Harry Jessell

[Commentary] When Tom Wheeler took the reins at the Federal Communications Commission, the thought was that he would side with the cable operators he used to represent. Well, Chairman Wheeler didn't on retransmission, opting not to put in place regulations that would have hobbled broadcasters' ability to negotiate for fees. Yes, Chairman Wheeler was chief spokesman for cable in the 1980s, but he has proven to be no cable guy.

A Q&A with Sam Matheny, new executive vice president and chief technology officer of National Association of Broadcasters.

Matheny said he’s trying to identify the major trends and threats so broadcasters can stay competitive. Among items on his plate: working with ATSC and broadcasters on the development of a next-generation TV that has to be robust enough -- and flexible enough -- to serve the needs of any broadcast business plan.

“Part of my job is really going to work with all broadcasters and have them feed into the NAB TV technology committee as well as the ATSC so that we can move together as an entire industry, not just parts and pieces,” Matheny said.

[Commentary] The latest retransmission reform plan advocating an a la carte system of payment by cable subscribers for broadcast channels – Local Choice -- would harm broadcasters and I'm not sure it benefits anybody other than some small cable operators.

A better solution is for Congress to pass a law saying that if pay TV operators and broadcasters cannot agree on a retransmission fee, the matter would be settled by so-called pendulum arbitration -- just like in baseball.

The Copyright Office has shot down Aereo's attempt to recast itself as a cable system that may retransmit broadcast signals to paying online subscribers with the benefit of the cable compulsory license.

"[T]he Office does not believe Aereo qualifies for the Section 111 statutory license and will not process Aereo's filings at this time," says Copyright Office General Counsel Jacqueline Charlesworth in a July 16 letter to Aereo. However, because the copyright status of Aereo is still being litigated, the letter says that the Copyright Office will accept the Aereo filings on a "provisional basis" and withhold final judgment on processing them.

[Commentary] Desperate to save itself, Aereo is now rolling out Plan B. In the wake of the June 25 Supreme Court ruling that shot down its juvenile low-tech scheme for circumventing copyright law, the online distributor of local broadcast signals told the federal district court in New York that it wants to continue operating in a more conventional manner, with the cable compulsory license.

As required by law, Aereo said it is going ahead with the necessary paperwork with the Copyright Office. In making the case to the district court that it is a bona fide cable system entitled to the license, Aereo is relying somewhat ironically on the Supreme Court ruling that has pushed it to the precipice.

The problem with Plan B -- and evidence that Aereo is not ready to grow up and play by the rules -- is that it has still not acknowledged in any forum that it is willing to accept not only the privileges of being a cable system, most notably the compulsory license, but also the obligations, most notably retransmission consent and things like must-carry, network non-dupe, syndex and sports blackout. Without a commitment to pay retransmission consent, Aereo is simply playing the same old game, trying to skate by without paying for programming.

It's behaving like the ridiculous FilmOn, which has been claiming cable status for the compulsory license.

[Commentary] The way I see it, in closing the door on Aereo, the Supreme Court opened wide the door for the video distribution of broadcast signals by settling the question of whether online video distributors are cable systems.

Clearly, they are, the court says. So, in effect, an online video distributor that wants to carry a broadcast signal no longer has to worry about clearing copyrights of individual rights holders, including the rapacious sports leagues. It only has to get permission from the broadcasters.

[Commentary] One of the lessons that I have learned along the way is that you never really know what's going to happen when Congress or the Federal Communications Commission begins fiddling around with the laws and regulations that govern the TV business.

My favorite example is retransmission consent. Congress created the right in 1992 to strengthen local broadcasting. But what retransmission consent did was strengthen cable as multimedia companies like NBC, Fox, Hearst and Scripps used it to secure cable carriage for cable networks that siphoned off broadcast viewers in ever larger numbers. It wasn't until pure-play broadcasters like Nexstar and Sinclair began demanding payments in the mid-2000s that retransmission consent began fulfilling its original purpose.

