Wertlieb Sees Opportunity Ahead For Hearst

If you want to see — in fact, walk around in — Hearst Television’s commitment to local broadcasting and the communities it serves, go to downtown Omaha, Neb., says the station group’s President Jordan Wertlieb. There you will find the new home of KETV, built within the 117-year-old Burlington train station. What was once an eyesore is now a humming, state-of-the-art news center and source of civic pride, he says.

No station group possesses a greater sense of public service than Hearst, and Wertlieb has been imbued with it since joining the group 22 years ago after a seven-year tutelage in broadcast sales at Katz. He has enjoyed a steady rise at Hearst, from sales manager at WCVB Boston, to GM at WBAL Baltimore to EVP at corporate. When CEO David Barrett retired in December 2012, Wertlieb was ready to step in.

But running a station group with 32 stations in 28 markets is not just a public service. It’s primarily a business and a particularly challenging one these days.

In this interview with TVNewsCheck Editor Harry A. Jessell, Wertlieb says the business is doing just fine, despite the challenges, and is positioned to benefit from the advent of ATSC 3.0, programmatic selling and OTT. He also addresses the incentive auction, post-auction repack, football on ABC and how unappreciative regulators are making the broadcast business tougher than it needs to be.

An edited transcript:

So, where is the upside in broadcasting?                 

There are a lot of opportunities. There is more upside in retransmission for the broadcasters as they start to get closer to a share of programming fees commensurate with their audience share. I still think there is growth in core advertising, particularly on the local side. As television production costs come down [for commercials], we are seeing more and more entrants — particularly home improvement and small businesses — that have never contemplated advertising in television before. Then, I also think that the broadcasters are just scratching the surface on the digital side.

So when you look at those three components, not to mention the R&D side of it, what’s to come in ad technologies and whatnot, I think we have a really great future.

Let’s take those one at a time. First of all, in digital, you have been scratching the surface for years — when I say “you” I mean the entire industry — and you haven’t really been able to make much of a business out of it.

I think you have to look at the different iterations of digital. First you just had this explosion on the Web. Then you had the proliferation of search where obviously Google became the preeminent player. Then, you had the proliferation of social media and Facebook became the preeminent player in the marketplace with a few others. We are in those businesses at a small level, but it’s not our core competency.

Now that it is evolving into a videocentric business, it plays into the core competencies of the local broadcaster. Now you are talking about assets that we have. If we can distribute those assets, not just on our own websites, but syndicate them out through various partnerships, which we do on a number of distributors including Facebook, that’s a much different business. So, you have got to look at it as where the digital business is moving, and it’s moving closer to our business.

Can you give me an example of how you are exploiting the interest in digital video?

Well, let’s look at NewsOn. So NewsOn is an initiative that was driven in partnership with ABC and a few other preeminent broadcasters with the concept of distributing local news outside its traditional platform. You are going to see more examples where you take our content out of its traditional platform and put it into a digital video-focused environment, which will benefit not only the consumer, but also our businesses. We will have video assets to monetize.

Let’s talk about spot. The third quarter earnings are starting to come out from the public companies. The first one was from Tegna and it reported core growth up just 1% in the quarter. What’s that say about broadcasting?

As I said, we are seeing growth locally. Our core is up this year and it’s more than 1%.

How much?

I think we are up about 3% or 4% in the quarter and in the year to date. As I said, growth is on the local side. The national spot market has been challenged, although even that has leveled off now as the scatter market tightens up a little bit. The local marketplace continues to grow. You can see it in New York television advertising with the terrific ads from New York Presbyterian Hospital. That’s a category that for years didn’t advertise on television. We are seeing local marketplaces with plumbers and roofers and all sorts of businesses that I think were more Yellow Pages focused, that were more print focused, now migrate to television.

Speaking of national spot, what is your reaction to Gray Television bringing its national sales in-house. Is that something to emulate?

I mean it’s something to watch. We are a big believer in using a national rep firm. We think that they are very good at what they do. We were, if I am not mistaken, the first national rep client in history. Hearst and Katz got together in the late 1890s. We believe in that business. We believe it is still a relationship business. We will, obviously, like everyone else, follow what’s happening with Gray, but we feel pretty strongly that our national rep partners are still the best in class and the best way to handle national business.

You split your business between the two rep firms?

Yes we do.

Retransmission consent is the other big revenue stream. Everybody talks about bumping up the fees until they are commensurate with the ratings. It doesn’t necessarily follow that they will. What makes you confident that you will get there one day?

