It’s Branding That Makes Bongarten Bullish

With the backing of Diamond Castle Holdings, a private equity firm, veteran broadcaster Randy Bongarten began assembling a small group of small-market stations in 2007. It now comprises nine full-power stations and a slew of low-power outlets in eight markets — Tri-Cities, Tenn.-Va., is the largest.

Despite the crippling recession that greeted his entry into station ownership and the proliferation of competition over the past several years, his enthusiasm for the business seems undiminished and he appears in no hurry to exit.

As he explains in this interview with TVNewsCheck Editor Harry A. Jessell, TV broadcasters can thrive if they see themselves less as TV distributors and more as local TV producers and marketers. He also shares his thoughts on retrans, reverse comp, TV Everywhere, network relations, the incentive auction, Nielsen and more.

An edited transcript:

Let’s start with a big, broad question: What are the prospects for TV broadcasting?

The outlook is good, but we’re going through a lot of changes right now and I think we have to position ourselves to make it through that change.

So, how do you position yourself to survive the changes?

It’s going to be critically important to have strong local news brands going forward because that’s the area where we have the unique benefit that’s really hard to replicate.

There was a time when the model for the broadcast TV business was very much distribution-driven. But the distribution power has diminished considerably to the point where it’s really only partially relevant right now — and only primarily as a conduit for network and certain syndicated programming to other distribution systems. 

So, over time, it has changed from what I would call a distribution-driven model to a brand or a marketing type model where it’s become increasingly important to have very strong brands that people go to for certain reasons.

Aren’t you eventually going to get caught in a vicious downward cycle?  As the revenue falls, it puts a lot of pressure on your ability to produce distinctive news that can be branded and marketed.

Revenue is not falling. The revenue is growing and revenue is in many cases growing quite substantially. The mix of revenue is changing, but our revenue is growing. 

So you are including retransmission?

Of course. You have to include it. Just because the revenue mix is changing doesn’t mean it’s not real revenue. Retrans is up considerably since 2009 and so, by the way, is advertising revenue.

On the other side of the equation, however, you have a big new cost: reverse comp.

That’s certainly grown substantially and I think we can expect it to grow more, but the margin on the reverse comp versus the distribution fees which is what I prefer to call them, the margins on that are at least as good as the average margin of the business. So it’s still helping the business.

So, the net retrans is growing?

Yes, and I think it will continue to grow.

Are small market stations more or less vulnerable to the digital competition?

Some of these digital companies can reach into these smaller markets — certainly from a viewer standpoint, but also from a sales standpoint. That has presented a new challenge to us.  We have had to retrain our sales people to be more professional than they were 10 or 15 years ago when they all they had to do was compete with a couple of other TV and radio stations that were just as bad at sales.

Now we’re competing with the Googles and the Groupons and the AOLs and the Microsofts. So, we have had to get better. But we do have this huge advantage of having feet on the ground in local markets, which other people don’t. Everybody talks about how everything is local and they’re right. Everything is local. But it’s really hard to be local and it’s just a real advantage that we have.

What about the proliferation of OTT services? They’re coming from Dish, Sony, HBO, Apple, even CBS.  What do they portend for the business?

More choices. That’s just the long-term direction of the business.  There has been more and more choice. That’s why having strong brands and strong — particularly unique — news products is really important. That’s what can’t be replicated.

Is it your intention is to be part of these TV Everywhere deals that the networks are pitching?

Yes, I think you have to. To ignore the different platforms and make consumers view it the way you want them to view it is a mistake. You have to be available. Then, the challenge for us is to be sure that we’re able to monetize it.

As you know, there’s a big push in the industry to go to a new broadcast standard, ATSC 3.0, partially or maybe primarily so stations can broadcast to mobile devices.  Does that make sense?  If you can get to the mobile devices through the OTT services and TV Everywhere, why make the big investment in 3.0? Isn’t it redundant?

It may be redundant, but I think at this point to not pursue it and then deny ourselves that option is probably a mistake. The one-to-many model is what we stand on.

The network talk about doing OTT with their affiliates, but they don’t necessarily have to. Do you worry that they may cut you out at some point?

No, because I know that if we do a great job on the local level that there really isn’t a better way.  For a number of years in the mid-1980s, I was head of the radio division of a company that also had TV [NBC]. Because I was the head, I went to all the TV meetings and I can tell you that in the mid-’80s, they were all trying to figure out a way around the affiliates. That was 30 years ago.

All the networks must have standing committees working on that.

They look at it all the time and you would too if you were running their business and I would too. I don’t begrudge them that, but I think that every time they do the analysis it turns out that you just can’t beat this distribution system. I think that as long as we do a great job at the local level, they’re going to protect that system. 

People complain about the network fees and about the reverse comp.  I don’t. I know that getting sufficient distribution fees is essential to maintaining the system. I just want to know what it is so I can be sure to mark it up sufficiently when I am selling my distribution rights.

Where are you with your affiliation agreements?  Do you have long-term ones?

Yes, long-term now is five years and most of them aren’t five years. Most of them are three and a half to four years.  We have another one coming up at the end of this year. They tend to come up every year or two. For us, they come up on different schedules.

Short-term deals could work for you if the FCC makes some kind of new move that makes it more difficult to get retrans. Then at least you’re not locked into long-term reverse comp deals that are difficult to meet.

If we’re unable to get the distribution fees that we need to get, then that’s going to trash the system. I mean you need to be able to do that, and at the end of the day I am banking on rational heads prevailing here.

