OTA The Bedrock Of Katz’s Growing Diginets

Jonathan Katz is a great believer n broadcasting. Over the past four years, he and his partners have launched four networks — Bounce TV, Grit, Escape and Laff — on broadcast subchannels, figuring broadcasting, not cable, was the best way to reach their intended audiences.

“Over-the-air TV to us is not just the original over the top with the highest reach, but it’s also the original skinny bundle at the best price point imaginable for a consumer, which is free,” says Katz.

A former Turner Broadcasting System programming executive, Katz founded Bounce TV in 2011 with another former Turner hand, Ryan Glover, and backers, including Raycom Media, boxing and music impresario Al Haymon, former U.N. ambassador Andrew Young and Martin Luther King III.

With some of the same partners, notably Raycom and Haymon, Katz founded Katz Broadcasting last year to roll out the other three networks.

Katz is COO of Bounce TV (Glover is president) and CEO of Katz Broadcasting. He runs all the networks with the same executive staff.

Three of the networks are targeted. Bounce TV pursues African-American viewers, while Escape and Grit go after adult women and men, respectively. Laff seeks anyone in need of good one.

In this interview with TVNewsCheck Editor Harry A. Jessell, Katz talks about how he has been able to use the reach and unbeatable consumer proposition of broadcasting (free) to accelerate the evolution of what are essentially basic cable networks.

An edited transcript:

How are things going at Bounce TV in terms of distribution and viewership?

Things are going well. If Bounce were a cable network, it would be in the top 10 for African-Americans, delivering more black adults in prime than our friends at TBS, TNT, FX, AMC and about 100 other cable networks. Bounce is now in 90% of African American homes. We have had four consecutive quarters of growth. We just wrapped our best quarter ever in ratings, up 30% prime year over year. September was the most watched month in its history. (Editor’s note: Station groups carrying Bounce TV include Univision, Tegna, Scripps, Raycom, Nexstar, Media General, Weigel and Sinclair.)

And your press releases say you are starting to beat BET.

Yes, we believe Bounce TV will become the No. 1 African-American network on television. We surpassed TV One years ago. We are now incredibly focused on chasing down BET. So far this year, we have beaten BET over 40 times in total day and 30 nights in prime.

What about your other networks?

Grit and Escape just celebrated their first birthdays. We are thrilled with the progress so far. Grit is in 80% of the U.S., delivers well over 300,000 viewers every night in prime. Escape is in 60% of the country and delivers over 100,000 viewers every night in prime. The reason we think that growth will continue is that our consumers have very deep engagement. When we look at time spent viewing, Grit and Escape are both among the top 10 networks in all of broadcasting and cable. (Editor’s note: Station groups carrying Grit and Escape include Univision, Raycom, Meredith, Scripps, Sinclair, Cox, Lockwood and Citadel,)

Laff is five months old. It’s in 55% of the U.S., again, a very strong growth trajectory. Laff is not yet rated, but based on the initial audience delivery we have seen, we believe it will become rated soon and we will have another success on our hands. (Editor’s note: Station groups carrying Laff include ABC, Scripps, Cox and Meredith.)

Talk about your distribution deals. Are these inventory splits?

In the beginning, when there were fewer players in the emerging broadcast space, stations were looking for additional inventory to sell and so the business model was absolutely a split of inventory. Bounce TV’s model is just that. As time went by, and stations were able to add a dot-three or dot-four, there simply was too much local inventory for them to accommodate. So our business model and many others switched to compensate them with carriage fees essentially in exchange for all inventory residing at the national network level.

Why broadcasting? Why not just go basic cable with Bounce TV?

Everything we do is focused on the consumer. So our brands were built on fulfilling a consumer need in the marketplace, while helping broadcasters monetize their spectrum and do what they do best, which is serve and entertain viewers in their communities. In this case, we saw a gap for a specific demo to target and for a specific genre of entertainment that wasn’t being provided over the air.

I’ve always assumed that programmers went the multicast route because they needed broadcasters’ assistance to get cable carriage?

