Meredith Sees Local TV’s Upside In Digital

Meredith Corp. may be best known for its national publishing brands — Better Homes & Gardens, Family Circle, Parents and others.

But its Local Media Group of TV stations accounts for about 40% of total revenue. And last year, Meredith expanded its station portfolio with the acquisitions of KMOV St. Louis (CBS), KTVK Phoenix (ind.); WALA Mobile-Pensacola (Fox); and WGGB Springfield, Mass. (ABC).

The group now includes 17 stations in 13 markets covering nearly 11% of U.S. TV homes.

Tasked with making such strategic buys and otherwise growing the broadcasting business is Local Media Group President Paul Karpowicz, a well-known and well-respected broadcaster and member of the NAB TV board.

In this interview with TVNewsCheck Editor Harry A. Jessell, Karpowicz concedes that local broadcasting’s principal source of revenue, spot advertising, is now stuck in low gear and that reverse comp is likely to offset any gains in retransmission consent revenue.

However, he believes broadcasting can grow by taking its hard-earned reputation for local TV news and carrying it forward onto digital platforms and, perhaps, delivering it in new ways via a new broadcasting standard.

An edited transcript:

Looking back at 2014, how would you assess the spot business in general?

We’re doing OK. We’re holding our own. I think because in some markets political was so significant that it may have given us a little bit of a false read. Where core business wasn’t particularly strong, political certainly helped kind of cover that up. So, as we’re in a quarter now without political and we’re in a year without political,  we will really get a chance to assess the strength of the spot market.

In Meredith’s [fiscal] second-quarter call with analysts at the end of January, the CFO said same-store spot would be flat to up slightly in the [calendar] first quarter. Is that still the way you’re seeing it?

Yes. I mean the days of a TV station saying we’re going to be up 10% or plus 20% in core business, I don’t think we’re going to see those days again.

The first quarter has seen extremely cold weather in the East and parts of the Southeast. Is that cutting into auto advertising in the quarter?

You have to assume that in markets like Boston or Hartford, Conn., or places that have been hit really, really badly, than sure, it’s absolutely going to have an effect just as it will with restaurants where people can’t get out of their houses.

But reality is the average car out there is what, six years old, something like that. So, there still is going to be a pent-up demand so I’m not giving up on automotive by any stretch and I’m not giving up on spot by any stretch.

Auto dealers are looking for another big year. That should translate into a surge in spot.

Exactly. At the end of the day, we know what we’re dealing with with local dealerships, and those guys know that if they want to move cars off their lots, they need to be on TV and that’s the beauty of it.

If, in fact, national gets soft because some of the dealer groups end up disbanding or changing or whatever, our guys are still out there calling on the local dealers, helping these guys move product. That’s at the core of what we do and what we do very well.

You’re still digesting some station buys you made in 2014.  Should we expect Meredith to buy or sell in 2015?

We have been a very opportunistic buyer. We have been very disciplined about the stations that we went after and we have been very public about our criteria. We’re looking for top 50 markets, network affiliates. We would look at smaller markets if there were duopoly opportunities.

The station trading market now seems to have stalled as it did post recession. What do you attribute that to?

I think it’s primarily because everybody has to digest everything that happened last year. When you look at all the major transactions that took place, there’s a lot of stuff that moved around and a lot of stations that changed hands.

No. 2, people are taking a hard look at what will the FCC let us do and what kind of combinations will be permissible and what transactions will potentially create problems.  So before you go out and do another whole round of acquisitions, you’re going to want to make sure that, OK, is this something that we can get past the FCC.

How important is it for the industry to move to a new broadcast standard, ATSC 3.0?

It’s so hard to quantify. You have to take a step back and ask: Does it make sense to have the best possible signal out there; does it make sense to have the best possible delivery mechanism out there; does it make sense to have a platform that gives you a stronger more reliable mobile opportunity? If you answer yes to each of those questions, you start to say alright then, we should be moving in that direction. 

Conversely, there’s no business model today that supports a next-generation standard. There really isn’t.

Is there a feasible plan for the implementation and the transition to a new standard?

Oh, sure. I mean anything can be done with money. Practically, you can do it.  I mean there is a way technically that you can do it, but you still have to get it through Congress, you have to get the American people to buy into the concept as well.

