Broadcasters Need Hard Facts, Not Hard Sell

Call him the Wolf of Twelfth Street– without the midget tossing, Quaaludes and three grades of prostitutes, of course.

FCC Chairman Tom Wheeler was on the road this week with the hard sell for broadcasters. If you don’t participate in the FCC’s 2015 incentive auction, he warned, you’ll be missing out on a big chance to make a killing.

The incentive auction is the FCC’s clever new way of reallocating spectrum. Through what will actually be a tricky double-sided auction, it intends to buy spectrum from broadcasters and then immediately turn around and sell it to wireless carriers, a far more deserving lot in the FCC’s mind.

First, Wheeler stopped by the Gary Shapiro Show in Las Vegas, telling the president of CES in an on-stage interview that the broadcasters may be too focused on the all-or-nothing option (“Sell the spectrum, say good-bye and go off to Maui”).

Broadcasters can have their cake and eat it, too, he explained. What they should be thinking about is doubling up on channels, he said. In that way, they can “take some serious cash off the table” and still provide broadcasting service with the benefit of must carry.

“[T]here has never been a more risk-free opportunity for an incumbent service provider to morph into the new digital reality than what the incentive auction offers,” he said.

Broadcasters are fortunate, he suggested. “New technology traditionally ploughs under old business models.”

Then, it was onto Mountain View and the Computer History Museum (you should check out the new broadcast dinosaur exhibit), where he went into full boiler-room mode.

“That this is a once-in-a-lifetime opportunity is not hyperbole,” he said not for the benefit of the Silicon Valley dwellers who were in the room, but the broadcasters who were not. “The re-banding associated with this auction is hard enough; when it is done the ability to do it again will be virtually nil. There will not be another round of broadcast incentive auctions.”

My Daddy taught me that as soon as the salesman tells you that you have to act now, you should walk away.

Let’s say the incentive auction plays out just like Blair Levin figured in 2009 and the FCC recovers 120 MHz and then sells it to the wireless carriers, simultaneously reallocating the spectrum and collecting a tidy sum for a proposed first responders network and the U.S. treasury. Are you telling me that given that success the FCC would not come back for the rest of the broadcast spectrum with another auction?

Wheeler’s channel-sharing argument is also flawed. Wheeler said that if two stations double up, they can continue to do what they do and also “harness the new digital opportunity.”  I would think just the opposite. If you give up all your excess spectrum for that enticing one-time cash payment, you are limiting your ability to offer any new services.

The other problem with Wheeler’s pitches — and this was true of his predecessor, Julius Genachowski, too — is that they are always accompanied by reminders of how precious spectrum is and how much more precious it will be.

“The majority of networks of the future will ride on the air,” Wheeler said at the museum. “They may be cellular, or Wi-Fi, or satellite, or they may be fiber or copper networks that end in Wi-Fi hotspots. The defining characteristic of our fourth network revolution is its untethered nature.”

This is like a guy in the mall kiosk urging people to sell him their gold rings and bracelets while reminding them that the price of gold is going to go much, much higher.

That all said, Wheeler is doing exactly what he should be doing, trying to convince broadcasters that participation in the spectrum auction is in their best interest. In importance, the incentive auction is to the FCC as the Affordable Healthcare Act is to the White House. Wheeler doesn’t want to screw it up.

But whether the auction actually is in the best interest of broadcasters is for each and every broadcaster to determine. Sinclair’s David Smith will tell you that you’re crazy to even consider giving up a single megahertz. With a new broadcast standard and some additional leeway from the FCC, he says, broadcasters will be able to tap their spectrum for billions in new revenue.

Others are seriously considering the pros and cons of selling outright or channel sharing. We reported last October that LIN Media, Meredith, Ion and Univision were at least doing their homework. It would be a way of turning Class A low-power stations and full-power duopoly stations into cash, LIN Media CEO Vince Sadusky told investors. “[W]e think that there could be a value creation…option.”

And then there are at least three groups of investors who have been buying up stations with the intention of selling in the auction at a fat profit.

If Wheeler really wants broadcasters to participate in the auction and give up some or all of their spectrum, he has to stop treating broadcasters as if they were a bunch of sad-sack day traders looking for a fast buck.

What he needs to do is what Preston Padden has advised him to do — go public with some honest-to-god figures on what broadcasters can expect to make in the auction. Padden represents the speculators and is doing all he can to make sure the auction goes off without a hitch and is as lucrative as possible.

“Auction pricing — particularly the FCC’s initial offer to broadcasters in a descending clock auction — is the single most important element that broadcasters will consider when determining whether to participate in the auction,” he told staffers of Wheeler and other commissioners during a Dec. 18 visit to the FCC, according to his account of the meetings.

“The FCC must not wait to provide facts and pricing that will allow broadcasters to evaluate auction participation among the myriad options that broadcasters have before them.”

In his speech at the museum, Wheeler hinted that he might be getting the message. “Of course, it would be unreasonable to ask broadcasters to make decisions of this magnitude without adequate information about the reverse auction.  More information in that regard will be forthcoming in the next few months.”

We’re waiting.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or [email protected]. You can read earlier columns here.