2011’s Strong Start Couldn’t Last The Year

The year is ending on an up note for TV broadcasters.

Last week’s news that CBS, Fox and NBC had extended their TV rights contracts with the NFL through 2022 shouts that TV broadcasting is still the No. 1 TV medium and will be for a good long while.

And many local TV broadcasters might have been in need of a little boost since before that football news, the year has been a little bit of a disappointment.

Not that anybody was expecting big doings from the year, with political advertising in its biennial hibernation. But many thought the economy would really pick up some speed this year, and carry the industry into 2012 without any more bumps and bruises.

But it wasn’t to be the case. The economy never really did get going, and a lot of auto advertising dollars disappeared after Japan and its auto industry were devastated by the earthquake and tsunami on March 11.

When Toyota, Lexis, Honda and Acura cut back on their spending, so did some of their competitors, souring third quarter P&Ls for many.

According to Kantar Media, which tracks actual ad spending in the top 125 TV markets, spot TV sales sank 5.7% in the third quarter and were down 2.7% percent for the first nine months of the year.

In the middle of the third quarter, TVNewsCheck surveyed leading broadcasters, reps and industry analysts. The consensus was that revenue for 2011 would be off 6.6% from 2010, down from the 6% the survey forecast a year ago.

Based on the third quarter reports of publicly traded companies, broadcasters were anticipating strong auto advertising sales in the fourth quarter, and fully expecting the trend to continue into 2012 as consumers finally give in and make purchases that they have been putting off due to the recession and it after-effects.

Broadcasters are also looking for record political spending in 2012. At a TVB conference in September, Ken Goldstein, who tracks political spending for Kantar Media CMAG, said the money spent on local TV next year will total between $2.5 billion and $3.3 billion. Even the low end of that range would exceed the $2.1 billion TV stations booked in 2008 and the $2.4 billion they took in 2010.

Retransmission Consent

In addition to the soft ad market in the third quarter, the downer for many network affiliates in 2011 was the realization that they would all have to get used to paying the networks for the privilege of carrying their programming.

Since 2005, affiliates have been having increasing success in extracting  fees from cable and satellite operators in exchange for permission to carry their signals. It wasn’t long before the networks figured they deserved a share of that new revenue.

“For major networks, sharing in affiliates’ retrans revenue stream is now a given, and although slightly different models are emerging, network partners appear to be planning to receive at least half of the income flowing to affiliates,” SNL Kagan said in a study released in October.

By SNL Kagan’s count, the major broadcast networks — the Big Four plus Univision — have tapped a new revenue stream that will grow from $146 million this year to $1.3 billion in 2015.

Fox was perhaps most aggressive in demanding a cut, insisting on fixed payments rather than just a percentage of the affiliates’ retrans take. In February, an attempt by the Fox affiliate board to moderate Fox’s demands broke down in an exchange of fiery letters between Fox affiliate board Chairman Brian Brady and Fox executive Mike Hopkins.

Fox refused to deal with the affiliate board, saying that it would only deal with each group individually as their affiliation agreements came up for renewal. Fox’s basic take-it-or-leave-it, four-year deal: 25 cents per cable or satellite sub per month escalating to 50 cents in year four.

Most affiliates took the deal, resolving to press cable and satellite operators for more money when they had the chance. But not all.

Refusing to pay Fox’s price, Nexstar Broadcasting Group CEO Perry Sook gave up his Fox affiliations in Fort Wayne, Ind., Evansville, Ind., and Springfield, Mo. He converted the Fort Wayne and Springfield stations into independents and bought an ABC affiliate in Evansville.

In another Indiana market, Terre Haute, Nexstar took preemptive action, replacing Fox with ABC on WFXW and changing the call letters to WAWV. The switch took effect Sept. 1. ABC hadn’t had an affiliate in the market for 16 year.

(The best account of Sook’s running battle with Fox is in a Sept. 9 “Jessell at Large” column.)

NBCUniversal

On the other end of the retrans sharing spectrum is NBC. Early this year, it proposed representing its affiliates in retrans negotiations with cable and satellite in a generous sharing arrangement. Affiliates would get the first 25 cents, the network the second 25 cents and then they would split anything above 50 cents right down the middle.

