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End Game

A few stories caught our eye last week. First, Sinclair announced plans to acquire the Bonten Media Group (and its 14 local broadcast stations) for $240 million. Second, NBC announced another new round of deals with its local affiliates to include their content in its online streaming deals with broadband pay-TV (BPTV) providers like Hulu.

What’s going on here? And what does it mean for the future of TV? Two thoughts.

1. Local Affiliates Cannot Survive as a Standalone Business
Over-the-air broadcasting used to be powerful, both as a technology and as an industry. Lots of experience during the first half of the 20th century taught the world that government takeover and control of the airwaves (i.e., radio and later TV) was part and parcel of all totalitarian regimes. Sadly, that’s still the case in North Korea and elsewhere.

Fear of government domination led to a fear of corporate domination. In the US, this led to the 1934 Communications Act, establishing both the FCC and the more basic principle of government regulation of broadcasting in the public interest. In 1975, this led to the FCC Media Ownership rules that prevented a single company from owning both the newspapers (such a powerful medium!) and local broadcasters in a single market. In their current iteration, these rules prevent any single station owner from reaching more than 39% of US households.

The media industry (correctly) sees these rules as hopelessly anachronistic for one simple reason. The problem with local broadcasting in 2017 is not that it’s too strong, but that it’s far too weak – dying even.

In a world of quantum viewing and TV-as-an-app, local linear broadcasting just doesn’t work very well as a business. The overhead costs are simply too large (compare the fixed costs to run a local TV station for a year versus the cost to run a podcast or YouTube channel), while the reach is simply too small. People in Kansas City, Missouri won’t watch local content from St. Louis (and vice versa), even though the two cities are in the same state and only 250 miles apart. By contrast, PewDiePie and Game of Thrones have fans all over the world (including both Kansas City and St. Louis).

Bottom line: Sinclair’s acquisition of Bonten Media, as well as its rumored buyout of Tribune Media, is a sign of weakness, not strength. Consolidation is the only scenario left for local broadcasters, and there’s no point in government trying to stop it. Concentrating ownership in the hands of a small number of owners will not turn back the clock to 1950, but it will be easier to make distribution deals with the national broadcasters and the BPTV companies, which brings us to our next point.

2. The Only Viable Path for Local TV Affiliates in the Broadband Video Space = National Networks + BPTV Providers.
The important thing to understand about streaming video is that it’s not about technology. Anybody can buy an encoder, point a feed at it, and throw a stream up on the Internet. That capability is commoditized. The challenge is how to attract, retain, and monetize an audience that results in a sustainable business. And it’s here where local TV stations are caught between a rock and a hard place.

Their brands remain a mishmash of local station names (i.e., WRAL, KOMO, etc.) and national brand affiliations (“the NBC station in Seattle” or “CBS in Atlanta”). The former have lost much of their meaning, while the latter brands don’t belong to the local affiliate at all.

Their content rights are equally confusing. Local TV stations cannot stream their full broadcast feeds online because it’s not their content and they don’t have the rights to it. As a result, local affiliates have been shut out of the broadband video ecosystem and reduced to building traffic-and-weather websites that mimic those of the remaining local newspapers in their market. Going it alone is not a legitimate option.

The only path, then, is for the consolidated station owners to cut deals with the national broadcasters (NBC, ABC, CBS, and Fox) to include their local feeds/content in the new deals being struck with the BPTV providers (i.e., Hulu, YouTube TV, DirecTV Now, PlayStation Vue, Sling TV, and Verizon’s upcoming offering). This needs to include both direct distribution and authentication rights from the BPTV service back to the national broadcaster TV Everywhere apps. There are signs of progress in this area — with NBC showing some real leadership to try and make this happen –- but not nearly enough.

Bottom line: The BPTV providers all say they want local content, but none of them are going to let the lack of it stop them from going to market. The message to the local broadcasters across the board is clearly, “We’re doing this with you or we’re doing this without you. You pick.”

The local TV broadcasting industry in the US has reached the end game. It’s change or die. Period. Consolidation via M&A cannot happen soon enough. When it does, the remaining station owners need to run (not walk) to the negotiating table and cut distribution deals with their brand parents and BPTV providers.

Stick with TDG and stay ahead of the curve.

Joel Espelien is a Senior Advisor for TDG and serves as an advisor and Board Member to technology start ups. He lives near Seattle, WA.