There’s Gold In Ch. Leasing, But Not Much

Not all TV broadcasters can say they have made a bundle from their stations’ excess digital capacity, but Bert Ellis can.

The owner of independent KDOC Los Angeles reaped nearly $1 million in the year ending Sept. 30, 2010, by leasing most of the station’s digital channel to Sezmi, the pay TV service that uses broadcasting and broadband to deliver programming to its subscribers.

“It’s pretty simple,” says Bert Ellis, who manages several other stations as president of Titan Broadcast Management. “They write checks and we receive checks. They have a good business plan. So far, they have done everything they said they were going to do.”

Ellis hopes to lease spectrum to Sezmi on other Titan stations as the service expands into more markets. “Where we have spectrum that we are not using right now, then we’ll put it to work with Sezmi.”

Most broadcasters still see their route to digital riches through multicasting or mobile DTV. But some, like Ellis, are also looking to gather what dollars they can by leasing capacity to third parties that use it for a variety of purposes, including datacasting, multicasting or, as in the case of Sezmi, subscription TV.

The opportunity comes from the Telecommunications Act of 1996. In setting the digital transition in motion, the law permitted TV stations to offer “ancillary and supplementary” services so long as they continue to provide a free, over-the air TV service over a portion of their digital channels.

The FCC defined such services to include computer software distribution, data transmissions, teletext, interactive materials, paging services, audio signals and subscription video.

But there is a small catch in the law, says Brendan Holland, communications attorney with Davis Wright Tremaine. If stations charge a fee for any ancillary or supplementary service or receive compensation from a third party for any kind of service, including broadcasting, then the FCC is entitled to 5% of the gross revenues.

On the other hand, he adds,“If a station provides a free interactive service, if there is no additional fee for that, you don’t have a subscription, you don’t have a box, nobody is paying the station, then that’s non-feeable, and you don’t pay the FCC.”

The last time the FCC tabulated the revenues generated from “ancillary and supplementary” services and leasing by TV stations was in 2006 for a congressional report. That year, 36 stations reported gross revenues of $687,424, of which $34,371 was collected by the commission.

But the agency has no idea how much it has collected since then and isn’t too concerned about it. An FCC official who asked not to be named says the agency plans on tabulating the earnings, but doesn’t know when.

Despite the lack of an official accounting and the windfall of Ellis and a few others, the business of providing “ancillary or supplementary” services and spectrum leasing does not appear to be a big one.

Over the years, at least three entities have tried to build businesses by leasing broadcast spectrum for datacasting — that is, transmitting data to computerized devices for various purposes.

Two of the pioneers in this area — Geocast, backed by Hearst and Belo, among others, and iBlast — emerged in the late 1990s when digital TV was in its infancy, but soon went bust.

At least two datacasters remain, SpectraRep, a unit of BIA/Kelsey, and National Datacast, a for-profit subsidiary of the Public Broadcasting Service.

Mark O’Brien, who now heads SpectraRep, concedes that datacasting is a business whose time has not yet come. “Everyone keeps thinking that next year is going to be the year for datacasting and it hasn’t been.”

SpectraRep’s clients are principally in law enforcement and public safety with noncommercial TV stations providing the main source of spectrum, O’Brien says.

“It’s not a big money maker [for the stations]; some of them are contributing spectrum just because they feel it is the right thing to do.”

According to O’Brien, SpectraRep has survived because, unlike Geocast, it has “focused more on individual opportunities at a very local station level as opposed to trying to roll out a big national plan.”

A spokesperson for National Datacast declined to discuss the business with TVNewsCheck, despite repeated inquiries.

According to the PBS’s latest available income tax return, National Datacast’s total income was just over $2 million in 2008. But in an e-mail, a PBS spokesperson said the money was “unrelated to either the value of the spectrum or the cost of the spectrum that NDI leases from the PBS member stations.”

According to FCC rules, each year by the end of November every TV station must report on Form 317 how much it earned from leasing and non-broadcasting uses of their spectrum for the 12 months ending Sept. 30.

In an attempt to get a better handle on the business, TVNewsCheck looked at the just-filed Form 317s of every full-power station in three top-10 markets — Los Angeles, Houston and Boston.

It found that Ellis made $913,500 In Los Angeles from leasing around three-quarters of KDOC’s digital capacity (14.5 mbps or 19.4 mbps) to Sezmi and that he was not the only beneficiary of Sezmi in the market.

Liberman Broadcasting’s KRCA made $536,000 by leasing 9.2 mbps.

NBCU’s Telemundo stations KVEA and KWHY reported earning $84,000 and $240,000, respectively, for providing 4.5 mbps each.

And PBS station KOCE took in $74,000 by leasing 4.2 mbps to the pay TV operator.

Although the filings specify gross receipts and the digital capacity, they don’t say how long the leases were in effect, which may account for the disparities in revenues for comparable amounts of spectrum.

The TVNewsCheck review of the Los Angles filings also revealed that three stations made even more money than Ellis by leasing capacity to others for multicasting.

KJLA, owned by Entravision Chairman Walter Ulloa, reported gross revenues of roughly $1.4 million for leasing 16.35 mpbs to a third party.

KXLA and KVMD, owned by Ronald Ulloa (Walter’s brother), each provided 16.35 mpbs for $2.1 million and $380,500, respectively.

The Ulloas could not be reached for comment, but a source said the payments came from a company that uses the leased capacity to broadcast several channels of ethnic programming in the markets. He declined to provide further details. However, a look at the TV programming grid shows the stations’ subchannels filled with Hispanic and Asian programming.

The check of filings in Boston and Houston shows far less activity than in Los Angeles. In Boston, an Entravision-owned Univision affiliate, WUNI, leased a 2.5-3 mbps subchannel to LATV, earning WUNI $2,700 for an unspecified period. And noncommercial WGBH made $20,978 through National Datacast.

In Houston, independent KTBU, owned by a receiver, Stanford International Bank, made $850,000 for leasing three 3.5 mbps subchannels to a multicaster of Chinese, Vietnamese and Spanish programming.

Although Ellis is happy to receive his checks from Sezmi, he says the relationship is not necessarily long term. “Until we figure out how to exploit our spectrum with our own local uses, I look at it as a temporary source of revenue,” he says.

“Our goal with all of our spectrum is to exploit it ourselves. That’s why I am active in the Mobile500 Alliance.’’