The OTT Skinny: Good For Affils, If Money Is

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.