WHY WE’RE BETTING ON BROADCASTING

As we set out to build a Website for TV broadcasters, we ran into naysayers who thought that it was a bad idea to tie our fortunes to the segment of the TV business that they felt had seen its best days and was slowly fading into media oblivion. Why not cable? Or mobile video? Or Internet video?

We brushed aside such talk. TV broadcasting is a healthy business. Stations in large and mid-sized markets still boast high margins and the sale prices of such stations remain solid. It’s an even-numbered year. That means the politicians will pour hundreds of millions of dollars into station coffers. As Andy Grossman’s column suggests, the campaign dollars will be spread widely across many stations in many states. Spot will grow 7%-8% to $28 billion in 2006.

Now it is true that spot advertising in a slow-or-no-growth business. Once you factor in those odd-numbered years, spot bumps along at an annual growth rate of a few percentage points. Not too exciting. It explains why nobody buys TV stocks anymore.

But we adopted TV broadcasting not because of the spot business, but because of the other growth potential we see. First off, there is the Web. Broadcasters are finally getting serious about turning their Websites into vital local services and revenue generators. They are tired of watching the local newspapers and operators like Craig’s List walk away with all the cash. A TVB-commissioned study by Borrell Associates says that stations’ Web revenue doubled last year and will grow another 28% this year. TV stations have something to offer on the Web that their local competitors don’t—video, lots of it. That gives them a leg up.

All the major TV station groups will be represented at NATPE this week and they should be. NATPE chief Rick Feldman has put together a smart, forward-looking agenda that’s filled with talk about mobile video—that is, cellphones and other hand-held devices that display video. They’re great new platforms. The companies that control the platforms will be out in force at NATPE looking for content. And who better to provide the local content than broadcasters?

And isn’t it interesting that the media world is hot on the idea of wireless—complete mobility—text, audio, video, wherever you want it? After three decades of hearing about the wired nation, everybody is suddenly excited about breaking free of the wires. Broadcasting is the original wireless medium, of course. If broadcasters can fix their digital signals to make them more rugged—admittedly a big if—they may one day find themselves on the leading edge of a powerful consumer trend. They may be able to deliver content to handhelds without the help of wireless phone companies or other intermediaries.

And then there is the Case of the Two Perrrys. The first Perry is Perry Sook, the entrepreneurial consolidator of small-market TV stations who has apparently cracked the retransmission consent nut. Sook’s company, Nexstar, fought the retransmission consent battle in 2005 and, according to industry analyst Victor Miller, it’s going to pay off for him. Miller says Sook will net about $8.6 million from his deals, more than offsetting the anticipated loss of $3 million in network comp. Miller calculates that Sook is getting an average of 11.5 cents per cable sub for each of his Big Four affiliates. Follow Sook’s lead and battle for retransmission consent dollars. Maybe you’ll get an “outperform” rating from Miller, too.

In the retrans wars, broadcasters may soon be able to play off telephone companies against cable operators. The telcos are saying they want to offer TV in competition with cable. We’ve heard that before, but this time it sounds like they mean it. They have to do something. They know there is no upside in telephony anymore.

The other Perry is Jack Perry, of Decisionmark, who has come up with a way for local broadcasters to cut themselves in on the networks’ plans for selling primetime TV shows via the Web. The idea is for broadcasters to become local marketers of the shows and to distribute them over their own Websites. Broadcasters would only sell to broadband consumers within their coverage area. Perry has software that identifies who they are. You can read all about it in in the yesterday’s New York Times. (By the way, the Times story quotes Jim Goodmon, the CBS affiliate in Raleigh-Dunham, N.C. Broadcasters everywhere should watch what Goodmon does and do as he does.)

Broadcasters will also continue to benefit from computer-based production technology that allows them to operate with ever-greater efficiencies. Every year, it seems, they can produce more news with less. If the new president of the NAB is as sharp and able as he seems, broadcasters will win some relief from duopoly restrictions in the small markets. If they do, they will be able spread costs across multiple stations, save money and improve newscasts.

Is that enough broadcasting upside for you? It is for us.