Everybody else has a right to get what they want for their product and I don’t know why we shouldn’t either. I don’t get this whole argument about blackouts and so forth.  I mean there’s as many of them from cable program providers as there are from broadcasters these days.

I think that’s where the real battle is, especially the sports networks. Their demands keep going up.

Yeah, absolutely. The problem is that ESPN is getting over $6 a subscriber now and they’re getting it from everybody whether they watch sports or not and those ESPN fees are really what has driven those network fees up. The fact that the distributors allowed ESPN to get out of hand that way is really what’s giving everybody all the heartburn right now.

The broadcasters needed the football. They had to have the football. So they went out and they paid for it with money they don’t have because they had to keep it and they figured they are going to go back and get it from the affiliates and it’s not really more complicated than that.  That’s really what’s happened here.

Speaking of football and Disney, what would you like to tell the folks over at ABC?

I love them.

You love them, even though they have no NFL.

Well they do a lot of other great things.

It seems that football is so important in retransmission negotiations. I’m surprised that ABC affiliates don’t have more trouble.

The distributors really assign equal value to the Big Four affiliates. Just because ABC doesn’t have football doesn’t mean it doesn’t have valuable programming.  I mean they have got a lot of great shows, particularly when you’re talking about programming for 18-49 year-old women. ABC is the leader in that demographic and that’s an important demographic from the cable distributors’ standpoint.

We had an outage on Dish where we were off for five weeks. We went off in early December and I will tell you the three biggest things they were complaining about not having.  No. 1 was, of course, football because it was the end of the season, the beginning of the playoffs. No. 2 was local news and No. 3 was the ABC holiday programming.

I am surprised that the local news ranked up there since there are alternative newscasts in every market.

Bu people have favorite news. We have been building brands. To think of news as generic is wrong. It’s not true. It’s just not.  Not with good news stations anyway.

Are you putting more money into this local news? I mean is that where some of this revenue is going? Are we actually improving the product?

Absolutely, both from capital and expense standpoints. I mean the conversion to HD, which we did on all of our stations, was really expensive.

When did that happen?

We started in 2010 and we finished up last year in our smallest market.

Great. Then you’re ready for 4K.

Yeah. That’s really funny.

Well that’s another benefit of 3.0.  If you had to do it, you could do it.

Yeah, but by that time 3.0 is ready, 4K may be outmoded. I don’t know if you went and saw it at NAB, but 8K is  right around the corner. I mean you cannot be switching these things out. It’s just physically impossible to switch them out every two or three years. You can’t do it.

Programmatic buying — does that have the potential of spurring growth in the national spot?

I don’t know. I mean that cuts two ways too because then everything is commoditized. There’s no real selling that’s going on. Maybe that’s the answer, but I’m not sure. Everybody complains about the cost of buying spot television, but I’m not sure that’s the real reason why people aren’t buying spot television.

Do any of your stations have value in the incentive auction?

Yes. possibly.

Possibly, which ones?

We have stations in Virginia, North Carolina and California that might have some value.

That are close enough to the big markets that they would have to clear you. So what do you think? Are you ready to cash out then?

Well, you know, we’re broadcasters so I think anything that we look at in that regard is on the assumption that we are going to be able to do something to maintain and enhance our basic business model.

Here is the question I always ask you whenever I see you. What’s the exit plan? You have been around since 2007.  Private equity does seven-year investment generally speaking and it’s been seven or eight years now, right?

They’re in no particular hurry. They like the business. We like the business. You know, all businesses someday get sold, every single one of them.

So at some point it will get sold when we feel the time is right.  We could sell to somebody else or we could sell it to some other private equity place and enhance and grow the business. I don’t really know exactly what it is we’re going to do. Obviously when the time comes for it we will do it in a way that is able to attract the most value for the owners.

It’s hard because you don’t know what you’re worth in the incentive auction. You have to see what those values are too.

That’s true. That is true. So far, according to the opening bids, we are worth about $1 billion.

A billion dollars? You should take it.

I don’t think anyone here thinks we’re going to get $1 billion or anything close to it.

I know there are a lot of different estimates floating around now.

Yeah, there’re a lot of different reports. There’s the NAB-commissioned one that ran simulations. If you believe that, we have basically two markets where there might be value for our spectrum, but there are so many different estimates and there is still a lot of negotiation going on in terms of how the auction is going to be conducted. I read the other day that it’s not going to be a very robust auction because most of the telcos don’t have the money to spend on it.

Do you subscribe to Nielsen?

We dropped them at the end of last year.

How come?

How come?  Too expensive for very poor quality. With Nielsen in our markets we were getting samples of 300, 400, 500 hundred people four months out of the year delayed a month.

When I talked to the guys at Nielsen I said you are supposed to be a currency, but how can you have a currency that fluctuates by at least 50% every time a new piece of data comes out.  How can that be a currency?  And that’s where it is with Nielsen.

You were not impressed by Nielsen’s new code reader solution?

I can’t say that it’s a terrible idea, but it doesn’t give you much comfort. They have come to this recognition that the demographic data in particular is extremely unstable and so what they’re going to do for these smaller markets is they are not even going to collect demographic data.

So basically what they’re doing is assuming that whatever the position is of the station in that bigger market is the position of the station in the smaller market. You’re applying the same exact demography. That’s ridiculous. It really doesn’t apply because the demography can vary with the strength or weakness of the individual station in that market. 

So what do you use for numbers?

We went to Rentrak and I am extremely happy with them. It’s a much more stable number, much larger sample, and we get ratings every day.  It’s really, really superior to Nielsen and it’s a lot less expensive.