I think it’s a process, and I think you are seeing that recalibration of the marketplace occur. At the end of the day that gap will narrow.

The other part of that equation is that the networks keep demanding more money from you every time you do a new affiliation agreement. The retrans increases flow through, not to your bottom line, but to the networks’. It sounds like a no-win.

I don’t know about a no-win situation. I think that there is a net benefit. There is a constant pressure from the affiliates on the networks to provide quality programming — particularly live programming, particularly premier sports programming. Those have high costs and we are sharing those costs. Obviously, there is a natural tension in those negotiations, but thus far my experience is, at the end of the day, both parties are benefitting.

So, what we are now calling net retrans goes up?

Yes, as long as retrans goes up.

And you think it will?

Yes, I do.

You are a big ABC affiliate. Would you like to see ABC get football?

So that’s an interesting question. You asked, would I like to see ABC get some football? We have it. College football is a very good business for us, particularly in Omaha, Neb., and Oklahoma City and some of our other ABC markets. Those markets are very pleased with the ABC college football. 

NFL football is still an 800-pound gorilla that attracts massive audiences. We are thrilled that NBC has the NFL. We are happy with our partnership with CBS in our two markets. If the price is right and that can be expanded to another participant that would be great, but the price would have to be right.

The networks’ primetime ratings continue to drift downward. Do you feel that each year on your bottom line? 

I think there is a measurement issue here. I am not saying the ratings aren’t drifting downward per se, but I am also saying I don’t believe that all the audiences are being captured. I read a report this week that said that when you look at live-plus-seven on every device viewership is up. I don’t believe the live-plus-seven data would show that there is a decrease overall. In fact, I think it will show that there is an increase. So, of course, when ratings go down it impacts our revenue, but we are looking for more ways to monetize the audience beyond live-plus-same-day. I think you will start to see more efforts to do that.

The network strategy is to repurpose every primetime show on every downstream platform it can find. How does that benefit you?

Because I think eventually, if not sooner rather than later, the networks will also provide local inventory in that delayed view.

That sounds like a new idea.

Well, I don’t know if it is a new idea. I think it is in the works.

Hearst has not been a very acquisitive company. Why not?  If you believe so strongly in the business, why don’t you invest more deeply into it by buying more stations?

I will give you two answers there. One is that we are very much interested in expansion for the right opportunity. We are pretty methodical and strategic about that. We did an acquisition about a year ago, picking up stations in Birmingham [Ala.] and Savannah [Ga.]. There are certain markets we like, certain profiles of stations, primarily news stations with Big Three affiliations. 

Obviously, we have got some very outdated crossownership rules that prohibit us from certain acquisitions because of our ownership of newspapers in certain marketplaces. So I think if the station were right it, it fit our strategy and the FCC would allow us, we would acquire a station. But acquisition of an entire group? I would never say never, but that is certainly not something that we have been contemplating.

Are you going to register for the incentive auction?

We are going to be responsible and look at all the options. And, there are a number of them. There is turn in your license, there is move to a different position on the UHF dial, there is move to a VHF position. Quite honestly, I think the spectrum auction is probably geared more toward other broadcasters.

You have some stations you could potentially sell. How about WMOR, your independent in Tampa? The FCC has set the opening bid at $397 million for that station. I know that the price goes down from there, but it’s still quite high to start.

First of all, the opening bid price seems to be … I don’t want to call it fiction, but I would call it aspirational. The last report that I got was that there is no need for spectrum in Tampa. So you can play parlor games all day long as to what a station is worth. At the end of the day, I think there is going to be a limited number of markets and a limited number of participants who will benefit. Time will tell whether that benefits us or not.

The majority of non-participating stations will have to move to new frequencies when the auction is over. Is it too early to begin making plans and budgeting for the repack? 

We have looked at it. Less than half of our stations would be affected, and currently under the rules the federal government is going to reimburse our repacking costs if they move us. So I haven’t budgeted for a repack. I still think there is some more work to be done because I think in reality 39 months to repack the entire industry [as currently required] is, again I will use the word aspirational. I don’t think it’s possible.

How many years will it take to move all those channels?

I mean I have heard studies that say between six and nine years, but I think that it will all get sorted out eventually on the other side of the auction.

You talked earlier about new technologies that will benefit the business. What about ATSC 3.0? Are you a believer in that?

Yes, I am. It’s improving. Once we get to the other side of the auction, people will get even more focused on it, but I think it’s critically important for the industry to embrace new technology and 3.0 is going to unlock a lot of opportunities — 4K and mobility among them.