If Sinclair's response is the most surprising, Nexstar's is the most significant. Its deal with Marshall could set a precedent under which other minorities could team up with established broadcasters and actually bring some new voices into local TV. In announcing the deal, Marshall talked about a "new paradigm."

The Nexstar-Marshall deal is basically something I had proposed recently when it seemed likely that the FCC would move against JSAs and SSAs. It's a potential win-win. The broadcasters get to amortize costs and enjoy extra revenue from close partnerships with other stations in markets and the FCC gets want it has long claimed it has wanted -- diversity of ownership.

The FCC will closely scrutinize the deal and it should. Even the National Association of Black Owned Broadcasters has raised serious questions aimed at making sure that Marshall maintains its editorial independence.

[Commentary] There is a new way of looking at spot that strips out the up-down effect of political advertising that makes broadcasting look to casual investors as volatile as a penny stock for a South American mining company.

Mark Fratrik, the chief economist at BIA/Kelsey, continuously averages spot growth (or decline) over four years. By doing so, he explained, "the impact of two election years (one presidential) and two non-election years are incorporated" in any review or forecast.

So, what did Fratrik's arithmetic reveal? Basically, that spot is growing at a 3% or 4% clip and will continue at that pace for at least the next several years. If Fratrik is correct, spot revenue is bumping along at about the same rate as real GDP plus inflation. That's not terrible, but that's not great either. That's certainly not the kind of growth that broadcasters expected in the good old days and it's not the kind of growth that will attract outside investors or cause a spike in station values. According to SNL Kagan, the TV station trading multiple has been stuck between 7 and 8 for the past few years now.

SNL Kagan’s spot forecast is even stingier than Fratrik's, mostly because it does not see much growth in local spot. Between 2014 and 2018, it says, local will grow just 6.5%. With the slow-motion collapse of newspaper publishing, most broadcasters think local will grow much faster than that. But broadcasting is no longer dependent on the single revenue stream. Over the past decade or so, it has been able to develop two other important streams -- retransmission consent fees and digital media. Retrans is more than a mere stream now. According to SNL Kagan, it has grown from $200 million in 2006 to $3.3 billion in 2013. In 2014, according to the research firm's forecasters, it will jump 30% to $4.3 billion and from there another 76% to $7.6 billion in 2019.

Digital is a trickle by comparison. Even in 2018, Fratrik says, it will still constitute only 5% of the industry revenue, although broadcasters more attuned to exploiting new media will do much better than that average. But what digital lacks in share of revenue, it makes up with in growth. Fratrik says that it will grow 10% to 12% a year for the next four or five years. In a perfect world, I would note, that would be the growth rate of spot.

TV broadcasters’ retransmission consent revenue will come in at $4.3 billion in 2014 and continue to grow at a brisk pace, hitting $5.1 billion in 2015 and $7.6 billion in 2019, according to the latest analysis from SNL Kagan.

According to the research, retransmission revenue is also becoming a rapidly growing share of station group’s total revenue. Among the 18 groups covered in the research, the share ranged from 24% (Meredith) to 10% (Scripps) in 2013. Others getting more than 20% of their revenue from retransmission include Sinclair (24%), CBS (23%), Fox (22%), Nexstar (20%), Allbritton (20%) and LIN (20%).

The research also found a broad range of retransmission revenue on a per-subscriber, per month basis. In the fourth quarter of 2013, Sinclair was at the top, earning $1.07. Right behind were LIN ($1.06), Fox (96 cents) and Meredith (96 cents).

Despite the growth, what broadcasters receive from multichannel video program providers will continue to be dwarfed by what basic cable networks and regional sports channels receive, the research says. Retransmission will amount to only 10.5% of the cable programming fees in 2014 and 11.4% in 2015.

Historically, broadcast TV's biggest foes have been cable and newspapers, but now there seems to one more major adversary: wireless operators.

Wireless has been lusting after broadcast spectrum, supporting the Federal Communications Commission's incentive auction. That's even more threatening since the auction push is headed by FCC Chairman Tom Wheeler, the former wireless trade association chief.

Now, with Verizon's nascent LTE Multicast service, it's also planning on making a direct play for TV stations' audiences as well.