Diginets Keep Growing, Despite Auction Cloud

Encouraged by the success of its first multicast network, Antenna TV, Tribune Broadcasting is cooking up another, Antenna TV Classics.

It would specialize in “the older-skewing shows,” says Sean Compton, president of strategic programming and acquisition for the station group. The original Antenna TV would then be free to recalibrate its lineup with shows to attract younger viewers, he says.

If Tribune goes ahead with the new channel, it will reaffirm the fundamentals of the multicasting business, which converts low-cost, but well-known movies and TV shows, into modest, but steady, revenue streams and profits for the diginets and their affiliates.

Although no new channels have appeared this year, at least five debuted last year: Laff, a comedy network; Justice Network; a privately owned true crime and forensic science network; Decades, a co-venture of Weigel and the CBS Television Stations; Buzzr, a FremantleMedia-backed channel comprising the company’s vast library of old game shows; and Comet, a sci-fi channel developed by MGM in association with the Sinclair Broadcast Group (see story here).

The basic health of the business is also reflected in TVNewsCheck’s annual Top 25 ranking of diginet by broadcast coverage (see chart below). Compared to the ranking published in May 2015, most of the networks have increased their coverage of U.S. TV homes. On last year’s list coverage ranged from 94% for No. 1 MeTV to 20% for No. 25 Retro TV. This year, MeTV is again in first, but with 96%, while No. 25, The Works has 37%.

The top spots on the chart feature the same players as last year, some have moved up a slot or two, others slipped back. Some networks are not on the list this year, mostly because others increased their coverage and displaced them as they moved up.

As a quick look at the chart will also attest, the multicast network business is dominated by a handful of key players, including Weigel Broadcasting (owner of MeTV, Movies!, Heroes & Icons and Decades); Katz Broadcasting (owner of Grit, Escape and Laff) and co-managed Bounce Media, owner of Bounce TV; private-equity owned Ion Media, with Ion Life and Qubo; and Tribune, which, in addition to Antenna TV, owns This TV, a movie channel in partnership with MGM.

TVNewsCheck‘s Top 25 Digital Broadcast Networks

Ranked By TV Households Coverage

Source: Networks supplied coverage percentages, except for those with asterisks (*). Those percentages came from Across Platforms consultancy.

The diginets say growth is still steady where it counts most – in audiences, ad revenue and distribution. And they’re confident that that growth will continue.

So they’re hard at work promoting their existing channels. Some are investing in new programming acquisitions. Others are dipping their toes into original production.

Diginet broadcasters attribute the fact that no new networks have launched since Comet last October primarily to the uncertainly caused by the FCC’s on-going incentive auction, in which the agency is brokering the sale of TV spectrum to wireless carriers. The result is likely to be the elimination of hundreds of TV stations, which now serve as affiliates for the diginets.  

Fewer stations will mean fewer channels to support new networks. Even some well-established networks may be squeezed out in what could become a life-or-death game of musical chairs.

That game may have already begun with most of the major diginet owners adding affiliates and coverage in the past year.

Just last month, in this year’s biggest affiliation announcement, Katz’s Grit, Escape and Laff — along with separately owned but co-managed Bounce — announced new affiliation agreements encompassing 81 stations in 54 markets. The majority of the affiliations were with Nexstar stations.

“It may have been the largest distribution deal in the history of this space,” says Katz CEO Jonathan Katz. “All of our networks are on a growth trajectory that is positive.”

Tribune’s Antenna TV made a splash last January when it added Johnny Carson’s Tonight Show (now titled just Johnny Carson) to its latenight lineup — a surprisingly complex deal (including the painstaking process of clearing rights for music and other elements).

The publicity surrounding the Carson acquisition helped raise Antenna’s profile, Compton says. “I thought it would be huge and we knew it would get us to the promised land in terms of exposure, promotionally.”

First announced in August 2015, Antenna’s Carson deal paved the way for the addition of 26 new affiliates last fall in advance of the Carson premiere. Antenna is now available in 128 markets representing 86% of TV households, according to Tribune.

Of all the diginet companies, Katz is farthest along in the development and production of original content.

Bounce has three original scripted series, plus a news magazine show (with long-time journalist and news anchor Ed Gordon, formerly of BET). And production is under way on the first original series for Escape, Katz says.