Some in your peer groups — Raycom, Scripps, Sinclair, among others — are developing original programming as an alternative to what is coming out of Hollywood. You don’t seem to be playing in that game. Why not?

First of all, we think that the syndicators and the studios are the best in class in doing that. Like every industry, we go through a cycle of a drought of content. I think we have gone through that. I think we will emerge out of it pretty soon as we begin to see more and more developments come out. It’s not to say we haven’t explored opportunities. In fact, on a different scale we are launching on Nov. 8, a political talk show, which we aspire to bring into syndication — Matter of Fact with Fernando Espuelas.

I don’t know how familiar you are with Fernando. He did eight years of Univision Radio. He has a unique following. He is very socially oriented and I have been following him on Twitter and Facebook and he has got a large base of followers from his time at Univision. We think part of our brand is a commitment to political journalism. It started with [former news VP ] Fred Young and [former CEO] David Barrett and is carried on by us. This is a perfect complement to that.

Well, but that isn’t a Monday through Friday strip at 4 p.m.?

Correct.

That’s not a business you want to get into?

I haven’t seen a business plan or a product idea that warrants that investment yet, but I am open to that discussion.

The idea is that, you we may get a smaller rating, but a greater profit from the time period by doing it yourself. That’s Scripps’ thinking.

I am not going to speak to other people’s business plans. Here is our philosophy on that: We want to either own or license content that will be No. 1 in the ratings.

Even if it’s not profitable?

Our expectation is, if it’s No. 1 in the ratings, it will be profitable.

What are you hearing from Hollywood these days? So far all we have heard in terms of big-budget shows is Harry Connick Jr. from NBCU. Are we going to see more out of Hollywood over the next year?

I mean we are a few months away from NATPE, but I think you are going to start to see more development.

Well, the other way to go is news.

We just announced that we launched a 9 a.m. news in West Palm Beach.

You also announced 4:30 p.m. and 7 p.m. newscasts at WCVB Boston. So are we going to see more of this?

We are definitely going to see more news expansion in time periods where the opportunity presents itself. This comes back to the dynamics of the marketplace where we are in the live- plus-same-day business and, as you know, news is a live vehicle. It is almost immune from some of the issues of recording and delayed viewing. And, interestingly enough, there continues to be an appetite for it.

We just did a report yesterday internally. If you look at our 2013-14 window versus 2014-15 across the months from November to May you would see that the average news viewership is up. Our local news audience is up. The network evening news is up. There is a pretty voracious appetite for news viewership in the marketplace. So if the time period lends itself to it, even in nontraditional time periods like you mentioned in Boston, we are going to put news into it.

How much of the news expansion is driven by political advertising?

This is about viewership  It’s about the opportunity to attract live viewership. Our commitment to political coverage is ubiquitous across our group. So I have got markets that will have very little political advertising and we will have as much political coverage and debate coverage as we do in markets where we will have more advertising. We have already done four debates this year between Louisville and New Orleans. We have got upcoming debates — obviously presidential debates — in Des Moines [Iowa] and Manchester [N.H.]. It’s driven by leadership and viewership.

What’s going on with OTT, TV Everywhere and skinny bundles? At NAB a couple of years ago, you said you were going to be an early adopter of ABC TV Everywhere plan, what ever became of it? Did that sort of fizzle out?

No. I think we are on actually the verge of starting to see those launches. It certainly took longer than anticipated. Part of the delay was the technology, part of it was the clearance of rights between all our partners and part of it was the focus of the MVPDs. I think all those three things are starting to come together now and I think you will see TV Everywhere starting to get off the ground if not before the end of the year, certainly in early ’16.

Are you active with CBS All Access?

We are active in our two CBS markets.

How are you doing with them?

We just launched it like two weeks ago so I don’t even have any data on that yet.

What about these other virtual cable systems or skinny bundles like Sony’s PlayStation Vue?

I believe that every distribution platform must have the local thing.

We are in constant talks with both the providers and the networks about them. You have to go back to your earlier question of TV Everywhere because this is complicated. You have got rights clearance issues and the OTTs just make it much more complicated because they don’t fall under the retransmission consent regime. In due course, you will see those things emerge and they will include the local signals. 

I think I want to go back to something because it ties into this question. Sometimes people who watch the business from afar get confused with the shift of viewership to other platforms. Our content is being viewed on all these platforms. The consumer isn’t saying I don’t want to watch TV. The consumer is saying I want to watch my favorite programs on the best available screen.