But after more than nine months of negotiations, there is still no deal, causing some to begin wondering whether there will ever be one.

The proposed proxy deal between NBC and its affiliates was just one manifestation of Comcast’s desire to revitalize NBC.

After several months of private negotiations and a year-long push to win regulatory approval in Washington, Comcast acquired majority control of NBCUniversal from General Electric at the end of January.

And it quickly erased any doubts about its commitment to broadcasting. With longtime Comcast executive Steve Burke installed as CEO, NBCUniversal invested heavily in new primetime programming for its fourth-place broadcast network (with disappointing results so far) and in more news and better promotion at its string of 10 underperforming TV stations. (There will be more on NBCU and broadcasting in Part II of the Year in Review tomorrow).

To turn things around at the O&Os, Burke and Ted Harbert, chairman of NBC Broadcasting, bought in Valari Staab from ABC’s KGO San Francisco where she had been GM.

Management

The management churn continued at Tribune Co., which seems unable to find its way out of the bankruptcy it entered three years ago. In May, Eddy Hartenstein, publisher of the Los Angeles Times, was handed the added responsibility of running the entire company as president and CEO. He filled the vacancy created when Randy Michaels was bounced.

At about the same time, Tribune tapped Nils Larsen in May to head its broadcasting division, which includes 23 TV stations, including flagship WGN Chicago. Larsen was one of the architects of Sam Zell’s takeover of Tribune in 2007 that led to the bankruptcy.

In September, Larsen hired veteran media executive Bob Cook as a strategic adviser. For more than a decade, Cook was president of Twentieth Television, the Fox syndication arm.

Citing health issues, Craig Dubow stepped down in October as chairman and CEO of Gannett Co. He was replaced by Majorie Magner, who was named non-executive chairman of the board, and Gracia Martore, who took the title of CEO. Martore had been president and COO since 2010.

In June, Randy Falco was elevated from EVP and COO of Univision Communications to president and CEO. He succeeded Joe Uva, who left the company in April.

Cox Media Group, owner of TV, radio and newspapers, got a new president last March — Doug Franklin, who had been one of the two EVPs reporting to former president Sandy Schwartz. The top job opened up after Schwartz was named to head Mainhein, Cox’s auto remarketing company.

Stepping up into Franklin’s EVP slot was Bill Hoffman, VP-GM of ABC affiliate WSB Atlanta.

Last week, NBCUniversal’s Telemundo Media named Manuel Abud to head the Telemundo station group as president. He succeeded Ronald Gordon, who joined ZGS Communications, the largest owner of Telemundo affiliates.

Multicasting

For a July 27 special report, TVNewsCheck did a roundup of all the new networks or so-called diginets vying for carriage on TV stations as secondary services. It managed to corral 23, everything from AccuWeather to Untamed Sports.

While some networks seem to be growing their distribution rapidly (MGM’s This TV, ABC’s Live Well, Tribune’a Antenna TV and Weigel’s Me-TV), none seems offering a path to quick riches.

“I’d be surprised if there’s anybody out there that is making any significant money at this point,” said Jim Trautman, managing director of Bortz Media & Sports Group, which tracks multicasting developments. It will continue to grow, but it is a “very long-term business proposition.”

Station Trading

The station trading market finally showed signs of life this fall.

Sinclair Broadcast Group was most active, agreeing in September to buy Four Points Media for $210 million right out from under Nexstar Broadcasting, which had been managing the group for the private equity owner, Cerberus Capital Management. It had purchased the group from CBS in 2008 for $185 million.

The deal includes five full-power stations, including CBS affiliate KUTV, the No. 1 news station in Salt Lake City.

Then, in November, Sinclair announced that it would pay $385 million to acquire Freedom Communications’ eight-station broadcast TV division, including WPEC (CBS) West Palm Beach, Fla., and a duopoly (CBS-CW) in Albany-Schenectady-Troy, N.Y.

In October, E.W. Scripps doubled down on broadcasting, agreeing to pay $212 million for the McGraw-Hill group, which includes full-power Big Four affiliates in Denver, San Diego, Indianapolis and Bakersfield, Calif.

