Digital, Retrans Growth Engines For Quincy

Don’t let the company name fool you. Yes, the Quincy Newspapers Inc. still publishes small-market newspapers (two, in fact), but it is primarily a broadcasting operation today with a couple of radio stations and 13 TV stations in 12 markets.

Ralph Oakley, who took over as CEO in 2009 upon the retirement of his father Tom and who represents the fifth generation in the family business, would like to move more deeply into broadcasting.

To that end, in a $190-million deal, Oakley agreed to acquire from Granite Broadcasting and Malara Broadcast Group WEEK Peoria-Bloomington, Ill. (NBC); WPTA Fort Wayne, Ind. (ABC); KBJR Duluth, Minn.-Superior, Wis. (NBC); and WBNG Binghamton, N.Y. (CBS), along with the rights to operate duopolies in three of the markets — Peoria-Bloomington (ABC, Fort Wayne (NBC) and Duluth-Superior (CBS).

Because of the FCC’s  new stricter rules governing duopolies handed down in April 2014, the deal has yet to receive necessary agency approval, even though Oakley and his lawyers reengineered it last November to make it more palatable to the regulators.

In this interview with TVNewsCheck Editor Harry A. Jessell, Oakley says his remains confident that small-market broadcasting can continue to thrive with growth coming from retransmission consent and digital. That said, he would like to see the FCC create new opportunities for broadcasters by loosening rather than tightening the local ownership rules.

Oakley declined to discuss only one topic — the status of his Granite-Malara deal at the FCC. “We continue to work on it” is all he would say.

An edited transcript:

Your February 2014 deal to acquire Granite and Malara stations in four markets is still hung up at the FCC because of the agency’s crackdown on duopolies. Does that stricter scrutiny make it tough for you to acquire other stations?

There’s just not much of a marketplace right now for buying and selling television stations. I think there are two reasons for that.  One was the more recent information about the auctions and the potential significant monies tied to those auctions. That stopping anyone from becoming a seller until they see how that shakes out.  Beyond that, without some clarity from the FCC [on ownership] going forward, it also is going to make people very reluctant.

Do you think that any of your stations has any value in the incentive auction?

Well, we are certainly paying attention to it as I am sure everyone is.  It’s hard to know. There’s not really enough information out there to really know what the value is and there may not be for some period of time to come. Based on what I have learned, the value of spectrum is greater in certain corridors of the country and near certain large cities. 

I am looking down your list of stations. Are any of these in those corridors where there may be great demand for spectrum?

If you look at our footprint, we are very heavily Midwestern.  So if you look in the Midwestern corridor relatively near Chicago or perhaps towards Detroit, that’s where theoretically the value may be of greatest value to us. But, again, I don’t know that that’s very well defined and our real goal is to stay in this business. 

I am the fifth generation in my family in the business and we have got sixth generation family members in the business and our goal is to get to the seventh generation.

So, how is that business? How’s the spot business in the first quarter?

I would say the spot business is kind of chugging along.  It’s not particularly great right now. The business has changed clearly where spot advertising is not the growth engine it once was, but it still can produce growth for our company and for others.

We see the growth opportunities in local advertising and in our digital profits. Beyond that, obviously, hopefully, retransmission continues to grow and we have been traditionally pretty well configured when it comes to political advertising.  If you are in the right markets or in the right state you can do well there. In 2014, we did very well.

Do you expect to see a lot of political money coming into Iowa this year?

If history is the gauge, I would anticipate that we would see monies in the back half of 2015 towards the Iowa caucus, which is scheduled for early in 2016.

You have three stations serving the state, right?

We have four actually. The principal ones are Sioux City and Cedar Rapids-Waterloo, but our Rochester, Minn., station serves northern Iowa and our Quincy station serves the very corner of southeast Iowa.

Does the national spot business for stations in markets your size, 82 down, have any chance of rebounding at some point?

The national spot business continues to decline, but it’s still a very important element to our size stations. At the same time, our political business, which we handle for the most part as national, has grown.

But talking about core national now, is there any chance of that rebounding?

I think it will continue to be flat to a slow decline.

Programmatic buying, automated buying — isn’t there some hope in that of  boosting national?

That may help some, but I don’t think that’s something that’s going to come along immediately. If it generates new markets for us and new advertisers it could help, but I think it’s still somewhat embryonic at this point in time.

How are the networks treating you these days?

We have always had excellent relationships with the networks with whom we’re affiliated [ABC, NBC and Fox]. We have always viewed it as a partnership and we continue to do that.  While we will always have business issues we need to discuss, we greatly value the partnerships.

There is a new term, net retrans. This is retransmission consent fees minus reverse comp. Do you expect  net retrans to go up or down for you in the upcoming years?

From all I read in the trades, it would appear that the percentage of retransmission that the networks are going to be interested in will probably grow, but I don’t think it will grow exponentially.  Retransmission is an important revenue source for television stations and for stations to continue to do the good job for networks they need to have the resources to do that.

So you think you can manage the network affiliations and the retransmission negotiations and keep that net retrans growing.

We expect and hope so.