So yes, there are a lot of hurdles to actually implementing this. It’s not something that happens overnight by any means, but we have to at least keep our heads up and look ahead as to how we might implement this.

In that conference call in January, you indicated some interest in selling some of your duopolies in the incentive auction. At this point, what are the chances of that happening?

You have to look at every opportunity that’s out there and I think we will certainly look in those markets where we have plenty of spectrum.

The Greenhill numbers were very strong in some cases, not in all. There were many of our markets where it was not really very significant.  So obviously in those markets we wouldn’t get too excited.  But you look at Springfield, Mass., which is a very small market, but because of the proximity to Hartford, New York, Boston, all of the sudden there was a big number against that. So, you have to look at every situation differently.

Like anything else, you would be remiss if you didn’t at least look and you didn’t at least consider what your options might be. But at the end of the day, we’re in the television business. We’re not in the spectrum speculation business. 

Would you like to see the NAB settle its lawsuit with the FCC so it doesn’t delay the auction and the industry can get it — and the repacking — over with?

It’s more important that the FCC gets it right than to do it on time. Whether it’s today, tomorrow or next week, let’s just make sure it’s run correctly, let’s make sure it’s run consistent with the will of Congress, let’s just make sure we do it the right way. There’s no reason to rush into something and then have it all screwed up.

What’s your degree of confidence that the FCC is not going to screw it up? By that I mean — and I think you mean — not degrading the signals of the non-participating broadcasters?

I’m sure that the FCC has all the best intentions of running an efficient auction.  What the NAB lawsuit is trying to do is to insure that those best intentions are carried out so that the stations that decide to stay in the broadcast business are not adversely affected.

Going back to that conference call again, the CFO acknowledged  that the reverse comp payments now amount to about 50% of your retrans revenue. What happens to that percentage over the next three years?

That 50% probably fluctuates a little bit depending on when your retransmission deals with the cable operators and affiliation deals with the networks kick in.  So you may have a period of a year or so where you’re actually doing better than 50%, then you come up to the point where you’re renegotiating your deal with the network and perhaps you drop below 50%.

You just canceled Better, your national lifestyle show. In the conference call, you said you are no longer interested in producing shows for possible national distribution as some of your peers are.

I was talking specifically about the particular model for Better, which was a tough, tough model. It was a barter show so our only revenue stream was selling the barter. In this competitive marketplace,  to generate a number in daytime — particularly when you don’t really have  great real estate, great time periods, on great stations — is really, really hard.

I probably should have elaborated and said that  the way some of the other groups have set up their deals where they have partnerships with other groups and they have got expanded time periods and expanded clearances, that’s a great model and quite frankly we would be interested in being involved in that and we’re actively having discussions with people about partnering up in those types of deals.

What’s your multicasting play?

We have just done some deals and will be announcing them soon.

What I will tell you is the model that we are more comfortable with is essentially just turning all the inventory over to the networks and then just getting a check from them. It keeps our sales people focused on our local station and our digital efforts.

Are broadcasters going to get anywhere on automated or programmatic buying this year?

I do believe we will. We’re into that a little bit, but I think it’s up to the stations to look at that and say okay I can see offering up my daytime inventory for programmatic or my latenight inventory for programmatic, but I think when you get into high-profile primetime or sports or news, you’re going to want to control that inventory and make sure that you maximize your opportunity there and really sell it rather than turn it over to a programmatic system where you may not be maximizing your opportunity.

So, how do you grow this business?  What’s the upside with spot and net retrans revenue not growing much? 

I think it’s the combination of localism and digital — being able to totally maximize those opportunities.  What we represent in each of our markets, these are local brands that have been in existence and been in these markets for 50 or 60 years.  They have high name recognition. Our job is to continue to provide great local content and to provide that local content on whatever platform people are looking for it. 

So whether it’s on your regular newscast, whether it’s on a mobile device, whether it’s on a desktop, however people get it, our job should be to provide great timely local content — news, weather, traffic. You know, all research indicates that most people still get their local news from local TV stations.

We need to take that trust that we have built up and transfer that onto our digital platforms and then to mobile. That maybe ties into why we might need a new standard — our ability to broadcast live to handheld devices. I think that’s where our future lies.