What I find interesting is that you don’t see a delineation between broadcast and cable, although I know you know both of them incredibly well. It’s a transformational time for the way media is consumed. It’s a fantastic time to be in the broadcasting business if you are focused on your customers.

From a consumer’s point of view, whether you are talking about cord nevers or cord shavers or cord cutters, it’s all about finding an affordable substitute to cable and satellite bills. So over-the-air TV to us is not just the original over the top with the highest reach, but it’s also the original skinny bundle at the best price point imaginable for a consumer, which is free.

So we think it’s absolutely logical to be in the broadcast space. We value our cable carriage, but we designed these services for the broadcast consumer. It makes sense because you have to put yourself in the shoes of consumers who don’t subscribe to cable or satellite. They have limited options. For them, the TV universe is a combination of major and emerging broadcast networks.

It’s very much a parallel to the early days of cable. So, we are applying cable’s successful model to serve the broadcast-only viewer — differentiated, demo-specific, genre-specific networks that create a clear destination and expectation for consumers.

So the over-the-air audience is critical to your strategy. You are saying that the over-the-air audience is sort of the magic sauce that makes this go.              

The over-the-air consumer is the core of our customer base. Let’s take for example Bounce. As an African American network, broadcast with cable is simply more powerful than cable alone. Originating as a broadcaster means that we have a much greater potential reach than a pure cable network.

Do you know what the over-the-air audience is for each of these networks?

Yes we do. In general, our over-the-air audience is 70% to 90% of our ratings. (Editor’s note: Following the interview, Katz supplied the actual OTA shares of the three Nielsen-rated networks: Bounce TV, 74%; Escape, 89%; and Grit, 67%)

So, these really are broadcast channels then. You have turned the clock back to 1986.

I like to think that we have moved forward. You know, it is so sexy to talk about over the top, but over the air is this amazing complement to subscription video on demand. We believe there is this symbiotic relationship between over the top and over the air. In other words, you combine a relatively inexpensive SVOD service like Netflix or Hulu with free over the air and you have a value proposition that works for many consumers.

When you started Bounce four years again, you must have thought that the African-American marketplace audience was underserved. Explain that. In what way was it being underserved?

Our research told us that almost a quarter of all African-Americans did not subscribe to broadcast or cable. We knew that African-Americans, two-thirds of them, felt they weren’t seeing enough of themselves on television and so the research was right.

Bounce TV quickly became the fastest growing African-American network on television and, so, if you think about it, for consumers — for African-American consumers who solely watch TV over the air whether or not combined with an SVOD service or not — there was no option. There was no network that was tailored for them.

When we talk about OTA homes, aren’t we talking about low-income homes for the most part? And if that is true, does that hurt you in any way with advertisers?

I think there is the perception and then there is the reality. You have articulated the perception. The reality is in two parts. Part one is the kind of results that we see from direct response advertising across all of our networks. Anyone would say that those results are exceptional.

Just talking specifically about Bounce, we have this deep roster of over 60 blue chip, general market advertisers from Coke to Toyota, from Walmart to AT&T, that see the value of advertising on Bounce and reaching consumers that they can’t necessarily reach on cable.

So I think people watch television over the air for a variety of reasons. Yes, there are some who can’t afford cable and satellite. There are others who choose not to pay the money to cable and satellite. Again, we are firm believers in this symbiotic relationship between over the top and over the air and that over the air will continue to flourish. 

Look at some of the recent changes in the landscape. You have got an antenna button now on Roku. You have got over-the-air tuners in Xbox One. TiVo has the first over-the-air DVR, the Romeo. Cablevision is now offering cord-cutter packages with free antennas. We are talking about a large scale of consumers that choose to consume content over the air and we are very pleased to be part of this growing ecosystem.

It took many years for many basic cable networks to make a significant investment in original programming. You seem to have done it fairly quickly, offering reality as well as scripted programming and sports on Bounce. (Editor’s note: Bounce TV produces three sitcoms — In the Cut, Family Time and Mann & Wife — and will introduce its first drama, Saints & Sinners, early next year. It also offers Off the Chain, a family friendly stand-up comedy show.)

