Broadcasters Mull OTT Possibilities, Payouts

NEW YORK — While revenues from over-the-top (OTT) video services may still be nonexistent for most broadcasters, stations need to consider their OTT options now in order to secure their slice of the future pie, said digital experts speaking at a TV2020 session at the NAB New York Show in New York on Wednesday.

“OTT is here, and it’s not going away — we’ve already jumped out of that box,” said Mike Bloxham, SVP, national TV and radio for research firm Frank N. Magid Associates, speaking on the panel “OTT & Digital Opportunities” moderated by TVNewsCheck Special Projects Editor Michael Depp.

Bloxham said broadcasters would be “negligent” to not be thinking hard about whether they need to get into the OTT game. He cited research indicating that at year-end 2016 73% of U.S. households had access to at least one OTT service, and 14% had access to four.

“That alone says this is significant, and this is going to impact every other way of consuming video,” said Bloxham.

While binge-watching has been technically possible since the days of the videocassette recorder, he said, the convenience and reach of OTT services like Netflix have given viewers “a seductive way of watching everything, and every kind of content we want, and that is now impacting ratings.”

In the past Magid would focus much of its research on dayparts, but OTT is turning the television industry’s reliance on the daypart model on its head.

“Ellen’s key competition today isn’t necessarily somebody else with a daytime show,” said Bloxham. “It’s Outlander or NCIS or whatever else I want to binge on as a daytime television viewer. The whole competitive set has changed.”

OTT isn’t for everyone, Bloxham conceded, and Magid has counseled several clients not to launch OTT services because they would cannibalize their existing businesses. He said the whole industry is waiting to see if ratings declines from OTT continue or begin to flatten out.

It’s competition among OTT providers themselves that has gotten broadcasters like Tribune Broadcasting interested, said Kerry Oslund, its VP of strategy and business development. While there are OTT customers looking to pay more for binge content, there are also “a lot of customers willing to pay less for less” through “skinny bundles” like Hulu Live, YouTube TV, DirecTV Now and Playstation Vue.

More important, there are now seven of these “virtual MPVDs” that are willing to compensate stations for linear live programming, often through network proxy deals that set a per-subscriber rate for major network affiliates.

Oslund has created a revenue model for how stations can play in skinny bundles and is sharing it with other broadcasters on LinkedIn to help them plan their OTT strategies. At TV2020 he offered some key data points from his analysis, such as the fact that Disney controls 18% of the channels in a 50-channel bundle but represents 40% of the cost in subscriber fees, with much of that coming from ESPN at more than $7.50 a month. On the other hand, Comcast [NBC Universal] provides twice as much content but gets half the revenue that Disney does.

Oslund called this phenomenon the “tyranny of the bundle” and said it makes it tough for smaller channels to be included. “What we may be heading [toward] is a pick-and-play, a la carte world,” he said.

Regardless, Oslund said that broadcasters need to get moving in 2017 or 2018 [which he calls “Year Zero” in the model] to have a real shot at a future OTT business. “If you’re talking about revenue right now, it’s zero,” said Oslund. “I’m focused on distribution. There is no advanced advertising in the future if there isn’t distribution now.”

KSL-TV is already mining OTT revenues in Salt Lake City by focusing on creating new digital content, said Jon Accarino, executive director of business development for station owner Bonneville Salt Lake. The NBC affiliate live streams its station feed (sans NBC primetime and syndicated shows), produces live streaming coverage of local high school football games and offers more than 6,000 video clips on-demand. Bonneville Salt Lake also produces a live video feed of the programming from KSL-TV’s sister radio stations, KSL-AM-FM as well as 65 podcasts across those stations and two other radio properties.

“We are the No. 1 streaming DMA in the country,” said Accorino of the Salt Lake City market. Local viewers’ affinity for OTT content is driven by several factors including large families with multiple viewers, a tech-savvy populace with a history of successful startups and a state-wide procliviity towards frugality. Accarino said the average view time for KSL-TV’s live stream is 52 minutes, while KSL News Radio’s is a whopping 236 minutes.

That may sound surprising, but KSL News Radio has done far more than place a stationary camera in a studio, said Accarino. Instead, the station is pursuing higher production values with three “video radio” studios, each with five cameras, and full-time technical director running a production switcher.

“We call it ‘radio you can see’,” said Accarino.

It also appears to be radio that one can sell, as KSL News Radio streams sponsored cooking segments and sells graphic “snipes” to sponsors for $250 per daypart.

“Those will total $300,000 if we sell them out for the year,” said Accarino.

Bonneville Salt Lake sells its digital prerolls, sponsored segments and snipes on a local direct basis, without any agency help or national advertising, and works with about 15 local advertisers to help them produce their creative. The company doesn’t sell on a CPM basis, but instead on a “share of voice,” said Accarino, who estimated that OTT revenues for the company’s stations might represent 2%-4% of overall revenue.

A much larger-scale OTT advertising approach is being pursued by Premion, a unit of station group Tegna formed last year to sell local and regional advertising against long-form OTT content. The company now has salespeople in 38 markets selling local and regional inventory within aggregated programming from more than 100 content providers. Aggregated OTT content includes major networks like Fox and Turner, with the ability to target down to the ZIP code level.

“With trends in viewing shifting, we said, ‘How do we aggregate OTT impressions and bring that ad platform to local buyers?’,” said Premion President Jim Wilson.

While OTT programming can include any device with an IP address and cookie capability — including desktop and laptop PCs, smartphones and tablets — said Wilson, 70% of Premion’s advertising today is running through smart TVs.

“That’s the new frontier for targeting,” said Wilson. “We’re serving tags in every one of our campaigns.”

Read all of TVNewsCheck’s TV2020 coverage here.