcasting’s market power in not constrained by competition from cable or from any other medium. And that, in turn, is based on the notion that for cable systems and advertisers there is no real alternative to Big 4 affiliates. Those are some seriously dubious notions, reflecting a profound lack of understanding about what is going on in the media world. But Justice is stuck on them.

By the way, with the pronouncement, which came in the form of a settlement of a suit against the merger, Justice usurped the FCC’s traditional role as arbiter of how many stations one entity may own and where they may own them.

So, where does the FCC stand on Big 4 duopolies?

Magic 8-Ball: Ask again later.

Me: As part of its deregulatory thrust, the Pai FCC said it would consider allowing Big 4 combos on a case-by-case basis, but it has been dawdling on the big test case — Gray’s long-pending proposal to buy NBC affiliate KDLT in Sioux Falls, S.D., for $32 million and run it in tandem with its ABC affiliate KSFY. Gray announced the acquisition eight months ago.

But, as I said above, it may not matter what the FCC does in this case or any subsequent one. Justice is against Big 4 combos and has declared its willingness to quash them by simply declaring them anticompetitive.

Will broadcasters fully transition at least one market to ATSC 3.0 and begin offering 3.0-based services by the end of 2020?

Magic 8-Ball: Reply hazy, try again.

Will broadcasters fully transition at least one market to ATSC 3.0 and begin offering 3.0-based services by the end of 2020?

Magic 8-Ball: Cannot predict now.

Me: This is a tough one. The FCC authorized use of the new broadcast standard a year ago and broadcasters all knew the green light was coming at least a year prior to that. But the entire industry has yet to coalesce around a common business model and a plan for implementing it. In fact, key broadcasters like CBS and ABC are not even pretending to be interested.

If 3.0 is going to happen, it’s going to take some bold thinking and even bolder investment. I don’t see either right now.

What about network primetime programming? Will the ratings continue to trend downward?

Magic 8-Ball: You may rely on it.

Me: How could the ratings do anything but?

Here’s how Lorraine Ali of the Los Angeles Times wrapped up the just-ended year in TV: “Television, already bursting at the seams with peak programming and lots of filler, finally blew apart this year, fragmenting into a dizzying constellation of nearly 500 new original series and destinations we’ve yet to explore (the forthcoming launch of subscription streaming services from Apple, Warner Media, Disney and, yes, Costco and Walmart), plus a whole lot of space debris that includes Terrence Howard‘s Fright Club, a Fox Nation cooking show and 98% of the offerings on YouTube TV.”

When Americans plop down on their sofas at 8 p.m., they are as likely to watch one of the streaming services via Roku or another of the OTT platforms as they are old-fashioned broadcast and cable linear channels.

Big live events were supposed to be impervious to broadband encroachment. They’re not. With the exception of the NFL, live events — the Emmys, the World Series, the CMA Awards and others — have shed viewers in alarming numbers. Does anybody want to bet that the ratings will go up for the upcoming Grammys and Academy Awards?

But falling ratings doesn’t necessarily mean falling revenue. Broadcasting still reaches the largest possible audience in television and that’s an attribute that keeps the advertisers coming back and, in some cases, paying more. The numbers may be smaller, but they are bigger by several factors than anybody else’s.

“The value for advertisers is still there, media buyer Nick Hartofilis of Zenith Media told our reporter John Consoli. “Was it better 10 years ago? Of course. But [broadcast primetime] is still a valuable place to be for advertisers. And it will take several more years before broadcast TV is no longer the clear most important medium to advertise in.”

Is this the year that broadcasters finally crack the code on digital media and make them meaningful revenue and cash flow contributors?

Magic 8-Ball: My sources say no.

Me: So, do mine.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or here.


Comments (0)

Leave a Reply


More News