It’s all about business model and objectives. Because we have been successful on all fronts for Bounce TV — distribution, ratings, revenue — and we have the financial flexibility to fund a scale of original. But the fastest way to lose your shirt is to play the short game in original programming and expect a quick return on investment. We are in it for the long term. We work every day to balance that creative scope of our productions with financial discipline to get to that significant ROI over time.

Can you tell me how much you are spending on this, what your production costs are?

I can tell you that we have invested millions of dollars in originals. This season, we will have six original series, includes scripted sitcoms, our first drama, live sports with [Al Haymon’s] Premier Boxing Champions. Not so not bad for a four-year-old network.

Now you say that Grit is growing pretty quickly too. Do you have original programming plans for it?

We absolutely have original programming plans for all four of the networks. Our formula for success — it’s what has certainly allowed Bounce to flourish — is to build an audience for each of the brands using an acquired base of content and then from that foundation we platform originals that are demo-centric.

You know, now there are no originals currently on Grit or Escape. But Laff is currently in the originals game. We actively engaged content creators for laff.com and there is a Laff app, which produces content that that is starting to migrates to the linear network in short form. In Escape we certainly have plans for original crime-focused docu-series.

Are there certain benchmarks you have to hit in terms of viewership or distribution to make it feasible to create some pricey original programming?

Yes there are.

And what would those benchmarks be?

I think I will leave it at yes. No, look, you have got to be financially disciplined, but you still have to be able to take creative risks. It’s a balance we work on every day and it applies to every one of our networks. So there will come a time when each of the networks has a strong enough foundation that will enable us to invest in originals in the same way that we are currently investing in acquired programming.

Is it getting tougher to license off-network shows because of the proliferation of multicast networks and the demand coming from SVOD services?

There are probably a couple of different angles on this. The first is that we have got a tremendous advantage because we are an independent company. We can acquire and develop content from any studio or distributor. There are other networks in the space who are more beholden to a studio owner who is trying to monetize unsold content.

Second, there really is plenty of programming available and it’s because cable and broadcast or emerging broadcast networks aren’t fishing from the same pond. Every network has a life cycle, and as its brand evolves the type of programming it acquires changes over time. So, many of the cable networks that built their brands on acquired movies and series have moved to higher CPM originals. That just means that they are simply licensing fewer theatricals and off-network sitcoms and dramas. making them available in the marketplace.

What’s your criteria for subscribing to Nielsen?

For us, we use direct response advertising as a canary in the coal mine. When we see a steep growth trajectory of DR revenue, we know it’s time to explore our audience delivery with Nielsen. In the case of all four of these networks, we have gotten to the point where it made sense to become rated. Bounce has been C3-rated for years, Grit and Escape just became rated and Laff we expect will be rated shortly.

The FCC’s incentive auction may eliminate as many as 400 TV stations. How might that affect your business?

We are partnered with very smart broadcasters who are going to make decisions based upon what is best long-term for them, their stakeholders, their shareholders. We don’t presume to have a crystal ball or know their business better than they do, but we have reasons to be confident about the post-auction world.

First, we assume the landscape will change, but given the limited visibility and all the moving parts involved, it’s difficult to say if that change is going to be incidental or massive.

Second, we believe that if there is a post-auction distribution gap for our networks we are very comfortable in our ability to fill that gap.

And third, we believe our growth can actually accelerate post-auction because you have got fewer players who are going to compete for this ever-growing audience of over-the-air consumers. So we think audience delivery can rise as the number of available options shrink for viewers.

Do you need to be in HD?

Because we are a service designed to serve broadcasters, it’s really about their needs, and today our affiliates don’t have the bandwidth to accommodate our networks in HD. Perhaps that changes with ATSC 3.0, but when there is a reason for us to broadcast in HD we will be the first to make the switch.