If you then look at the viewership on gaming consoles, over-the-top vehicles such as Roku or Apple TV and you look at viewership on smartphones and you look at when we stream newscasts and you aggregate all that and you properly measure it and capture it, viewership is up. You have got to really distill the affinity for the content versus the migration of the platform. I am not sure people are doing that correctly.

In any event, no matter the platform, you want to be paid if your programming is going to be redistributed on it, right?

I think for anyone who distributes our signal — other than our over-the-air signal — there is an economic exchange to be had.

You talked about how important ATSC 3.0 is. If it is so important to be compensated for your local signals, why would you want to improve the one platform — broadcasting — where you are giving them away for free?

I think we want our over-the-air signal to be of the highest quality possible. I don’t think it’s a good strategy to ascribe to inferior technology for your over-the-air signal. As a licensee, it’s our obligation to provide an over-the-air signal and our philosophy is we are going to continue to do that. Those who want to redistribute our signal, there needs to be an economic exchange, but if a consumer would like to take an over-the-air signal from us, then we are fine with that.

Wouldn’t it make more sense to say: “Let’s not improve the broadcast signals so that we drive more people to the pay platforms like cable, satellite, CBS All Access or PlayStation Vue?”

I am not sure about that. Someone would have to convince me of a successful strategy where the industry used inferior technology with the hopes of driving consumers to a different distribution platform.

I think our core business is ubiquitous distribution. There is going to be a marketplace that is going to take over the airwaves. There has been and there always will be. I think we have to serve that marketplace as robustly as we serve our distribution partners.

I want to get into programmatic selling. Do you feel pressured into that by the media agencies or is that something you want to push yourself?

It’s really complicated. We don’t feel pressured by anyone to get into it. We are, as you know, at the table with a number of these beta tests out there and looking at it. Anything that simplifies a process of buying and selling advertising time to the benefit of our clients is a good thing. With that said, the process also must be respectful of the fair market value of a product. 

On the digital side, programmatic has suppressed CPMs, didn’t initially discern quality publishers from other publishers and  led to pretty well documented fraud in a number of cases. I think the television business is still a relationship business. It’s about quality content and environment and I think it’s being very careful and methodical as it goes into this space. It’s certainly not rejecting it, but it is being careful to make sure that all of the value proposition — quality and exclusivity — is taken into consideration.

How do you see it evolving? Do you see it as sort of a tiered approach where you have to sell daytime programmatically and hold back primetime and sports?

I wouldn’t classify it by daypart. Some people have said that. I am not really sure that that’s correct as I think that there are some quality CPMs in certain daytime programming depending on what program it is. I think what’s going to happen is you are always going to have a direct relationship, which should be the majority of your business. You are then going to have sort of a premium automatic relationship or programmatic relationship for other business and then you are going to have almost a remnant relationship. Quite honestly, we have that now in different forms of the television business. It’s just that it’s done manually.

But programmatic is definitely coming?

It’s coming, and I think it’s going to help our industry because anything that takes the friction out of buying local television makes it more attractive to advertisers, especially at the national level.

Anything else on your mind?

I think that there is a lot of underappreciation for what local broadcasters do in a marketplace. We saw it this past weekend in Oklahoma City with the tragedy at Oklahoma State, we saw it in South Carolina, we saw it in California with the wild fires, we saw it obviously in Baltimore and we saw it in my markets in Plattsburgh with the Dannemora prison break.

The national networks covered the prison break as if it were a real life Shawshank Redemption and the reality was it was extremely frightful for the people in upstate New York. The police were doing house-to-house searches. Our station was doing nearly 24/7 coverage during the entire time these guys were on the loose. At night, we were broadcasting for people to turn on their lights in their backyards to help the police with the search.

The local coverage of that event, the local coverage of Baltimore, the local coverage on Saturday of the Oklahoma state accident is so much more in depth and personal and important in local marketplaces than what national news does.

You don’t think local news is fully appreciated by whom?

I think there is an underappreciation by some regulators.

And I take it that you believe these regulators are putting local news in jeopardy. How so?

I think nibbling at the area of retransmission consent is a problem. I think crossownership needs to be looked at. We are in a fragmented environment now. You asked me earlier about expansion. There are certain markets I would love to expand in, but I own newspapers in those markets. I am blocked because of the newspapers.

Look at network non-duplication. That is a critical component to protecting the economic viability of a local affiliate in a local marketplace. I think all these things that are being looked at need to be put to the lens of preserving the importance of local journalism.

I am concerned that we are going to wake up one day and say: What happened to those newsrooms?