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Local TV stations face Net threat
Network affiliates watch prime-time content like Fox’s 24 go online and wonder where they fit in.
By **** Sandoval
Staff Writer, CNET News.com
Published: April 17, 2007, 4:00 AM PDT

Local TV stations face Net threat

LAS VEGAS–The Internet is the cause of much fear and loathing here at this gathering of broadcasters.

Some attendees of the National Association of Broadcasters conference this week are worried that local television affiliates will be the next business species to be endangered by the Internet.
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Local television affiliates are watching prime-time content like Fox’s 24 go online and wonder if they’re the next business species to be endangered by the Internet.
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The Web could give networks even more clout when cutting deals with their affiliates. But the news isn’t all bad: The overall industry is continuing to grow, and the switch from analog to digital could mean a big payout.

The warning signs are ominous for local TV outlets. Last month, NBC Universal and News Corp., parent company of Fox Broadcasting, helped establish a new online video network that will distribute full-length movies and TV shows across some of the top Internet portals. CBS announced its own video network last week.

Is there a place in this direct-to-consumers business model for local TV stations?

“Plenty of people are worried,” said Richard Jones, general manager of Bay City Television in San Diego, which oversees the Fox affiliate in San Diego. “It’s still so new nobody knows for sure what’s going to happen. But there is some real concern about shows that have been seen a lot of times on the Web and whether it will affect ratings.”

The pressures building on affiliates hit home for Jones on a recent flight when he noticed the man sitting beside him was watching Fox’s 24.

“He told me he missed the show during the week so he downloaded the episode on his iPod,” Jones said. “He wanted to get caught up by the time Monday’s new episode aired. That’s what we’re dealing with.”

Certainly, the outlook for regional broadcasters appeared troubled long before the Web. Over-the-air broadcasters have been challenged by cable and satellite distributors for decades and for the past five years by DVD sales. The Internet is just the latest technological threat to come along and carve another slice from the $75 billion market for TV advertising.

It may also be the worst. A long list of rivals–mobile carriers, Apple, Joost, YouTube, NetFlix, TiVo, Sling Media and others–are all offering audiences alternatives to traditional broadcast TV. And most of the newcomers can offer features like on-demand viewing.

Two decades ago, it was a different story. Affiliates wielded much more clout because the networks needed local stations to promote and broadcast their shows around the country and paid dearly for that. The affiliates also represented a bustling market for reruns.

Now some wonder whether the Web gives networks even more clout when cutting deals with their affiliates.

“It’s a question of leverage,” said Doug Wills, a former spokesman for the NAB, who is now a marketing executive for Redback Networks, which offers video-centric routers. “Virtually all the networks have announced broadband offerings in the last year. There is no question that within 10 years people will be getting high-quality video from the Web. The temptation is probably there for the networks to ask their partners to pony up more money.”

Calls to CBS, ABC and NBC were not returned Monday.

Among the nation’s top four networks, Fox has shown the most willingness to cut its affiliates in on Internet revenues. Last month, Fox announced a landmark plan to distribute shows such as 24, Bones and Prison Break to the Web sites of 200 affiliates. Fox will also share ad revenue generated from the online offering.

Some local broadcasters, however, are trying to be creative as they confront Internet challenges.

Diane Sutter, CEO of MyTv, which operates Boston’s Channel 50, has asked viewers to produce their own TV shows; her station will broadcast the best.

“It’s silly to focus on which formats or mediums are better,” Sutter said. “We should be focusing on enhancing viewer experience using broadcast, Internet, podcasts and whatever else we can.”

The news isn’t at all bad for local affiliates. The overall industry grew by 8 percent last year, and many are expecting continued growth this year. The switch from analog to digital signals could also represent a big payday for local broadcasters. In March 2009, broadcasters must switch to digital signals, and some local affiliates may find a market for the spectrum they own but don’t use, said Steve Carlston, managing partner of VegasTV Partners, the parent company of KTUD in Las Vegas.

“It’s kind of a burgeoning territory,” Carlston said. “People have said cell phone companies as well as others may want our extra space. It’s still early and we haven’t made it the highest priority, but we’ll definitely start taking a good look at the potential market soon.”

Could the next big push from broadcasters on Capitol Hill surround their desire to obtain multicast must-carry mandates for cable?

During his opening address to attendees at this year’s National Association of Broadcasters convention in Las Vegas, NAB President and CEO David Rehr said the group has started to take its multicast “message” to Congress, and that the effort has “been well received” by lawmakers.

In his speech Monday, Rehr also took on cable industry assertions tied to multicasting, in which digital TV spectrum is split into multiple streams.

