Smith’s Agenda: Auction, ATSC 3.0, Retrans

With the mediascape becoming ever more competitive, NAB President Gordon Smith wants to make sure that broadcasters have a fighting chance to grow and prosper. So, he is doing what he can in Washington to see that the FCC’s incentive auction does not hobble broadcasters who choose not to sell, while making it as lucrative as possible for those who do.

And at the same time, he is encouraging the development of a more potent next-generation broadcasting system and preparing the way for its eventual implementation. Plus, he is marshalling the association staff to repulse another cable and satellite assault on retransmission consent and the now critical revenue stream it enables.

With the NAB convention in Las Vegas set to get underway in Las Vegas this weekend, Smith took time to discuss these key challenges with TVNewsCheck Editor Harry A. Jessell, providing reassurance they are being well met at the NAB.

An edited transcript:

For five years, the NAB ignored the reverse auction that the FCC would use to buy spectrum from broadcasters. Now, it is actively engaged in making sure the rules of that auction work for broadcasters? What turned you around?  

The best answer is that the NAB represents the interest of its members.  That interest evolved after the $45 billion [of the AWS-3 auction] and we were asked to facilitate both the forward and the reverse sides of the auction to make sure that our members get the very best possible insight into the auction and come out with the best opportunities for their companies.

We respect the fact that many of our members have earnings calls to make and boards of directors to which they answer and return on investment that they need to secure. Now what that means is, many will look [at the auction], some will participate and a few will sell.

Our instruction from our board is to be helpful on the reverse auction, while we protect the industry on the other side of the auction for those who wish to remain in [the broadcasting] business.

When you say “a few will sell,” are you anticipating that this incentive auction will not be a success from the FCC’s perspective?

I think that depends entirely on the numbers that ultimately are brought to the table and that’s something that is sort of all over the board.  You know, there’s the Greenhill report and then there is an effort by one group of broadcasters to try to further inflate those numbers, but in the end the deals will be done based on economic self-interest and that will be determined by the amount of money being offered.

So you’re not ready to make a prediction about how the auction will go?

I really am not. There are still many shoes to fall having nothing to do with us, but having everything to do with the participants on the buying and the selling sides, with their being simplified as opposed to complicated auction rules, and then with the physical mechanics of repacking. That is an enormous challenge. The timing of when deals will be done, when dollars will be exchanged and when the spectrum is conveyed is entirely out of our hands and is subject to all kinds of practical problems

Let’s suppose that the FCC does get 86 MHz or 120 MHz. How does that change the business? Have you thought about that at all?

I am thinking about it almost nonstop. As I understand economics, that which is in shorter supply is often of higher value. It will be a smaller industry, but if we do our jobs, it can mean that we are a more important industry because the supply of localism and of broadcasting will be smaller. We will be ever more important to our nation at the civic level, at the entertainment level, at the political level, you name it. I think the remaining industry will enjoy great value.

So if the demand stays pretty much the same and supply goes down, what’s left is then that much more valuable?

The value goes up. That’s just the basic law of inflation.

Last fall the NAB tried to settle its lawsuit against the FCC over the repacking standards. Why couldn’t you make a deal with the FCC on that?

I think in short the FCC has a much more expansive reading of the Congress statute than we do.  We think Congress was very clear that our coverage areas should be protected.

The way I got the story was that you would withdraw the suit if the government would increase the money it was setting aside to reimburse broadcasters for the repacking.

This is the part which I believe the FCC would like to solve, but they don’t have the purse strings to do it, which is why I was very pleased that both [FCC] Chairman [Tom] Wheeler and Commissioner [Ajit] Pai were making in their congressional testimony recently some good suggestions for how to deal with the shortfall in money for a repack as large as this one may be.

Your estimate is that if the auction goes off as some think, there might be a $900 million shortfall for repacking — the $1.75 billion mandated by Congress and the $2.6 billion you think it is actually going to cost. Is that correct?

Yes, that is correct. It was very encouraging to me to hear Tom Wheeler’s advice that the mobile industry create essentially an insurance fund to cover the cost that exceeds the $1.75 billion.  Obviously Congress has the purse strings and they can provide additional funding. Commissioner Pai had an additional idea, which we’re certainly fine with, which is that the commission only move as many stations as would be covered by $1.75 billion fund and then just stop. Congress never intended for broadcasters to pay out of pocket.  I think that is very clear and that’s one of the reasons why this was called a voluntary auction. Otherwise, it would be considered a taking.