Such deals set the price for network affiliates at around 9x or 10x 2010-11 broadcast cash flow. That’s less than the 12-14x cash flow that stations were selling prior to the recession, but more than shares at which publically traded TV broadcast companies are being valued.

The flurry of buying was capped on Dec. 12 when CBS announced that it was doubling up in New York, buying independent WLNY on Long Island to complement flagship WCBS.

CBS did not reveal its plans for the station, other than to say it would expand news on the station and that it has no designs on the New York CW affiliation, which is now held by Tribune’s WPIX. CBS is half owner of the CW. As of this writing, the price had not been revealed.

Spectrum speculators entered the market during the year, figuring they could snap up some marginal stations in big markets and then turn a big profit by selling the spectrum through the FCC’s proposed incentive auctions (see Washington below).

RNJ TV, headed by Ted Bartley, was the most aggressive. In January, it bought two stations from the financially trouble Multicultural Television Broadcasting, KCNS San Francisco and WMFP Boston, for $20 million.

In late September, it picked up WTVE Philadelphia for $30.4 million.

And on Nov. 15, with a high bid of $22.8 million, it won an auction for the last of the MTB stations, WSAH Bridgeport, Conn., on the northeastern fringe of the New York market. That deal is awaiting approval by the bankruptcy judge.

Another speculator is computer billionaire Michael Dell. Under the name of OTA Broadcasting, he bought two stations in Seattle-Tacoma, KVOS from Newport Television for $2.9 million, and KFFV out of bankruptcy for $5 million. OTA also acquired KTLM on the northern fringe of the San Francisco market from a religious broadcaster for $8 million.

Washington

Early last week, it appeared that Congress would pass legislation granting the FCC the authority it sought to auction off swatches of TV spectrum to wireless carriers. A provision doing that had been attached to legislation extending a payroll tax cut and unemployment benefits.

But bickering among Republicans and Democrats led to the spectrum language being dropped from the bill over the weekend. The major source of disagreement has nothing to do with the TV spectrum auction itself, but with another issue tied to it: the governance and funding of the national broadband public safety network.

In any event, broadcast lobbyists believe the spectrum legislation will return and eventually become law next year, assuming the Democratically-controlled Senate Commerce Committee and the Republican-controlled House Communications Subcommittee can work out their differences.

In part, the legislation would allow the FCC to auction TV spectrum that is voluntarily relinquished by broadcasters and share the proceeds with those broadcasters. Such so-called incentive auctions were proposed in the FCC’s 2010 National Broadband Plan as a mechanism for transferring spectrum from TV to wireless broadband.

Most broadcasters are not interested in giving up their spectrum, but they have said they are willing to go along with the incentive auctions as long as they are strictly voluntary.

Before it can auction returned spectrum, the FCC will have to “repack” the TV band to clear large swatches for auctioning. At the very least, that means that many broadcasters who opt to keep their spectrum will, nonetheless, be forced to switch channels.

Broadcasters are deeply concerned that the repacking will diminish their over-the-air coverage and have been urging lawmakers to include safeguards in the legislation. They also want to be compensated for the costs of switching channels.

Their concerns have been exacerbated by the FCC’s inability to produce promised computer models showing what would happen to stations under various spectrum give-back scenarios.

Broadcasters prefer the protections in the House legislation and are working to insure that they make it into the final legislation.

Because of his drive for spectrum auctions, broadcasters have been wary of FCC Chairman Julius Genachowski. However, they are happy that he has so far resisted cable and satellite industry efforts to rewrite retransmission consent rules to make it tougher for broadcasters to negotiate for fees.

In March, the FCC did launch a review of the retrans rules, but it did reject calls for the FCC to order restoration of broadcast signals or mandatory arbitration when retrans negotiations break down.

The law limits what the FCC can do, Genachowski said. “The jury is still out on whether those measures are necessary or desirable, but if they are, it will require statutory change. …”

But the proceeding could undermine broadcasters retrans negotiating leverage in another way — by eliminating the FCC syndicated exclusivity and network non-duplication rules that now effectively block cable operators from importing signals.

