Commentary
Stations, Pay Distributors And Some Networks Cry Poverty -- But Look Again
- by Wayne Friedman , Staff Writer, June 13, 2014
Maybe things are not going too well for stations or pay TV operators in small, rural markets. If you find a few bankruptcies out there, let me know and maybe we can find some blame. While you are at it, find a few employees at any of those entities making $7 an hour.
Stations are moaning, while cable companies and other pay providers are looking to change the game when it comes to retransmission fees and overall carriage of TV stations. Pay providers seem to want more choice – including perhaps the option of geting rid of those stations, or at least not paying as much for all of them. But they bring in a few viewers, right?
Maybe stations need to think more like cable networks and include some advertising inventory in their carriage deals. Hey, we know a fairly big percentage of local TV ad inventory goes unsold.
At the same time, stations are also upset that half of their retransmission fees go to their networks for all the fabulous programming that comes their way. The business formula used to be the other way around: Broadcast networks were loaded with cash and gave money to stations for being affiliates and helping to promote the networks a little.
If stations become unrestricted by participating in a “free market,” some believe they will find more innovation. They will also avoid Federal broadcast taxes, ownership limits, programming restrictions, and spectrum limitations.
Maybe that’s what they are waiting for. But the issue isn’t about getting out of poverty. At the same time, cable/satellite/telco providers are also crying financial foul, but not poverty.
The distributors can’t maintain their high crazy profit margins. Is that because they have to carry local stations -- or perhaps because they have to carry cable sports networks that continue to load up on ever bigger sports franchise rights fees, in turn asking for pricy subscriber fees from the providers?
You also have to consider the so-called “public airwaves” where broadcast stations are still somehow allowed to profit and to get protection from Federal regulations. “Public” means that U.S. citizens own the airwaves -- and gasp -- maybe some of the bounty as well. It kind of goes both ways: Cable operators were allowed to flourish as near monopolies in their early going because of municipalities’ efforts to promote wired TV services.
The networks and program producers are also part of this issue. Are any of them going out of business? ABC recently pulled its locally delivered digital network Live Well. But don’t worry too much: TV stations still retain all that local digital spectrum.
Wayne Friedman is West Coast Editor of MediaPost. You can reach Wayne at wayne@mediapost.com.
Interesting piece, Wayne. During the first 40 years of television the typical broadcast TV network made a 5-7% pre-tax profit while its owned and operated TV stations, with much smaller ad revenue bases but located in the largest markets, earned 30-40% profits. Also, the broadcast networks made almost all of their profits from their daytime and late night operations, not prime and certainly not sports. As for the stations, those VHFs located in the top 50 markets garnered sufficient national spot dollars, coupled with local revenues to be quite profitable, however beyond 75 markets national spot spending diminished rapidly and FCC reports revealed that many stations located in such cities were money losers----which is why the networks paid them fees to air their shows. Without such incomes many stations couldn't survive no matter how well they did, rating-wise. As you indicate, times have changed. Now, the broadcast networks own very profitable cable channels, earn re-transmission fees via their stations, sell advertisers "digital sponsorships", make product placement deals and share in the syndication profits of producers whose shows they carry. In addition, their O&O stations are still doing well, financially-----though not at the super high profit levels of times past. Last but not least, the broadcast networks have dramatically increased commercial loads in their highest CPM daypart---primetime----and, as a result, the ABC, CBS, NBC troika are, for the most part, still profitable entities. My hat's off to them. They have adapted to rating fragmentation admirably. As for the stations, outside of the larger markets, many are, indeed, in a bind. With little or no signs of a resurgence in national spot spending in their areas, plus the fees they now pay for programming, many are cutting back on local news staffs---- but is this the solution? At this point, no one really knows. Can the stations increase traffic on their websites----and sell more ad time in these venues? Again, the issue is in doubt. The answer may lie, once again, in some sort of revenue sharing or bailout plan, with the national networks paying stations in smaller markets enough to keep them going.