Local Stations Multiply
In Pittsburgh, local broadcaster WPXI offers viewers classic TV shows like Hawaii 5-0 and I Love Lucy, as well as round-the-clock local weather, but they're not on the Cox Broadcasting-owned station's schedule. Rather, WPXI, an NBC affiliate, offers these services on secondary digital channels it owns and operates. On one channel, WPXI carries the Retro Television Network, a classic-TV channel, and, on another, a hyper-local weather service it operates with NBC called NBC Weather Plus.
With its digital channels, “We are trying to offer things that aren't already out there in the market,” explains General Manager Ray Carter.
Across the country, local broadcasters are experimenting with a new way to reach viewers. About a quarter of the country's full-power local TV stations have launched a second or third channel on their digital spectrum, according to industry estimates. More are expected to sign on as broadcasters complete their upgrade to digital by the government-mandated Feb. 17, 2009, deadline to cut off analog transmission.
To date, the National Association of Broadcasters estimates that about 1,600 of the country's 1,760 full-power stations have made the digital transition. One feature of digital broadcasting is it allows stations to transmit multiple programming feeds on their bandwidth. While the bulk of a station's digital spectrum is allocated to carry a standard and a high-definition feed of its primary network, such as NBC or ABC, most broadcasters have room left over to launch two or three additional channels. Stations could also use the leftover spectrum for broadcasting mobile video or sublease it to another programmer.
As the February deadline approaches, more stations are looking to launch secondary channels. At the recent National Association of Program Television Executives conference, station executives were on the hunt for programming options. They found that the choices are quickly multiplying, though only a few services are on the air.
To court niche audiences, some stations are affiliating with new networks like RTN or LATV, a bilingual channel aimed at young U.S. Hispanics. In many markets, NBC outlets have launched Weather Plus, and forecaster AccuWeather has a rival weather service. In markets where there are only three or four full-power stations, some owners like Gray Television are using digital subchannels to carry The CW or MyNetworkTV.
“You have to look at what niche is your particular market and how you can best serve it—not every market needs a fifth weather channel,” says Meredith Broadcasting Corp. President Paul Karpowicz.
Still other local broadcasters are launching homegrown services. In New York, NBC-owned WNBC created a channel called 4.4 that offers news, New York-themed entertainment shows and less-publicized local sports events, such as Rutgers University women's basketball games. Clear Channel-owned KTVX Salt Lake City created The Hive, a hyper-local entertainment outlet that carries sports, viewer-created content and a local morning radio show.
“These channels need to be unique offerings that people see as destination television they can't get anywhere else,” says Rick Keilty, executive VP for station group Belo Corp, which is considering Spanish-language services, the Retro Television Network and .2, among others.
At a time when the broadcast business is struggling, digital channels represent a possible new source of cash. Advertising spending on local TV slipped 9.5% last year to $16.9 billion from $18.7 billion in 2006, according to the Television Advertising Bureau. At the same time, broadcasters are fighting to hold onto their audience share. With digital channels, broadcasters say they can reach more viewers and get existing advertisers to spend more, as well as court clients not currently buying TV time.
“Broadcasters have started to look at their increased spectrum like unsold condos,” says Starrett Berry, VP of affiliate relations for LATV. “Every day that the space is unoccupied is a day they are losing opportunities to generate revenue.”
Digital “multicasting”—the ability to transmit multiple services—has been touted as an upside for broadcasters that have invested heavily to upgrade to digital technology, at a total cost of more than $6 billion, according to Harris Corp. One way for stations to monetize their investment, broadcast execs say, is by selling ads on the new channels. In a market where a station owner has a duopoly, it could in theory launch up to six new digital channels. Still, no significant revenue is expected for at least three years, say some stations.
Of course, broadcasters face several major obstacles to building new services. They need programming to fill the airtime, and they must dedicate promotional and sales resources to build the new digital outlet. Even then, their efforts reach a limited pool of viewers. To watch a digital broadcast channel, a viewer must have a digital-enabled television set or receive the channel on cable—only possible if the broadcaster has a carriage agreement for the channel with its local cable operators.
Broadcasters have pushed for years for the FCC to pass a “digital must-carry rule” requiring cable companies to pick up all of their digital signals. However, current FCC policy only mandates cable operators to transmit a primary signal. That leaves stations to negotiate for carriage just like any new cable network, and many are using their retransmission negotiations—where they have bargaining power to ask cable companies for something in exchange for their primary signal—as a way to get their new secondary channels on cable.
According to Harris Corp, 57% of broadcasters say they see multicasting as the most viable new business opportunity for the industry, ahead of station Websites, interactive TV and local mobile video.
That optimism is fueling the launch of nearly a dozen new programming services. Some are further ahead in the process than others. RTN is currently available in 70 markets, including well-established outlets like WSB Atlanta and WJLA Washington, D.C. The network offers a customized programming feed to each station, allowing it to insert local news and programs. For example, in the Raleigh-Durham market, affiliate WRAZ inserts Durham Bulls baseball games. Buffalo, N.Y., affiliate WNGS carries New York Yankees and Mets games.
From its headquarters in Little Rock, Ark., the network can even create branded local news and weather spots for its affiliates. “We want broadcasters to be able to flex their local muscle with news and sports,” says executive VP Mark Dvornik. “That will make them more powerful as our partners.”
One challenge for RTN, however, has been clearing its programming in markets, since some classic shows are under contract by other stations. For now, the network buys individually for each market. As the network grows, Dvornik says RTN will move to a cohesive schedule.
Another new venture, movie network .2 (pronounced “dot two”) is also playing up its local opportunities. The service, which features several movies per day, is in testing on parent company Guardian Enterprises' independent station in Columbus, Ohio. The national launch is slated for July.