“Investing in originals raises the delivery bar and your ability to appeal to advertisers in a new and different way, which again allows you to reinvest,” Katz says.

Weigel is producing an original series too — a daily one-hour documentary-style show on Decades called Through the Decades, narrated (and sometimes hosted) by Bill Kurtis.

Each show is keyed to the day’s date, and reports on what happened on that date in different decades. Neal Sabin, vice chairman of Chicago-based Weigel, calls the daily production of this show “ambitious,” requiring a staff of 20.

The majority of affiliation agreements in the diginet business are based on a barter splits, although some networks pay for carriage and keep all or most of the inventory. And, for the most part, direct-response still comprises the vast majority of commercials on the diginets.

“This TV and Comet are still totally reliant on DR and we’re very happy in that business,” says John Bryan, president, Domestic Television Distribution for MGM Studios.

“It’s the purest form of knowing your audience because at the end of the day, if the phones don’t ring for these guys, they don’t come back and buy your time.

“So the fact that we have had consistent advertisers in both of these channels over and over again means people are watching our channels and calling and buying their products.”

Antenna TV also boasts that it is getting general market advertising — local and national — to supplement the DR. “I don’t understand a lot of these stations when they say they can’t sell it,” says Tribune’s Compton. “When I look at most of our stations [they’re selling it like] gangbusters,” he says.

“We have markets doing a couple of million bucks locally,” said Compton, who noted that the Chicago-area Chevy dealers came on board as a client on Antenna after the Carson show was added to the lineup.

At the same time, however, every diginet operator seeks to increase the audiences to a point where they can sell to general market advertisers, particularly national ones.

Among the few that have is Bounce. “I would say we have 160 general market advertisers on [Bounce],” Katz says. “There’s not an agency on Madison Avenue that doesn’t buy Bounce TV.”

Katz also reports that Grit and Escape, which both launched in 2014, are now C3-rated (along with Bounce, which was launched in 2011). He expects Laff to be C3-rated soon.

The shadow on the business is the auction and the reorganization or repacking of the TV band that will follow it to segregate the remaining TV spectrum from the spectrum that has been reallocated to wireless.

“The elephant in the room is what is the auction going to mean and repacking it all,” Sabin says. “Anyone who tells you they know exactly what’s going to happen doesn’t know what they’re talking about because we don’t know.”

Contributing to the uncertainty is the “quiet period” in which the FCC has asked broadcasters to refrain from discussing, or otherwise revealing, their auction plans. As a result, no one knows who’s planning to participate.

“People aren’t talking about it,” Sabin says. “The process of repacking isn’t where you lose [affiliates],” he explained. “The [problem] is the stations that go out of business and don’t get repacked.”

Sabin and others say they have tried to hedge their bets against possible auction and repack fallout by forging long-term affiliation agreements with stations and station groups that they feel are intent on remaining in the broadcasting business.

“We have long-term affiliation agreements and I feel pretty good about the partnerships we have with real broadcasters that want to stay in this business,” Sabin says.

Jonathan Katz was even more bullish on the future for multicast networks. “Nobody has a crystal ball [on] how the auction will end and how its effects will shake out,” Katz acknowledged. “That said, we are very confident of our company continuing to thrive post-auction.

“We actually see nothing but upside,” he says. “We have made it a point to partner with very strong stations [and] very strong station groups who are in the broadcasting business.

“From the strength of our partnerships, we have pretty good visibility as to where any risk around the edges might be from the auction. We don’t believe that we are significantly exposed.”

If the industry’s key players can get through the FCC auction and repack with minimal adverse impact on their businesses, then the future is bright, they insist.

All of them say they’re looking forward to the industry’s adoption of the new ATSC 3.0 digital broadcast standard, which is now under consideration by the FCC. This, the diginet owners say, will create more bandwidth for ancillary channels — and opportunities for them.

“It’s a strange time right now,” says MGM’s Bryan. “But ATSC 3.0 is actually going to open up more bandwidth. There may be a two-year period here where it gets a little bumpy, but I think the other side of this is nothing but growth and a big-time future.

“And that’s why I think you’re seeing the Sinclairs and Tribunes of the world wanting to own these channels.”

This is Part 1 of a four-part special report on multicasting. Parts 2 and 3 also appear today. Part 4, running Thursday morning, will focus on the technology of compression and channel sharing. You can read the other stories here.