Without the rules, a cable system that is unable to come to terms with the local ABC affiliate could simply pick up the ABC affiliate from an adjacent market with that station’s permission.

As of this writing, the FCC has yet to move ahead with the any proposal.

A new front on retrans reform opened up on the Hill just last week. Rep. Steve Scalise (R-La.) and Sen. Jim DeMint (R-S.C.) on Friday introduced legislation that would repeal the compulsory license, must-carry, retransmission consent and local broadcast ownership limits.

The American Television Alliance, primarily cable and satellite operators targeting broadcasters’ retrans rights, commended Scalise and DeMint, calling their legislation a “constructive step forward.”

Cable and satellite also hope to weaken broadcasters’ retrans hand by getting the FCC to crack down on shared services agreements and other arrangements that allow two Big Four affiliates to operate — and negotiate — as one.

As required by Congress, the FCC has been reviewing its broadcast ownership rules. The review is supposed to be deregulatory. And, indeed, according to agency sources, the FCC soon may propose in a forthcoming rulemaking relaxing the TV-radio crossownership rule and the broadcast-newspaper crossownership rule.

But the rulemaking will keep in place the duopoly rule against owning two Big Four affiliates in small markets, the sources say. And there are some indications that the FCC will also move to restrict virtual duopolies, bending to pressure not only from cable and satellite, but also to activists opposed to media consolidation.

The FCC rulemaking could become moot if the Supreme Court decides to review conflicting appeals court rulings on past efforts of the FCC to relax ownership rules. The NAB petitioned the court to do so.

Last week, in response to another Congressional mandate (the CALM Act), the FCC adopted rules requiring TV stations and cable and satellite operators to make sure that commercials and promos are not louder than the surrounding programming.

The FCC will rely mostly on viewers to enforce the so-called loudness rules. It will not act, it said, unless it finds a “pattern or trend” of noncompliance in complaints submitted by viewers.

Implementing yet another law, the FCC in August required the Big Four affiliates in the top 25 markets to provide video descriptions for the blind on 50 hours of primetime or children’s programming each quarter starting July 1, 2012. That breaks down to about four hours a week.

Cable systems with more than 50,000 subscribers must also provide 50 hours of descriptions each quarter on each of the five “most popular” non-news cable networks. At the time of the FCC action, those five were USA, Disney, TNT, TBS and Nickelodeon.

In October, the FCC provided broadcasters with a little deregulatory relief, but it was a mixed bag.

It voted unanimously to toss out its 2007 “enhanced disclosure” rules (and the required Form 355) and replace them with new disclosure obligations that will require TV stations to post their public inspection files online for easier access.

But at the same time, it adopted a Further Notice of Proposed Rulemaking that would actually expand local TV broadcasters’ online public file requirements.

FCC Commissioner Michael Copps announced his retirement effective Jan. 1, 2012, after 10 years of service. Throughout his tenure, the Democrat was a vocal and effective foe of media consolidation and a proponent of concrete public interest obligations. That put him at odds with most broadcasters.

President Obama nominated Jessica Rosenworcel, a former Copps staffer, to take his seat. Obama has also nominated Republican Ajit Pai to replace Commissioner Meredith Attwell Baker, who in a controversial move stepped down in June to become a lobbyist for Comcast.

The nominations have cleared the Senate Commerce Committee and are awaiting action by the full Senate.

As he said he would in the fall 2010, Kyle McSlarrow left the top job at the National Cable & Telecommunications Association last spring to take the top job in Comcast’s Washington office.

His successor was a familiar face in Washington communications circles: Michael Powell, who was appointed to the FCC in 1997 by President Clinton and served as chairman of the agency during the first four years of the Bush II administration.

Another big change in broadcasting-cable’s Washington world was the shuttering of the Association for Maximum Service Television, a broadcast trade group that worked mostly on spectrum issues. Word leaked of its demise in February.

MSTV’s two staff engineers — Victor Tawil and Bruce Franca — joined the NAB, while the president, David Donovan, quickly found a job in Albany, N.Y., succeeding the retiring Joe Reilly as president of the New York State Broadcasters Association.