Collins | 3.0 Forecast: Growth Engine For Stations

Mary Collins

As the ATSC 3.0 technology standard, also known as next-gen TV, continues to grow and evolve, television broadcasters are looking at plans to deploy the technology by the end of 2020. What is clear however, is they will need stability and predictability to support implementation efforts and ensure ongoing interoperability.

Stations and station groups are weighing the cost of deploying the standard against the expected huge upside and growth potential.

According to Lynn Claudy, SVP of technology for the National Association of Broadcasters, and 2019 ATSC board chairman, “ATSC is rock solid in its core mission and foundational structures.” He goes on to report, “early ATSC 3.0 trials such as those described by Michigan public television station WKAR-TV offer cause for optimism.”

Using the symbolism of the mythological bird that gave its name to the city of Phoenix and is the location for the Phoenix Model Market test site for next-gen TV, Claudy says, “ATSC’s interactive standard facilitates a flexible platform for broadcasters to innovate and constantly re-invent their services.”

Heralding the transition to next-gen TV during an announcement at last October’s TV2020 Conference were representatives from NBC, Fox, Univision, Telemundo, and the Pearl group of broadcasters. Joining them in the announcement were top officials from Spectrum Co. — a consortium formed last year by Nexstar and Sinclair Broadcast Group — with the goal of building new lines of revenue for TV stations using the ATSC 3.0 standard.

John Hane, president of Spectrum Co., says that TV set makers are “geared up to have next-gen-ready sets on retail shelves in 2020.” Hane included this comment in the article he wrote for the March/April issue of MFM’s member magazine, The Financial Manager (TFM).

Hane reports that TV station groups are about to experience the new standard’s financial impact, which will offer both great revenue potential, as well as the associated costs to build and maintain the platform. To Hane, this more flexible service-agile network is an upgrade from the legacy single-service broadcast platform now referred to as ATSC 1.0. He says the one-time upgrade offers both resilience and growth to the business of TV broadcasting. He cites specific benefits including:

• Ability to continually improve and elaborate core video services without the constraints of “embedded technology choices” made decades earlier.
• Stations will be able to enter high-growth lines of business that rely on wireless data.
• TV broadcasters will have the opportunity to expand their geographic markets by making productive use of spectrum.
• Offers capabilities for robust service to 3.0-enabled mobile devices.

It is important to note, however, that the new standard is not backwards compatible with existing receivers. Broadcasters will have to transmit using both standards for a period of years until compatible receivers are widely deployed. Hane says TV groups are already working together to develop models and best practices for implementation along with hosting plans for markets.

The Revenue Upside

The next-gen standard will give television broadcasters much needed tools to both “grow revenue and defend against revenue erosion” in their core over-the-air (OTA) video business, according to Hane. He advises that BIA Advisory Services expects 3.0 to drive growth and resilience from both advertising and subscriber fees (retransmission consent revenues). BIA currently calculates advertising revenues as 50% to 70% of broadcast television revenues with the other 30% to 50% coming from retransmission consent agreements.

According to Hane, 3.0 offers significant advantages for television advertising. As he reminds readers, ad sales revenues are a function of measured viewership. The new standard makes programming accessible to mobile users, including those in connected cars, which should increase total viewership.

ATSC 3.0 also enables TV broadcasters to more directly measure audiences, releasing them from reliance on third-party measurements.

Next-gen TV will also enable advanced advertising targeting through digital ad insertion. Additionally, because 3.0 is native Internet Protocol, stations can take part in sophisticated cross-platform and high-yielding direct response campaigns.

Television broadcasters, Hane says, will also be able to supplement their free OTA offerings with a range of subscription services and enhancements such as 4K/ultra-high definition, or by offering so-called “skinny” bundles of pay services. Hane’s firm, Spectrum Co, seeks to link hundreds of U.S. television stations “into a seamless nationwide network” and to develop “the resources needed to monetize broadcast spectrum.”

At What Price?

Of course, new technology comes with a price tag. Hane believes the investment for a “typical station” is “modest compared to the flexibility and new revenue opportunities gained.” Factors he says contribute to station’s cost include:

• Condition and capabilities of a stations’ current equipment.
• Whether the station will convert to ATSC 3.0 or serve as an ATSC 1.0 host.
• The amount of work outsourced to third-party providers.

Stations opting to stick with 1.0 technology and serve as a host for other stations should see the lowest costs. The best case is some additional fees for connectivity, combined with those for engineering and legal work. The worst case includes additional charges for new or redundant encoders, special requirements, and/or outsourcing of the project. Hane quotes estimates ranging from a few thousand dollars to $125,000 for this scenario.

Full 3.0 conversions require upgraded transmitters, if the station has not already added 3.0 capability. Stations will likely also need to invest in new encoders and other equipment. With a transmitter upgrade, Hane says a basic 3.0 conversion equipment package “to replicate an ATSC 1.0 station with four services can range from $300,000 to $500,000 at the high end.” In some cases, engineering can be done in-house. Standardizing legal and regulatory fees may also significantly reduce estimated costs.

Note that there will also be expense associated with transporting programming to the new 1.0 or 3.0 hosts. Co-located stations will see lower costs than those that require transport to another site. One-time fees for microwave transmissions are estimated to range from $5,000 to $150,000. Monthly fiber costs are likely to be in the $100 to $2,500 range (per service).

Realizing An ROI

As with any technological innovation, Hane points out that there will be a ramp-up period between introduction and getting to scale. He imagines that “the revenue profile for a typical television station” will “look considerably different — and better — four to eight years after launching ATSC 3.0.”

However, he expects that stations will see benefits much sooner than that. He points to investors who see the value inherent in developing spectrum-related revenue and the understanding that ATSC 3.0 allows broadcasters to tap some of the unused value in their spectrum assets.

John Hane’s article, entitled Doing the ATSC 3.0 Math, can be read in its entirety in the March/April issue of TFM. An electronic copy of the issue is currently available on the MFM website.

For More Information

Scheduled sessions for this year’s Media Finance Focus 2019, the 59^th annual conference for MFM and its BCCA subsidiary, include both an updated look at ATSC 3.0 and a session focused on digital insertion of targeted advertising. We hope you will join us in New Orleans, May 20-22, where we will be looking at Big Ideas in the Big Easy.

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary, the media industry’s credit association. She can be reached at [email protected] and via the association’s LinkedIn, Twitter or Facebook sites.