By Mary M. Collins
Source: tvnewscheck.com, October 2023
Local stations need to question their assumptions about traditional revenue sources and set aside ample time for short- and long-range planning and developing multiple budget scenarios.
Stations and station groups preparing budgets and forecasts for 2024 and beyond need to step back and take a look at their assumptions. Local stations’ two major sources of revenue — retransmission consent and political advertising — are under serious pressure. This pressure is the result of shifting consumer habits brought on by changing technology and additional ways to consume content.
Retransmission Consent
Retransmission consent payments have been the opiate luring TV stations into complacency for more than 20 years. A 1990s federal legislative decision turned what had been what had been a compulsory carriage license for TV stations in a local cable system’s market area into a requirement that the two parties negotiate carriage agreements. After all, cable providers were already paying for channels such as CNN, MTV and Discovery.
Fast forward to the ’00s and stations with network affiliations were the only place for viewers to watch popular television offerings including American Idol, Grey’s Anatomy, Big Bang Theory, the Law & Order franchise, Saturday Night Live and the list goes on. Syndication deals brought favorites including Jeopardy and Wheel of Fortune to stations in just about every market. In addition, those stations offered award-winning national, international and local news, weather and sports reporting. None of this was readily available elsewhere.
Further, Nielsen reported that broadcast television channels consistently had the greatest share of viewership in the markets. If the cable operator, later MVPD (multichannel video programming distributor), wanted to include them in its video packages, there was a price to be paid. That price has grown to a mind-numbing percentage of total station revenues.
At the same time, stations and station groups, which used to count on local advertising income and network compensation payments to calculate total revenues, suddenly found themselves being charged for network programming — reverse compensation. As a result, each new retransmission consent negotiation seemed to include a request for a greater per-subscriber payment from the MVPD to help stabilize decreasing profit margins.
As the early September resolution of the channel carriage dispute between ABC/Disney and Charter Communications seems to demonstrate, MVPDs are putting the brakes on these payment increases. While exact details aren’t available, it appears that Charter will be carrying fewer of Disney’s linear channels and will have the right to include some of Disney’s streaming channels in its offering to subscribers. In return, Charter’s payments to Disney will be similar to what they’ve been in recent years. It’s important to note that Charter had threatened to drop all linear programming if the two groups couldn’t come to an agreement; it was no idle threat. With margins on linear content now in the nominal range, several smaller MVPD groups have already made the decision not to offer video programming packages.
Changing Value Of Broadcast Content
The discussions between Charter and Disney shone a light on what broadcasters already knew to be true. Networks are changing their content value proposition, while trying to hold their pricing. In some cases, new programs or new episodes of popular series now debut on the network’s direct-to-consumer streaming service before appearing on the network feed.
Consumers are aware of the switch; they are also changing the way they consume video content. Over the summer, it was widely reported that for the first time, linear TV viewership fell below 50% in July. Less than half of the reported 49.6% linear viewership — 20 percentage points — was attributable to broadcast television. Contrast that with reports from October 1995 when the drop to 40.5% of total viewership was news.
This trend is examined in recent research from TVRev. The data and the group’s conclusion are included in its new report, Local TV: Perils & Promises in the Age of Streaming. Using self-reported behavior from a sample of more than 60,000 respondents in June 2023, the authors observe that 63% of U.S. adults aged 65+, 52% of those 55-64, and 41% of U.S. adults in the 45-54 age range watch broadcast TV daily. For those aged 35-44 and 25-34, the results are 30% and 21%, respectively. It appears that younger viewers, who grew up with the on-demand and search capabilities of the internet, aren’t bound to their parents’ viewership habits.
When it comes to local broadcast television, the study’s authors report that news is most widely watched among all age segments and that weather is the most important segment in local news. Interestingly, “even among older demos, primetime broadcast is not a major reason to watch local TV, with only 34% of those over 65 reporting they watch primetime.” For those who think sports will save the day — this content is watched by only between 16% (ages 25-34) and 26% (aged 65+) of viewers.
Lowered Expectations For Political Ad Revenue In 2024 (And Beyond)
Political campaigns are already aware of these trends. That is why, despite AdImpact forecasting that 2024 political advertising spending will increase 27% from 2020 levels to $10.2 billion, it is predicted that television will see a smaller percentage of the total budget than it did in 2020. On the other hand, the company projects that streaming television and Spanish-language advertising will see spending increases.
Looking To The Future
It is clear that future local television businesses will not look like those of the past. Some stations and station groups are already acknowledging this and have begun establishing new channels of distribution for locally produced content. These outlets include on-demand streaming and deals for FAST (free ad-supported television) distribution.
One interesting example, recently profiled by TVNewCheck’s Michael Stahl, is WRAL+. This product, from Capitol Broadcasting-owned WRAL Raleigh, N.C., is separately run and programmed. Surprisingly, instead of taking the three years the company forecast it needed to break even, it achieved that goal in three weeks. The innovative group now offers the service as a stand-alone over-the-air channel, a radio station (using WRAL+ audio) and in some of its FAST channel agreements.
Local broadcasters will have valid concerns about how changes such as those made by WRAL, or other new approaches, will affect both revenue and expense categories. But, doing nothing should not be an option. I recommend setting aside ample time for both short-range and long-range planning and for developing multiple budget scenarios. Like it or not, what is working now will not be a viable business in the future.
Former president and CEO of the Media Financial Management Association and its BCCA subsidiary, Mary M. Collins is a change agent, entrepreneur and senior management executive. She can be reached at MaryMCollins1@comcast.net.
