Jessell | In ’21, Broadcasters Need New Revenue Ideas

With just days to go, it looks like TV broadcasting is going to survive 2020. The second quarter was brutal, but the ad market steadied over the summer and in the fall the political spending reached unprecedented levels.

After all the votes are counted, stations will have harvested more than $4.5 billion in political. The windfall means that total ad revenue will grow this year, despite the sudden collapse of core.

Gray Television told investors in February that it might do as much as $275 million, but wound up taking in more than $400 million. The take was so large and unexpected that the group felt compelled to share some of it with the rank and file in the form of 3% bonuses.

And hope is in the air as we approach the new year, with the rapid distribution of two vaccines that are said to be safe and effective and a federal government that has agreed to pump another $900 billion of pandemic relief into the economy and committed to keeping interest rates low.

Nonetheless, 2021 will be lean year. Most of the political advertising will disappear as it always does in odd-numbered years when elections are scarce. And despite the arrivals of the vaccines, the economy will still be hobbled through the first half of the year.

Core will not bounce all the way back to 2019 levels. It might get half the way back if all goes well with those vaccines and the automakers sell a few million more cars as they anticipate.

So, I would think 2022 is the year that things get back to something like normal — a full year of an economy unencumbered by the shutdowns and masks and a robust political campaigning season as the parties go toe-to-toe for control of Congress.

But I’m here to say “something like normal” is not good enough. It means modest (I’m being optimistic) growth in advertising and increasingly uncertain growth in net retrans. (I’m saying “uncertain” because MVPD subscriber rolls are shrinking and affiliates will eventually have to ante up big for the networks’ new NFL rights deals.)

What broadcasters need is another revenue hit, and I believe the place to start is with Big Tech. As Willie Sutton said, “Because that’s where the money is.”

By Big Tech, I mean mostly Google and Facebook, a monstrous duopoly that that sucked up $71 billion in advertising in 2020. The entire TV broadcasting industry did only $18 billion this year, according to BIA.

Right now, newspaper publishers, the ghosts of broadcasting’s future (“Are these the shadows of the things that will be, or are they shadows of the things that may be only?”), are taking on Big Tech.

Through their National Media Alliance lobby, they are working hard to persuade Congress to give them a four-year exemption from the antitrust restrictions so that they can negotiate jointly with the tech firms.

The publishers argue that the Google and Facebook are making billions by posting lengthening snippets of newspaper stories and photos in search results and news feeds and not adequately compensating the publishers. They are, the publishers claim, draining the lifeblood out of local print journalism.

The publishers have found champions in House Antitrust Subcommittee Chairman David Cicilline (D-R.I.) and House Judiciary Committee Ranking Member Doug Collins (R-Ga.), who introduced the exemption legislation last year.

“This bill will provide a much-needed lifeline to local publishers who have been crushed by Google and Facebook,” Cicilline said. “It’s about time we take a stand on this issue.”

Broadcasters, too, are unhappy with their treatment at the hands of Big Tech. Last fall, NAB laid out the broadcasters’ grievances in a 16-page statement that it submitted to Cicilline’s subcommittee. In those comments, NAB sounds a lot like the NMA, complaining about a “lack of bargaining power when dealing with the digital giants.”

Like the publishers, the broadcasters know they can’t live without the big digital platforms, but they have also come to understand that they can’t live with them. They feel victimized by policies and advertising splits that the social media giants unilaterally imposed and modify whenever they please.

“Not only do stations struggle to attract advertisers, both on-air and online, while competing against digital giants that dwarf them in scale and scope, but those massive platforms’ specific policies also impede broadcasters’… efforts to derive revenue from their content that consumers access via the platforms,” the NAB said.

Broadcasters and newspaper publishers have been rivals in selling ads and newsgathering since the beginning of time, but it appears that they have common cause now — self preservation or, if you want to put a public interest spin on it, the preservation of quality local journalism.

Both industries are being steamrolled right now. I would encourage the NAB board to seriously consider joining the NMA in its legislative effort when it meets next month. The bill, certain to be reintroduced next year, has a lengthening list of sponsors from both sides of the aisle.