So far, .2 has deals with Sony Pictures Television and MGM, and is negotiating with other suppliers. Plans also call for original programs from Guardian's TV studio.
Network President Richard Schilg says .2 is designed to be a low-cost, low-hassle foray into digital broadcasting. If they want, stations can simply pick up the network feed and hold off on any local elements until later: “Stations never have to touch it if they don't want to. We are a very economical alternative to build audience and traffic for a while and let consumers catch up with the technology.”
For affiliates that do want to localize, .2 will offer two hours a day for preemptions, and stations can sell local ads. The network also plans to offer a revenue-sharing plan for three years in which stations get a 30% cut of revenue from paid advertising that airs overnight.
Still other services are targeting niche audiences. There are at least three multicast networks aimed at Hispanic viewers, led by Los Angeles-based LATV. The network is targeted at young, bilingual Hispanics and has been on the air for several years on L.A. independent station KJLA. Several years ago, it set its sights on a national rollout via multicast. So far, LATV is carried in 20 markets and aims to reach the top 30 Hispanic markets.
The network is riding a wave of momentum with distribution. It recently signed Cox-owned KTVU San Francisco, a top 10 market. The Post-Newsweek station group is now a minority investor and launched LATV in five of its six markets, including top Hispanic markets Houston, San Antonio and Miami-Fort Lauderdale.
Station executives say LATV is particularly attractive for multicast because an English-language station can use LATV to court Hispanic viewers and advertisers it doesn't reach on its primary station. In Miami, WPLG General Manager Dave Boylan says he's been pitched by several multicast networks, but opted for LATV to compliment the Post-Newsweek-owned ABC affiliate. “We were looking for something that would be additive and didn't overlap with our main channel,” he says.
Despite the network pitches, some stations are opting for local channels. In Los Angeles, NBC-owned KNBC last fall launched 24/7 newschannel News Raw.
With News Raw, KNBC aims to go deeper than it—or any of its competitors—can go in 30-minute newscasts. “We're trying to offer things that are not in a traditional, hierarchal newscast that is limited by time and the broad audience we serve,” says VP/ News Director Bob Long, the architect of the channel.
So, for example, on Super Tuesday, News Raw featured round-the-clock election coverage. The station is also trying new techniques with News Raw, including a “news jockey” named Mekahlo Medina instead of a traditional anchor. Armed with a hand-held camera, Medina shoots his own pieces. His reports are part of three hours of live daily coverage. The channel also airs KNBC's morning news meetings and a feature called News Raw Backstory, a long look at a top story of the day.
The area's main cable company, Time Warner Cable, added News Raw to its digital lineup last December, making the channel available to 1.3 million viewers.
So far, aside from Weather Plus, none of the startup digital multicast networks has signed a deal with a network owned-and-operated group. Without O&Os, say analysts, multicast networks will have difficulty penetrating many large markets, such as New York, Los Angeles and Chicago, unless they get on secondary affiliates, such as a CW station, or independent stations. They need big markets to bolster ratings and national ad sales.
For now, multicast channels won't be measured by Nielsen Media Research, the currency for the TV ad sales business, until they build distribution and viewership. Nielsen does not measure a local station until it reaches a viewing threshold of a 0.5 rating in its market. The ratings company is technologically capable of measuring digital television stations. Nielsen participants would record them in diaries or on meters, as they do any other station. So far, however, the only digital subchannels with enough viewers for ratings are a handful of CW or MyNetworkTV affiliates carried on digital.
“Three years from now, these channels will have ratings, and stations can sell on a spot basis and regional and national advertisers will want in,” says station consultant Chip Harwood, managing partner of the Princeton Media Group. “Until then, broadcasters need to use the strength of their main channel to build the awareness.”
Without ratings, these channels are largely a concept sell. For now, some stations are packaging digital channels with ad sales for main affiliates or throwing spots in as bonuses. Others are approaching first-time TV advertisers who never advertised on local TV, either because it was too pricey or not targeted. Down the line, stations see opportunities for longform ads and product integration, which are not always possible on their main channels or in newscasts.
As stations pitch, media buyers say awareness is slowly building for new channels. To date, Sue Johenning, Executive VP/ Director of Local Broadcast for Initiative Media, has only dabbled in digital broadcast channels, mostly in packages with main stations. But, she says, that could change as services develop. “If you are very targeted, advertisers may be interested,” she says. “I like the idea of localizing these channels with sports or for a region, like Long Island rather than the whole New York market.”
But, she cautions, “We have to go slowly as these get awareness from viewers and advertisers.”
Several proposed networks, including automotive-themed channel Motor Trend TV, were unveiled in recent years but have not launched. Perhaps the most high-profile flame-out was The Tube Music Network, one of the first digital broadcast networks to get on the air three years ago.
The Tube aired live music and music videos 24/7 on local stations' digital secondary channels. The network fashioned itself as an easy entrée to digital broadcasting. Its programming was low-cost, including videos often provided free by record labels as promotional vehicles. The Tube signed up three major station groups—Raycom Media, Tribune Broadcasting and Sinclair Broadcast Group—and nabbed clearances in top markets, claiming nearly 20 million subscribers at its peak.
The Tube allocated six minutes an hour to ad sales, giving one minute to stations, but it never sold any of its national advertising inventory, according to industry executives familiar with the business. The Tube's founder, Les Garland, did not return calls for comment.
In January 2007, Sinclair pulled The Tube off its stations, citing contractual disputes. In October 2007, the network folded. In recent months, three separate class-action lawsuits have been filed in Florida on behalf of shareholders alleging financial improprieties.
The Tube's failure has served as a lesson for many digital startups. “You have to have a plan to survive the startup years,” says LATV President Danny Crowe. “You need to control expenses and have realistic revenue projections.”
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