How much upside in retrans fees do you think?

I don’t know how to put a percentage on the upside in retransmission.   I view it somewhat simplistically. What are the most watched channels on the MVPDs? They are broadcast television. So really, in my view retransmission should pretty much be a reflection of who is the most popular programming service and that is broadcast television and, in many cases in our markets, it’s us.

By that measure then, you have to believe you have plenty of upside.

We would want to be obviously compensated for the value we bring. We have been successful thus far in that we continue to make good deals and at the same time we haven’t had outages. I don’t believe we have had an outage in the last several years, if ever. That’s a result of trying to work closely with the MVPDs and provide a good service. It doesn’t do them any good or us any good if there is a blackout.

ABC and NBC have TV Everywhere programs in which you can participate. Are those meaningful to you in any way?

They will be meaningful. We have got to figure out a way that our signal, be it local news or our prime programming or whatever, can get in front of everybody regardless of the device they choose to use to watch.

So to that degree TV Everywhere is of a vital importance. We’re going to see growing audiences I don’t doubt that. The key is going to be can we, in fact, monetize that.

So we should expect to see your affiliates offering those in your markets at some point.

I think so.  I think you will.

There has been a lot of talk about a new next-generation broadcast standard. Are you a believer?

Yes, I am a believer. As always, the devil is in the details, but I feel really good about ATSC 3.0. It will allow us to remain competitive and we have got to have the best technology to be that.

When I look back to the conversion to digital and high definition, the industry spent billions of dollars and it was successful. It was successful for the public and it was successful in terms of better quality signal and multicast channels, which we have offered since the beginning. I think we average two to four signals in every one of our markets.

Have you seen any analysis of how it will get implemented and how much it might cost to implement?

I haven’t seen an exact analysis, but clearly there will be significant costs and the question gets to be is there a business plan there?  Can broadcasters afford it?  Can consumers be involved?  Obviously, in the last transition there was the ability to upgrade sets with converter boxes. Is there going to be something like that? I don’t know.

The next step is getting this standard finalized followed by figuring out the business plan.

But can I assume that that you are willing to hold up your end — go out there, put new exciters in all your transmitters, do whatever it takes to implement the standard?

Well, I don’t know that we’re willing to do all that. What we have got to figure out is what is it going to take, because the truth is we don’t know yet what it’s going to take. But as someone who wishes to stay in the business, if there is a way for us to figure it out economically, that would be the direction we would prefer to head.

The fastest growing segments of broadcasters’ business are invariably digital, but it’s growth on a very small base. I suspect that’s true for you too. What are you doing to grow the digital end of your business?

We’re trying to do everything that we can to be in the digital space and be into the mobile spaces. A lot of our focus on the revenue generation side is with our local advertisers and working with them on responsive design websites so they fit the format of whatever devices people are using. So that’s one of our revenue initiatives.

So you’re going out there working with your advertisers and helping them develop websites?

We think that’s a revenue growth opportunity for us.  We want to be partners with local advertisers and supporters in their digital businesses. If we can help them with that process, we can participate from the advertising standpoint.

So how big can digital get for you in the foreseeable future? Can it grow to be 20% or 25% of your business some day?

I wish I knew the answer to that question.  I don’t know. For most people who count direct digital revenue right now, it’s probably a single-digit number. It has to get to some double-digit number although I don’t know what that number is. What I know in our company 10 years ago we did not have a digital business. Today, we have single-digit revenue.

Do your digital competitors — Google, Yelp, other local sites — take a lot of money out of the local markets?

Based upon the national numbers I see, clearly they are taking money out of the local market. The question gets to be can we participate in that.

You say you see that through the national numbers. Do you really feel it in your markets? Are your GMs and GSMs saying: “Oh my god, the digital guys are in town and they are sucking off all this business”?

No. We don’t feel a thing directly. I mean if we feel anything directly it’s just because we compete with other television stations who also are trying to get in the digital space. We don’t typically see too many car dealers or other retailers saying, “Hey, we’re moving all of our money to some digital space and getting rid of television advertising.”

Quincy came out of the newspaper business. If the FCC ever got rid of that newspaper-broadcast crossownership prohibition, is there anything that you guys would do?  Would you try to build your television business around newspapers or consolidate with newspapers in some markets?

We have partnered with newspapers in some of our other markets.  For example, in Rockford [Ill.] we have a great relationship with a newspaper there. Why the newspaper-broadcast ownership rule hasn’t been repealed is beyond me, but, with that said, what I see as the No. 1 issue for our industry is in-market ownership reform. That’s where the opportunities are and that’s where we can continue to serve the public better and meaningfully improve our businesses.

That would be 180 degrees from where the FCC took us last year when it tightened the local ownership rules.

That’s right. I see people talk about how if you put two stations together, that there’s a loss of a voice.  My view is that in small markets,  it’s not the loss of a voice, it’s the retention of a voice because as the business gets more challenging, it’s going to be difficult for all the players to stay in this business. If a station and a newscast go away, jobs go away with them. However, if you can put resources together, you can continue to have that voice and continue to have some of those jobs.