The OTT Skinny: Good For Affils, If Money Is

It's in the network affiliates' interest to nurture some of these new skinny bundles by supplying them with their signals, even if it is on terms dictated by their networks. It's a hedge against cord cutting and it's another avenue into the OTT and mobile world where younger audiences await. Here's the caveat: the affiliates' revenue from the OTT providers — their end of whatever the networks negotiate — must be comparable to the net retrans they are getting from cable and satellite.

The latest from Pew isn’t good. Crunching the Nielsens, the research outfit found that viewership of local news is continuing its downward trend.

And a MoffettNathanson report last week said that the Big Four networks had lost another 5% of their audience this past year.

But, you know what, in the 500-channel linear TV world so dear to  advertisers, broadcasting still rules. In this world, it’s still best to be a Big Four O&O or affiliate. Their mix of local and national can’t be beat.

That’s why the stations are able to command big increases in retrans fees from cable and satellite each time a contract comes up for renewal and it’s why the newest multichannel distributors — the broadband variety — are knocking on broadcast doors.

These broadband OTT services offer skinny bundles, fewer channels at a lower price in hopes on siphoning away cable and satellite subs tired of paying big monthly fees for a lot of channels they don’t watch.

Because the distribution is over the internet, the OTT services enjoy some high-tech cachet. But, if you think about it, they are a throw-back to cable of the 1980s when cable system capacity was much smaller and cable networks were relatively scarce.


Dish’s Sling and Sony’s PlayStation Vue have gotten the jump on skinny bundling on the net, but Apple and others are interested. Last month, at its upfront, Hulu announced that it wants to play, too.

No skinny bundle is so skinny that it can’t make room for the stations. In fact, they need the stations since they are America’s most-watched channels. Again, that’s why they are knocking.

But doing deals is complicated by the fact that the digital world is not governed by the compulsory license and retransmission consent. It’s all of matter of private copyright negotiation.

To do a deal, networks and affiliates have to work together since each owns rights to different portions of the broadcast day. Unfortunately for the affiliates, the networks idea of “work together” has been to take over.

They are negotiating blanket deals with the OTT providers and then telling affiliates what their cut is. Take it or leave it. ABC and CBS have such deals with Sony before the affiliates now.

At S&P Global’s TV & Radio Finance Summit in New York on Wednesday, Wells Fargo analyst Marci Ryvicker gamely pressed the three broadcast execs she had on a panel — Sinclair’s David Amy, Nexstar’s Perry Sook and Gray Television’s Kevin Latek, on when they might do some deals and get their stations into some skinny bundles.

I didn’t hear a lot of enthusiasm.

Amy dodged the question, saying only that “we will be there.”

Sook didn’t either, but he implied it wouldn’t be soon.

He said he was in a meeting recently with the head of one of the broadcast networks who said that he had not seen an OTT business plan that was “sustainable” and that all the OTT services combined would amass no more than five million TV homes in five years.”

“I tend to agree with that view,” Sook said. “These … things are interesting, but not necessarily financially compelling.”

Sook said he had the CBS-Sony proposal in his in-box, but that he has been too busy with his Media General merger and everything else to deal with it and didn’t feel any urgency to do so. “They need us more than we need them.”

Right now, it’s better to focus on Dish with its 14 million paying subscribers, he said. “I am going to spend my time hunting where the ducks are.”

The same is true with CBS All Access, CBS’s super skinny $5.99-a-month bundle containing just one linear channel — the local O&O or affiliate — along with on-demand CBS programming, Sook said. Nexstar and other affiliates get a share of the revenue, but it doesn’t add up to much, he said.

“All of these things are on the to-do list, but in terms of what’s important for me today and for the next six months, they are not anywhere near the top.”

Sook also expressed a little frustration at the undue attention accorded the OTT services. Apple may or may not launch a service in the next five years, but “it will still dominate every investor meeting that we have.”

Latek also didn’t say when the Gray stations might do some OTT deals, but he seemed to see more potential in them than Sook.

