Optimistic Outlook On Multicast’s Prospects

On a trip to Costco, Tribune Media chief programmer Sean Compton came across a display for TV antennas, but found only one box and it was damaged. “I said to a clerk. ‘Do you have any in the back?’ And he said, ‘No, we can’t keep them in stock. They come in, and they’re gone in a day.'”

For Compton, it was compelling testimony that over-the-air reception is back and that Tribune’s investment in diginets like Antenna TV and This TV are smart ones. Diginets rely heavily on OTA, although many also have substantial cable carriage and some have added an OTT presence. 

The continuing resurgence in OTA is only part of the good news for multicasting.

While diginets still have some hurdles to face — such as rising program license fees — they have captured the attention of general-market advertisers and they are looking forward to the rollout of the upcoming ATSC 3.0 broadcast standard with its expanded capacity.

What’s more, the diginets are relieved that the FCC’s incentive auction and ongoing repack of the TV band isn’t affecting their station carriage deals to any significant extent. Concerns about the auction’s impact was a big reason why new diginet launches ground to a halt last year.

Only 175 TV stations sold their UHF spectrum in the incentive auction, a much smaller number than anticipated. And of that number, 30 are reportedly moving to VHF channels.

“I’m not going to deny this; it was a tough two years because a lot of people didn’t know what was going to happen,” says John Bryan, president of domestic television at MGM Studios. “Now there’s certainty around where we’re headed. And there’s no question the business is very, very healthy.”

MGM, which owns This TV with Tribune Media, recently rolled out Light TV, a family and faith-based channel. And it also rebranded a classic TV diginet, The Works. It’s now called Charge and has narrowed its retro focus to action-adventure.

Bryan says more diginets are in the planning stages. Executives at other companies are keeping their cards closer to their vests.

“Everybody kicks the tires. There are a lot of hopes and pipe dreams,” says Neal Sabin, vice chairman of Weigel Broadcasting, whose channels include Me TV, Movies!, Heroes & Icons and Decades.

Positive Numbers

A key factor in realizing those dreams is getting distribution on stations’ subchannels, a finite resource. But getting carriage in the future may get easier as the upcoming 3.0 technical standard is expected to increase greatly the number of available signals that stations can carry.

Then there’s the continuing rise in OTA homes. The research firm Statistica predicts that by the end of this year, 30.3 million households will be without a pay TV subscription, representing 24.6% of all TV households.

“That platform of over-the-air viewers is going to continue to grow,” says Ron Garfield, EVP-GM of the game show diginet Buzzr, which is owned by FremantleMedia.

“I don’t know where it’s going to level out. I don’t have a crystal ball. But percentage wise, I’d have to say it’s probably in the high teens, in terms of pure, over-the-air carriage.”

Multicast executives are watching another growth trend as well: the total number of multicast signals that the stations are carrying has already risen significantly. “I’m somewhat surprised by the widespread use of diginets,” says Mark Fratrik, SVP and chief economist at BIA Kelsey. “Local stations have really gone after this [revenue stream].”

Fratrik reports that here were 3,479 multicast signals in the U.S. as of Dec. 31, 2015. The number rose to 4,445 on June 15, 2017.

What the BIA/Kelsey reports don’t say is how many of the signals are diginets created for subchannels and major broadcast networks like ABC, CBS, NBC, Fox, CW that have been relegated to subchannels because of the shortage of stations in smaller markets.

Padding The Top Line

BIA Kelsey research show that the diginets are beginning to make an impact on station economics. They generated $159 million in ad revenue for stations in 2015, and the sector climbed to $206 million in 2016, it says.

While that revenue climb is healthy, it’s still a mere 1% of total station revenue. No one seems to be complaining.

“If you are adding 1% — and I’m not saying this is where we are — I would take any initiative that adds 1% to core growth to a mature business like TV advertising,” says Steve Pruett, EVP and chief TV development officer at Sinclair Broadcast Group.

Wayne Freedman, VP of sales at Raycom Media, concurs. “Multicast has provided our sellers — and our customers — with an effective way to add frequency and targeting to their broadcast and digital media schedules,” he says, “and although the revenue isn’t huge, it is important, and it’s growing.”

“It’s a brand-new revenue stream for us that’s not insignificant,” adds Jane Williams, Cox Media Group’s EVP of television. “Our experience at Cox is that [diginet revenue] has grown in nice increments over the past few years. Will it continue to grow at that level? Probably not. But as ATSC 3.0 launches, and there’s more bandwidth out there, it could make this a substantial revenue stream.”

One sign of the diginets’ growing magnetism for advertisers is the ability of some channels to move beyond direct response advertising.

Among those attracting general market ads are Katz Broadcasting’s foursome (Bounce, Escape, Grit and Laff) and Weigel Broadcasting’s Me TV and Heroes & Icons. They and others like Buzzr are also getting “hybrids,” branded products and services with a call to action.

“Over the last 60 days, I’ve had the opportunity to meet with over 40 ad agencies in markets all over the country that are spending money in this space. And these agencies are really loving the fact that this is a new platform for them to be spending on,” says Buzzr’s Garfield. “I learned from my meetings that diginets drive business. They make the phones ring.”

On The Down Side

One challenge facing the diginets is the rising cost of programming. Rights holders see some of the networks doing well, and want to cash in as shows come up for renewal.

“I think there’s a lack of understanding,” Sabin says. “The diginet business isn’t the cable business. There’s no dual revenue stream. In the case of networks like ours, we’re splitting the revenue with the stations.”

At Sinclair, as with other station groups, the answer has been to own all or most of the multicast networks the company distributes. MGM is a content partner in Comet and Charge, but Sinclair owns the networks and benefits from the fact that much of their distribution comes from owned stations.

Ownership also gives Sinclair 100% of the digital rights to the networks, says Scott Shapiro, the company’s VP corporate development. Comet runs on Roku and Apple TV and TBD, a network specializing in short-form videos born on the web, is available not just on 65 Sinclair stations, but also in the IOS and Android app stores. 

“OTT is totally complimentary,” Shapiro says. “You are getting a totally different audience.”

Multicasting has always generated a lot of churn with networks coming and going, and that phenomenon is unlikely to change, the experts say.

“The station owners are moving toward networks that draw the bigger audiences to maximize revenue and are in some cases moving away from niche networks that don’t appeal to a wider audience,” says Kagan research analyst Peter Leitzinger.

“It boils down to the best way to maximize the excess spectrum and which network will generate the most revenue,” he says.

Diginets that have recently “dropped off our radar” include The Family Channel, PBJ Television, Youtoo America, MundoMax, Tele-Romantica, Mega TV and Guadalupe Radio TV, he says.

Some believe that there will be a further shakeout as broadcasters seek to maximize their multicasting potential by going with the strongest networks. Weigel Broadcasting’s Sabin expects it to take place in a couple of years.

But others say the shakeout may never come or that new networks will pop up to replace those that fail. Says S&P Global’s Justin Nielson: “You may see a resurgence in niche diginets in two or three years with the wider spectrum bandwidth possibilities under ATSC 3.0.”

TVNewsCheck‘s Top 25 Digital Broadcast Networks 

Ranked By TV Households Coverage

Source: Networks supplied coverage percentages, except for those with asterisks (*), which were supplied by the Across Platforms consultancy.

This is the first installment of a three-part Special Report. Part 2 on Justice Network will appear Wednesday morning, while Part 3 on technology will run Thursday before noon ET.