“This is not a case where the pie is only so big and we want to eat the cable companies’ slices,” said the NAB executive. “Through the magic of compression technology, we are making the pie bigger by adding extra slices, extra programming. The cable companies intend to strip out our new programming because we’re in competition.”

Rehr added, “We’re not asking to take someone else’s property or programming. We’re simply asking that the cable companies not take ours. We’re simply asking that they do not take the anti-competitive step of stripping out our signals.”

And, as expected, Rehr criticized the proposed merger between XM and Sirius, a $13 billion deal still awaiting the regulatory OK. He said the transaction will not win approval.

“In 1997, when the Federal Communications Commission authorized two nationwide satellite radio operators, it specifically prohibited them from merging,” Rehr said. “The bad business decisions of XM and Sirius should not be rewarded with a government bailout in the form of a monopoly.”

In an admittedly “skewed” letter to the Federal Communications Commission, a high-profile Clear Channel Radio executive voiced opposition to the proposed $13 billion merger between Sirius and XM. Last week, the FCC’s Deborah Tate received talking points against the proposed merger in an attempt to influence the commissioner with the company’s position on the proposal.

According to PublicIntegrity.org, Clear Channel Vice President Thomas English wrote three possible responses aimed at helping the commissioner resolve previous statements in favor of relaxing media ownership limits. In the letter, English asks Tate how she “reconcile(s) your past recognition of all the entertainment options like iPods, internet radio, satellite radio, etc. available to consumers as one of the reasons for relaxing local radio ownership rules with your present concerns with a merger of XM and Sirius being a monopoly?”

Answering his own questions, the Clear Channel VP admits that the responses provided “were composed by our Government Affairs folks so they might be a little skewed toward our specific goals.”

In a strange tactic, English wrote three answers in the first person beginning with: “My position opposing the XM/Sirius merger and supporting a significant relaxation of local radio ownership rules is completely consistent with my primary guiding principle: avoid government action that seriously distorts the marketplace.”

English went on to write, “My main concern is how can free radio survive when a combined XM/Sirius would control more spectrum in every market in the country than the entire AM/FM band combined?” The exec also wrote, “I consistently oppose a regulatory system that would disadvantage free, terrestrial broadcasting.”

One major issue with English’s letter is that by law, anyone who wishes to communicate with the FCC in a formal proceeding must file an ex parte presentation – a procedure that documents outside parties’ communication with the agency. A spokesperson from Tate’s office said it is unknown why Clear Channel submitted talking points to the commissioner and disregard standard procedure.

The Senate Commerce Committee will be holding another hearing on the proposed XM/Sirius merger today at 10 a.m. ET.

The National Association of Broadcasters continues to bombard members of Congress with anti-merger sentiments as Sirius and XM prepare to move forward as a unified company. In the latest round of attacks, NAB officials sent two new documents to congressional staffers highlighting more opposition to a merged satellite radio entity.

The first document NAB said opposes the merger came from Philip Napoli, director of the Donald McGannon Communication Research Center at Fordham University. In his report, Napoli claims “the public interest remains better served by the preservation of competing service providers seeking to provide the best possible service at the lowest possible price.”

Also jumping on the anti-merger bandwagon is former Federal Trade Commission chair James Miller, who wrote in an opposition letter that “the merger of XM and Sirius would be contrary to the public interest.”

Satellite radio executives responsible for testifying on behalf of the merger have repeatedly said consumers would not be harmed by the deal and that the marketplace will dictate the price of services. Although the proposed merged company has speculated that it would create a higher-tiered programming package, officials have noted that current subscription rates would remain after the deal is complete.

A company that manages internet services for subscribers from many national telco providers said the majority of Americans would replace their satellite or cable TV service with internet-based television if they could get the same channels.

Redback Networks, an Ericsson company, sponsored research by national pollster Zogby to find out how Americans use broadband services, internet-connected mobile devices and what video services they would pay for in the future. According to the internet company’s commissioned poll, not surprisingly, just more than half (53 percent) said they would replace their cable and satellite services with broadband TV.

According to SkyREPORT’s sister weekly publication The BRIDGE, telco TV currently has an estimated .5 million subscribers – or roughly .52 percent of total pay-TV market share. With cable and satellite providers combining to dominate the market with nearly 95 percent penetration among pay-TV subscribers, it would seem broadband-delivered video services have a long way to go.

Other findings from the poll include: 88 percent believe video cell phone calls will become a reality within five years and 64 percent of parents would subscribe to mobile TV in cars to entertain kids. Despite 53 percent responding in favor of a broadband TV service, 74 percent believe a video-centric internet may be more dangerous for children.