Talking TV: Parting Industry Thoughts From BIA’s Mark Fratrik
Economist Dr. Mark Fratrik has been studying the local media industry since the 1980s and has followed it through numerous disruptions. As BIA Advisory Services’ SVP and chief economist, his studies have been widely followed and used for key decision making among local broadcasters.
As he prepares to retire at the end of June, Fratrik shares his thoughts on some of the more tectonic forces shaping the industry in an increasingly fragmented landscape. At the top of the list is streaming, which he says offers both a viable business model and a disruptive threat to local broadcasters.
Fratrik weighs in on retrans, digital revenue’s potential and his bullish hopes for datacasting applications of ATSC 3.0 in this Talking TV conversation.
Episode transcript below, edited for clarity.
Michael Depp: Dr. Mark Fratrik is the SVP and chief economist for BIA Advisory Services and a longtime source for TVNewsCheck. He’s retiring this month after a long career as a leading industry analyst, stepping back into the role of strategic advisor, I’m Michael Depp, editor of TVNewsCheck, and this is Talking TV, the podcast that brings you smart conversations about the business of broadcasting. This week, that conversation is with Mark Fratrik, a kind of exit interview, if you will. We’ll talk about a local media industry that is radically transformed during the decades he has studied it and what he sees as its road ahead. We’ll be right back with that conversation.
Welcome, Mark Fratrik, to Talking TV.
Hey, Michael. How are you doing?
Good to see you. Mark, you are a renowned collector of data, a trend spotter, prognosticator. So, let’s get a last look at all of that from you and get some predictions that can be as freewheeling as you like. And first, let’s talk retrans. There are more and more voices saying that the gravy train is going to slow down very dramatically or that it’s headed toward a cliff. What do you think is going to happen and when?
I don’t think the gravy train is heading toward the cliff. I certainly would agree that it is slowing down, obviously with cord cutting and cord nevering. There are many people, many younger people who won’t be subscribing to the MVPD.
On the other hand, they may be subscribing to a virtual MVPD or Hulu Live, YouTube Live where they do get access to the local television stations. And those services do provide retransmission consent payments to local television stations, much like the cable operators, then the satellite operators.
So, it is slowing down. Thankfully, the local television stations have negotiated contracts with rate increases. So even if they are losing subscribers, they may be still increasing their retrans revenues because the rates keep going up. So that that’s going to slow down as well. But the heyday of very big increases, I think it’s long since gone.
And the network affiliation is getting so expensive that if a station gives up its network or it’s dropped and can keep, say, 50% of its retrans dollars and remain competitive in news, it can actually be more profitable running news and syndicated shows. Do you think that’s a realistic strategy for stations in small to medium markets that rank No. 1 or 2 in news?
That’s a real dicey proposition, Michael. I think it’s a very dicey and chancy type of way of operating. Given that you’ve been associated with ABC, CBS, NBC or Fox for historical years, that suddenly you’re going to have not have that programing and will consumers continue to watch that station without their programing? It, I think, is very dicey. Now, obviously, stations with good news departments and a good following are in a position to try and do that. But I think it’s a little chancy for a television station, even in 2022, to do to try and do that.
We’ve been seeing the word streaming like a mantra for the last several years in this business. Will local TV stations be able to successfully build business models there or will it end up having more of a negative disruptive effect on their core linear TV business?
I think the answer is yes and yes. I’m an economist. I’m allowed to say those type of answers. Yes, and yes. I think it’s incredibly disruptive. And as a result, I think local television stations, many of whom we can name, have to get involved in that game. And some of them are successfully doing that and getting into streaming and showing only streaming ads and complementing that with their over-the-air advertising.
And so, I think it’s incredibly disruptive, but I think local television stations, many local stations are responding to that disruption by getting involved, playing in the game, much like they did five or six years ago with other digital advertising revenues, their websites and mobile apps, etc. I think a lot of thoughtful television groups have adapted and realize that they’re not just a lot of spots and dots, they’re not just over-the-air advertising, that they’re in many different lines of businesses now and as a result, they enter into the streaming business.
Well, speaking of that other kind of digital revenue, will TV stations and groups ever see digital revenue grow as a significant percentage of their overall revenue? What do you think is a realistic or best-case percentage there?
Well, the question is how you define that digital revenue. If you include the [streaming] revenue directly, then I think, yes, it will be significant. And even though it is in the majority, it still is a significant number of 10% or 15%. It’s still a significant number of dollars. And some groups are doing even more than that. So, I think, yes, they will.
And I also believe that other revenue streams, such as datacasting through ATSC 3.0, that all will be a significant revenue stream in the future. So, I think there are lots of different ways that local television stations, much like other traditional media, are expanding their business lines.
And I think most groups rope OTT under their digital umbrella, so that would be fair. What has changed most significantly about local advertisers in the past few years, and where do you think they’re headed in terms of where they’re going to be putting their ad dollars?
The significant change had been that the amazing amount of different opportunities and whether it’s just digital banner ads or whether it’s social media or Twitter or things like that, local advertisers have an incredible number of avenues to reach their potential customers. And so, this presents a challenge to local television stations.
Local television stations also face increased competition. Way back when, when I first started in the mid-’80s, from increased cable networks and improvements in their programing and they’ve weathered that storm and they seem to be able to weathering this storm as well. But at the end, I apologize for keep repeating but trying to expand into different other areas and trying to be part of that digital game. It’s a real challenge for local television stations. And many of them are adapting very well.
Of course, the fragmentation is always compounding. It’s never getting lighter.