The skinny bundles won’t become moneymakers until they have the broadcasters on board, he said. He recalled that DirecTV and Dish launched in the mid-1990s, but didn’t really flourish until they won the right from Congress to carry broadcast signals. Satellite TV boomed on the backs of broadcasters.

“When the local affiliates are on, the over-the-top providers are going to be meaningful,” he said. “If they are not there, they are not going to be meaningful.”

Latek has a point. Folks aren’t going to show up at the fancy new mall without the big department stores. In multichannel TV, broadcast signals have been and, as far as I can see, will be the anchor tenants. According to MoffettNathanson research, the Big Four networks reach 41.2% of TV viewers each week; all the cable networks combined, just 5.8%.

So, in other words, don’t judge OTT services for what they are, but for they can become if they have the necessary broadcast programming.

Despite Sook’s skepticism (and whoever that network boss was), it’s in the affiliates’ interest to nurture some of the skinny bundles by supplying them with their signals, even if it is on terms dictated by the networks.

It’s a hedge against cord cutting and it’s another avenue into the OTT and mobile world where younger audiences await. That’s important to a medium that sells advertisers ubiquity and at least the promise of a mass audience.

Here’s the caveat: the affiliates’ revenue from the OTT providers — their end of whatever the networks negotiate — must be comparable to the net retrans they are getting from cable and satellite.

The last thing affiliates should want to do is encourage people to migrate from cable and satellite with their proven retrans revenue to an OTT service yielding less.

Broadcasters are still at the top of the TV food chain. There  is no reason for them to sell themselves to any distribution medium on the cheap.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or [email protected]. You can read earlier columns here.

Comments (33)

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John Avellino says:

June 17, 2016 at 3:48 pm

Wow – Good to see Latek finally make a contribution in one of these discussions. So…..Interesting how things start to make sense for the OTT world. All these Guys should be Pushing that Telletopia- and the TV Neutrality ALLiance – their the only ones trying to push the retrans regime to OTT in support of broadcasters. Makes Perfect Sense. Paralleling with Sat and Cable before it OTT is the next high valued delivery mechanism and these guys just can’t see that to preserve the local bundle and get paid, and make the best experience for the consumer that a Non-Profit OTT OVD paying Retrans is the way to go and it has an ability to scale in months across the whole U.S. All these guys should of been signatories on that TV Neutrality Alliance FCC proposal. If that happens say goodbye to ATSC 3.0 and then get your hopes up again for 5.0 and 6.0 and then VReality ATSC.- that’ll never come to fruition So if that Telletopia company is a Non-Profit seems logical they would pay the most in Retrans because they aren’t subservient to shareholders…..I am looking at that from every angle and just can’t see how it’s Not a Huge Win Win for consumers, broadcaster, communities etc.
Great Great Article Harry

    Linda Stewart says:

    June 17, 2016 at 5:00 pm

    KLatech, please send me an email at [email protected].

    John Avellino says:

    June 17, 2016 at 5:28 pm

    Harry will do. But it may be a couple of days I’ll be at the Wisconsin Broadcasters Association Summer Conference next week. If anybody is going to be in LaCrosse WI next week then try and make it – it’ll be at the Radisson Hotel and Convention Center.

    Keith ONeal says:

    June 17, 2016 at 10:01 pm

    Did you ever consider that he will be so busy at the Conference that he won’t have TIME to send e-mails? No? So, STFU!

Matthew Castonguay says:

June 17, 2016 at 4:55 pm

Interesting that you use retail/malls as an analogy. It’s not a bad one. See how it played out, especially for big retailers (relevant if broadcasters are playing the role of big retailers).

Amneris Vargas says:

June 17, 2016 at 6:01 pm

Add pick n’ pay to this hypothesis and it really messes things up, as the amount of subs available for “per sub” fees is solely based on demand.

Veronica Serrano Padilla says:

June 17, 2016 at 6:33 pm

Seems to be another reason OVDs should be given the same rights MVPDs have with Retransmission Consent. Otherwise, the networks themselves will be deciding what local broadcast affiliates get for their signals online – and from what some broadcast professionals have said here that could tip the scales firmly to the networks. The issue of the compulsory license could be adjusted by Congress if the FCC leans toward changing MVPD rules.