Why can’t you just go to Congress and ask for more money?  I mean this auction looks like it’s going to pay out more than anybody had anticipated.

You know, going up and asking for $1 billion right now is not a big seller, but there’re also other things that we are doing that I would just as soon not be in print whereby we might be able to get Congress to do some stuff with it in report language.

Can you expand on that at all?

Well, it’s still a work in progress.

By hook or by crook you will find the money?

I’m going to figure it out.

Many broadcasters seem determined to move to a new broadcasting standard. What will the NAB’s role be in implementing that standard, assuming the ATSC can reach a consensus on a standard?

I believe it’s one of leadership. We have obviously been leading the debate and encouraging our members — both network and affiliate — to participate in the ATSC 3.0 proceedings, but I believe it’s enormously important to the broadcast industry if we’re not to be in a position to do less with less. 

We need to be able to do more with less. The majority of broadcasters post-the-auction will want the flexibility the standard will give them — the flexibility to choose and to pursue opportunities that otherwise would be foreclosed to them like ultra high definition, which will be overwhelmingly the future of TV set sales; targeted advertising; IP compatibility; mobility; and being able to continue doing multicasting even if channels are shared. 

By “less” you mean less spectrum, right?

That’s right.

But what about the networks? I understand that they are not much interested in the standard.

They are certainly participants in all of this and they are also participating in the ATSC 3.0 process, but I think a lot of questions legitimately exist and we’re working through how to answer those to the satisfaction of 100% of our members.

What if you don’t get 100%?  What if the networks continue to drag their feet? If they don’t want to move ahead with a new standard, does that take NAB out of play?

In the end my job is to get a 100% and I am focusing on their constructive engagement in the process at this point. And so I have got no final nos from anybody.  I am doing what I can to highlight the opportunities that will exist, the flexibility that will be provided and my own sense is that their minds are changing.

Have you had conversations with Wheeler and the Hill leadership on the standard? Have you begun selling ATSC 3.0 to them?

The answer is yes in a general sense. Like everyone, they have their questions to be answered, but there’s a willingness to engage us on this.

Now Wheeler has not been the greatest friend to broadcasters  Is this one pro-broadcasting cause he might champion?

I think it’s true he has taken his shots at us, but I do believe, based on a conversation I had with him, that he is earnestly interested in understanding this more and being helpful to us because as a good Democrat I think he has a genuine interest in making sure that the video future is not just for the wealthy who can afford pay channels, but all the American people.

Part of his legacy may well be a successful auction, but a successful auction should not mean a diminished video future for the American people. His theme is competition, competition, competition.  Broadcasting is very central to that.

The cable industry made a big push last year to reform retransmission consent regulations, and by reform I mean they wanted to change the rules to slow or stop the growth of retrans payments to broadcasters. Do you expect a renewed push this year, and if so where and how is it going to come?

I do, and it will come in the efforts of the House and the Senate to revisit the Telecom Act. Already the ACA [American Cable Association] has made clear its intention to pursue Local Choice. What I would say is what my mother used to tell me: when you would point your finger at somebody, there are three pointing back at you. So what’s good for us is good for them.

Meaning what?

That means a la carte. Out of respect for our friends in pay TV we have never pushed a la carte. I would just ask that they be careful as they push it on us because then they may get what they wish for and that involves everybody.

The FCC could make getting retrans more difficult for broadcasters by jettisoning the network non-duplication and syndicated exclusivity rules. What’s going to happen on the FCC front?

Obviously we’re making the case to preserve these. They are really an underpinning of preserving localism. Again, it comes down to whether the FCC values localism and the answer I think from a matter of good public policy is that they ought to value that because the American people count on localism. 

The FCC rules are really just enforcement mechanisms for what’s been going on contractually, but we think that that is a very good mechanism and worthy of preservation if the FCC wants to preserve localism.

What is your guess as to what’s going to happen? My guess is that Wheeler and the other two Democrats are going to knock those out.

We’re going to do everything we can to enlighten them in the hope that they would not.