Viewers know that there are many new advertising platforms that are very exciting.
What about local viewers? Where do you see the most significant shifts in their consumption patterns and where do you think they’re headed?
Well, truly, the streaming opportunity the local viewers have, instead of just having three or four networks to watch, six or seven, if you want, including the small ones. They now have an unlimited number of choices and not having to watch it at the specific time that they’re streaming it and binge watching it to view it, you have so many more choices.
So it’s a challenge for local television stations to keep up with that and provide programing that local viewers desperately want to watch. And you’ve already mentioned it earlier. You know, the local news, it’s key. Being able to provide local news and information is so incredibly important. You do have internet, the online choices that can get you an ad by a local television station still with a primary source of watching, finding out about what’s going on in your local community and national news as well.
When you look at how the local TV industry C-suite looks at the market, what do you wish that they would more better understand or take more seriously than they do now?
Oh, good question. Threw me a curve one there. I think they’re just focusing on investing in local news. I think many of them do. That’s why I hesitate to respond to your question, because I think that a lot of a lot of good C-suite individuals and thinking about how they maintain their position in this ever-increasing local marketplace. So, I think it’s maintaining that local present and continuing and also thinking about the future.
And I made a quick reference earlier, BIA and I am very bullish about ATSC 3.0 next year in television and the opportunities that that it does bring to local broadcast entry in a whole new line of business.
Well, on the 3.0 front, I mean, it’s been five years since the FCC authorized it and really no real serious business model has emerged yet. I mean, you brought up datacasting, but that’s still, I mean, they’re trialing it, but it’s nowhere near to an execution as a business model right now.
That’s true. And obviously, the transition to ATSC or NextGen broadcasting, it’s challenging. You don’t have the additional spectrum that they did when they did the original digital transition. So, it’s a balancing your 1.0 and 3.0 and trying to get consumers to buy television sets.
I think there’ll be a there’ll be a critical turning point when there are 3.0 signals in every market. I think there will be. I think that a nationwide coverage of nearly every market is the real key ingredient for successful datacasting.
Not that all of the datacasting clients will be national scope. Some may want to go to New York or Washington, D.C., but they have the ability to sell a nationwide coverage, I think will be very key in making that market develop.
What do you think the timeline is for datacasting? Three years? Five years? Less?
Yeah, well, we BIA has come out with an estimate that by 2030 it’ll be a $15 billion business. It’s a gross amount. Television stations won’t get all of that. But we think it, it’ll be another three to five years when we start seeing some significant revenues.
I mean, I think a lot of the datacasting businesses at the recent NAB convention with them are training some new applications and new approaches to it. That would seem that may come to market a little sooner than I thought. I think the interesting thing about it is that it’s viable because there isn’t going to be any additional costs besides some technical equipment, but there isn’t any additional cost for broadcast. It’s just not putting out a two megabits per second stream and collect revenues.
Beyond 3.0, are there any big potential opportunities out there right now for broadcasters that you don’t think that they’re sufficiently capitalizing on at the moment?
No, because I think one thing holding back some broadcasters are the remaining local ownership rules. I think that in many medium and small markets, the Top Four rule is very significant in preventing all of the television stations in the market to be competitive. They could be against all the other advertising and audience competitors. That’s holding that back.
But I don’t think that anything that broadcast groups could do, given their constraints right now to really further, except just changing the mindset about what businesses they’re in and just thinking of an expanded roster or lines of businesses that you’re not just a local television station, you’re providing a lot of different access to local audiences through many different means.
Like digital marketing services.
Digital marketing service. Datacasting can fit into that and other types of events, other types of services.
Well, if datacasting doesn’t work out in three to five years, we’ll pull you out of retirement and call you to the carpet.
Oh, yeah. That’s one of the attributes of retiring.
Station consolidation was supposed to give broadcasters the financial muscle to run newsrooms that go past crimes, fire, car wrecks and regularly do great local journalism, as newspapers once did. So why hasn’t that materialized? Or at least why hasn’t it materialized sufficiently so far?
I don’t study that as much as you probably keep up in terms of whether or not it’s sufficient. I do know of some consolidation that has brought local news to outlets where they have and whether or not it’s sufficient investigative journalism or beyond reporting on fires and weather… I wouldn’t dismiss just reporting on fires and weather. I think consumers want to find out about that.
And I think there is still a role that local television broadcast is providing. They’re doing a good job that they ought to be doing better, probably. I mean, I’m not a journalism major and a journalism expert. I just I think that given the constraints that they have, especially in medium and small markets, they are doing a good enough job.
What are your other major parting thoughts for local media? More broadly, what should we be looking out for?
Looking out for the next potential competitor that we don’t even think about. I mean, who would have thought about OTT four or five years ago? Who would have thought about digital? Who would have thought about going back to the ’80s and mid-’80s at ESPN with NFL football becoming much more competitive?
I think it’s staying on top of things. We always told broadcasters that you should hire more 18-year-olds so as to keep up on top of what’s going on. A lot of the broadcasters are heavily involved in social media, so I think that they’re doing a good job in that. But I think it’s just keeping on and thinking of yourself as more than just a local television broadcast. You’re a local outlet, media outlet, reaching your audiences in many, many different ways and selling those ways to national, regional and local advertisers.
All right. So always keep an eye out for whoever is coming out for you next. Right. Well, thanks for joining me today, Mark Fratrik, of BIA Advisory Services, and congratulations on your retirement.
Thank you very much, Michael.
You’ve been a great resource to TVNewsCheck over the years and you will be missed. Thanks to all of you for watching and listening, and see you next time.