Don Thompson says:

June 18, 2016 at 8:26 am

Another great column, Harry. The statement below doesn’t capture reality. The reason “the stations are able to command big increases in retrans fees” is because there is not a free market for retransmission consent. In a free market, MVPDs would be able to negotiate retransmission consent with any TV station in the country. But as we know, that is hardly the case because of FCC network non-duplication rules and the balkanization of TV markets into Designated Market Areas (DMA). And @nabtweets and the TV #cashcasters want to keep it that way. One day I look forward to reading your column with the headline: “TV stations don’t have any viewers but retrans fees keep growing.” Please Follow Me On Twitter: @TedatACA or @AmericanCable

“That’s why the stations are able to command big increases in retrans fees from cable and satellite each time a contract comes up for renewal and it’s why the newest multichannel distributors – the broadband variety – are knocking on broadcast doors.”

    Linda Stewart says:

    June 18, 2016 at 12:02 pm

    Let me elaborate. They are able to command big increases because cable operators grossly underpaid for broadcast signals for decades. When broadcasters receive fees commensurate with the audiences they deliver, then cable will have cause to complain about retrans increases. Cable’s problem is it continues to pay for a whole lot of networks that relatively few people watch.

    Veronica Serrano Padilla says:

    June 18, 2016 at 1:11 pm

    Good observations, Mr. Jessell. But cable will always bristle at retrans increases because the very broadcast entities who created all the other cable channels and now want more for the broadcast nets have literally broken the bank on per subscriber fees. I like that you use the word “commensurate.” It would be logical to pay broadcasters and other channels based on the audiences they deliver – yet it’s never worked that way, otherwise, ESPN would NEVER be getting the outrageous fees they receive.

    Wagner Pereira says:

    June 18, 2016 at 6:44 pm

    According to Ted Hearn’s post, McDonalds, Starbucks, GM, Ford, and CABLE COMPANY is not in a truly free market as you cannot franchise a business in Butte Montana and pick up moving your business to Times Square. MVPDs CAN negotiate for retransmission of ANY TV STATION IN USA for their local programming. Any program the local franchised/affiliate of the Network or syndicated Programming must be blacked out in the non-franchised area. If a TV Station wants to negotiate a rate with the ACA members for a syndicated program and not have it blacked out, then they will need to pay the Syndicator for NATIONAL Distribution like TBS or TNT or USA….at around $2 Million PER EPISODE. No local station will be bidding at that rate against USA, TBS ETC. So Ted’s argument is a Strawman not based on reality in Business.

    Veronica Serrano Padilla says:

    June 18, 2016 at 9:00 pm

    @ Insider: Wrong. Ted didn’t suggest picking up and moving a business anywhere. To use your analogy of McDonald’s, for example, Ted is having a big birthday party for his daughter… pony rides, pin the tail on the jackass (you), and clowns. He wants to buy food for the party, so he heads on over to the local McDonald’s. The owner won’t cut him a break on buying 200 happy meals, so he goes to the next town’s McDonald’s where he successfully negotiates to buy them cheaper… that’s a free market. Now, if the government came in and told Ted that he HAS TO buy his happy meals from his local McDonald’s only you’d have broadcasting, what with its government thumb on the scale. But all this talk, aside from making me hungry, is really insignificant: FCC intervention isn’t particularly needed as networks can (and probably do) just stipulate how and where their programming should be distributed by their affiliates (franchises, if you will).

    Keith ONeal says:

    June 18, 2016 at 10:21 pm

    Like ION and My Network TV. Binge reruns of shows that no one cares about anymore.