The time is ripe for a big move to rein in Big Tech in Washington. Every policymaker there realizes that Big Tech needs to be taken down several notches. The antitrust regulators at Justice and the Federal Trade Commission have already taken action.

That said, the publishers’ legislation is not the only way to shift ad revenue from the social media to content providers.

How about this?

Broadcasters, perhaps in league with newspapers, could set up the local news equivalent of Broadcast Music Inc., the music licensing organization founded by broadcasters 80 years ago.

BMI negotiates royalties with TV and radio stations and others users of music, collects that money and then divvies it up among the songwriters, composers and music publishers that it represents based on how much their music is being played.

It’s not small change. In 2019, BMI collected a record $1.3 billion in performance fees, up 7% from 2019.

Local News Inc. (LNI), as we will call it, would rep the local news producers in the same way. It would negotiate license fees and terms of usage with Google, Facebook and other social media. It would also measure usage so it could fairly distribute the royalties to member stations and papers.

The problem is that it is well-established copyright law that online media may republish the headlines and brief summaries of news organization as “fair use” without incurring any copyright liability.

So, to set the stage for LNI, Congress would need to act. It would have to disallow “fair use” of local news content by Big Tech and also free LNI from antitrust entanglements so that it can set rates and otherwise administer the royalties as BMI does in the music world.

Broadcasters shouldn’t focus solely on Big Tech in its search for new revenue. One such initiative worth watching is Graham Media’s effort to push past the one-to-many nature of broadcasting to forge one-to-one relationships with its viewers.

According to a write-up by Andrew Heyward at Arizona State’s Cronkite School, Graham’s WDIV Detroit and WJXT Jacksonville, Fla., are trying to engage more closely with viewers by capturing their emails with newsletters and then persuading them to become registered members of the stations.

As members or “insiders,” the viewers will be able interact with the newsrooms, sharing tips and videos. They also be given access to station personalities, special events, product discounts and giveaways. Initially, the return — the monetization — will come indirectly from members more regularly checking in on the stations’ newscasts, websites and apps.

“The bulk of our audience: very low value,” Graham’s Catherine Badalamente told Heyward. “But this engaged audience: very, very high value.

“We know if we get people to register, they are far, far more likely to do everything. They’re going to watch more video, they’re going to click ads more, they’re going to send us news tips, they’re going to participate.”

Ironically, the initiative is being funded by Google. Graham was among 159 news organizations around the world to receive grants for media innovation om 2018. Graham got $300,000. (I guess Google ain’t all bad.)

In its description of the program for Google, Graham said that the endgame was to create a corps of paying members. Although it now seems to be downplaying the paid aspect, I see that as the ultimate and necessary goal.

Broadcasters must figure out what sort of service or services they can provide that will provide them with another recurring cash revenue stream like retrans.

Commercial TV stations have to become more like public stations that have been adept at converting listeners and viewers into sources of revenue. Every month, I send $15 via credit card to NPR outlet WESA Pittsburgh without ever thinking about it.

Come to think of it, I autopay by credit card for a lot of for-profit media these days — Netflix, Amazon, New York Times, Pittsburgh Post-Gazette, DK Pittsburgh Sports, Disney+, ESPN+, SiriusXM, Spotify and Great Courses Plus. Why not WTAE, KDKA or WPXI?

Non-media companies are also experimenting with the easy-pay subscription model as a substitute for traditional one-at-a-time transactional model. It’s the latest thing.

Think of Peloton, Blue Apron, Harry’s, Super and Stitch Fix. Even Panera Bread has jumped in. For $8.99 a month, its “coffee subscription” entitles you to a cup of coffee or tea every day with unlimited refills.

Of course, the big question is what “services or services” can TV stations offer that are compelling enough to get viewers to turn over their credit card number? That’s the question Graham is presumably trying to answer. I believe there is one. If newspapers can wring monthly or annual fees out of folks for digital news, TV stations ought to be able, too.

So, rather than simply bemoan the loss of the political advertising in 2021 and watch the ad revenue drop deep into the red, broadcasters should use the year to strengthen their hand in dealing with Big Tech and develop new sources of income that will help them deal with dwindling core business and weather the next unwelcome turn of events.

Harry A. Jessell is editor at large of TVNewsCheck. He can be contacted here. You can read earlier columns here.