    Wagner Pereira says:

    June 19, 2016 at 2:23 am

    @RidgelineTV continuing to show his business ignorance. Ted can buy happy meals anywhere in America he wants in the USA, however HE CANNOT OPEN UP A MCDONALDS AND RESALE THEM. Cable is free to negotiate for ANY LOCAL STATION IN AMERICA, but the local station can only negotiate for the Syndicated or Network shows they have the rights to in a particular area – no different than McDonalds, Starbucks, The Local Ford Dealer or a cable system that is granted rights to operate in Butte but thinks they can take their Butte Paperwork and open in Manhattan without redoing anything. Again, ANY STATION in America can put their local programming that they produce on any cable system – anywhere in the world. KWYB in Butte that paid $1000 an episode for Modern Family in Syndication CANNOT sign with a system outside Butte to show Modern Family in Syndication when USA paid over $1.5M per episode for that exclusive right. You CANNOT sell what doesn’t belong to you to sale.

    Veronica Serrano Padilla says:

    June 19, 2016 at 1:16 pm

    @Insider: You need to brush up on your reading comprehension (as usual… guess they don’t have good schools up in Yankeeville). Re-read the last line of my post and it’s plain to see that I agree that ” … you cannot sell what doesn’t belong to you” (corrected for your atrocious use of the English language). Contracts between programmers and affiliates designate where programming can be used – hence, there really is no great need for FCC non-duplication rules. Even if the FCC allowed it, a cable system in Atlanta can’t pick up a station in New York (why would they want to?) it wouldn’t be acceptable because the network contract with the affiliate wouldn’t allow it. Just debunking your ridiculous and silly use of McDonald’s franchise being “moved” as an example (almost as stupid and wrong as your “40 acres and a mule” analogy.)

    Veronica Serrano Padilla says:

    June 19, 2016 at 1:24 pm

    @Insider: I see you’re being “that guy” again. LMAO!!

    Veronica Serrano Padilla says:

    June 19, 2016 at 1:29 pm

    @Insider: Figured out what “live linear” means yet?? (snicker)

    Wagner Pereira says:

    June 20, 2016 at 12:12 am

    I know EXACTLY what live linear means and have for years. a station that simulcasts its Newscasts is alive Linear. There is no definition that linear us 24/7/365

Trudy Rubin says:

June 20, 2016 at 9:12 am

Honestly I watch some broadcast TV via OTA, however much of we watch is Netflix or Hulu. I subscribe to CBS all access, $5.99 who cares although our local CBS affiliate is not on it. However most people I know have drop MVPD, have done so because of the cost and are only using Netflix, no broadcast TV. OTT May get new customer, but will depend on the price of the service. If OTT cost the same as normal MVPD bundle it will fail.

    Veronica Serrano Padilla says:

    June 20, 2016 at 12:20 pm

    Here’s what will likely happen: a number of OTT companies will get access to broadcast and cable stations. They will start out with maybe 20 or so channels and the cost will be attractive to consumers. Then, slowly over time, the broadcasters and companies who own all the networks will keep requiring the OTT providers to add more and more marginal channels. (i.e. if you want to have the ABC affiliate, you’ll have to add Disney, ESPN and all the other channels they have.) Eventually, the OTT package will cost too much and have too many channels. In other words, OTT will end up just like cable TV and satellite…

    Amneris Vargas says:

    June 22, 2016 at 2:22 pm

    All would be wise to watch Canada’s version of the FCC (CRTC) and Pick-and-Pay. The “Wheeler” of Canada is angry with big cable for screwing around during Phase I and now hearings are scheduled for September 7th, in advance of December’s second-phase (which is pure ala carte channels to consumers). Pay for only the channels (not bundles) you want or can afford:

    Wagner Pereira says:

    June 23, 2016 at 3:57 am

    “The commission has heard complaints from consumers who felt the long-awaited arrival of more choice in assembling TV packages hasn’t proven to be the deal or the discount they hoped” Imagine That. Exactly what I have posted for years. 10 channels ala carte will cost you the same as 300 channels now. Some deal!

    Veronica Serrano Padilla says:

    June 23, 2016 at 1:26 pm

    @Insider: Here’s where you can use that saying and actually do it correctly (unlike your previous attempt –
    That Old Dog Won’t Hunt…. LMAO!!

    Wagner Pereira says:

    July 14, 2016 at 1:49 am

    As I stated then might try Google. You added old. Which I did not use. You are changing the quotes and incorrect.