More TV Shared Services Seen to Deal with Ad Downturn
Joint services, marketing and other deals between TV stations probably will keep spreading as an important way to deal with plunging advertising revenue by reducing costs, said veteran executives we surveyed. The pacts will continue to make financial sense, even as the industry recovers from the recession, by spreading costs for news gathering, running equipment and paying electric bills across stations in a market, five executives said. An opponent of a recent deal by three stations in Honolulu (CD Oct 26 p11) agreed that there seem to financial benefits to the arrangement. But opponents warned of regulatory risks.
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Shared services agreements, local marketing agreements and local news sharing allow TV stations to keep airing as much news as they have been, the executives said. Since FCC broadcast-duopoly rules bar many station mergers, such arrangements offer an alternative way to reduce costs, they said. “What does a server care who owns the stream going out of it?” said Vice President of Technology James Ocon of Gray TV, which runs 36 stations. “It’s a more efficient use of power going out of the power grid. If they can share facilities, it will cost less to operate the facility. And as the recent bankruptcy rulings will note, it’s a real problem with stations. This is a matter of survival for these guys, and it just seems silly to me to have this rule” against duopolies in smaller markets.
“There are an awful lot of broadcasters out there that are in an awful lot of stress financially,” said Chief Technology Officer David Folsom of Raycom Media. “Having them go dark is not in the best interests of anybody.” The company owns 46 stations, including two of the three in the Honolulu shared services agreement being challenged at the FCC. Without shared services and other joint arrangements, “the cost of business will get to the point where the content will be diluted or the viewer will be unserved in some fashion,” he added. “The best way to prevent that and to keep the multiple voices strong is to … allow for these things to go on.”
Shared services deals are “obviously a reflection of the lousy advertising marketplace and also the whole secular changes in local television in terms of the competition it faces” from other media, said Vice President Mark Fratrik of BIA/Kelsey. “I don’t think it’s just this particular down time … It’s the challenges that the local television stations face, especially in the smaller markets where they're not able to form duopolies because of the local ownership rules.” TV station ad sales are forecast to fall 20 percent this year to $16.1 billion, according to BIA/Kelsey, an industry researcher and investment banking firm. Revenue is forecast to rise 0.6 percent next year. That compares with 1.13 percent average annual growth 1998- 2008.
Some public interest groups see risks to future deals. Raycom and MCG Capital, parties to the Honolulu deal, “proceed at their own risk -- the FCC Media Bureau has requested more information” from the companies, said Gerald Kato of Media Council Hawaii. He provided a copy of a Friday letter from the bureau seeking details of the deal. The group contends Raycom Media, the owner of KFVE and KHNL, is gaining de facto control over MCG’s KGMB. “We certainly believe that there are antitrust implications because of how the shared services agreement is set up here,” Kato said. “I don’t doubt that it’s cost savings. … You're paring down your work force. In this particular case they've gotten rid of one whole newsroom, they're consolidating their technical operations into one building.” That the Justice Department made Raycom sell WTVR-TV Richmond, Va., after the company bought WWBT there shows “such transactions are not always successful,” he said.
That’s not stopping broadcasters. “Gray has not done any [shared services deals], but we're looking at it,” said company President Robert Prather. “I think it’s definitely something that’s coming for the whole industry.” Top-rated TV stations in each market have historically been reluctant to enter deals with less-popular ones, thinking it would help the competition, said another executive. But he predicted additional deals. “We have so many strong number one stations that it’s been hard to find a number four station in a market that we can actually do something,” Prather said. Since “surprisingly, the market leader is not the station that is the strongest financially” in some cities, top-rated stations sometimes enter the deals, Folsom said. Other arrangements involve multiple markets, he said.
Executives offered mixed reviews of the success of news- sharing accords. “This has been tried and there has only been limited success where the news sharing works well,” Ocon said. “I think that newsrooms want to keep their integrity. It’s dangerous to share your news, but you can share the computer that ingests the news.” There’s no “problem with the theory of it or even the viewer perception of it,” Folsom said. “The reason some of these haven’t worked out very well is the execution.”
“Even if the net amount of news remains the same -- and I am not aware of any studies that it does -- it is the same stories, with the same reporters,” said Professor Angela Campbell of the Georgetown University Institute for Public Representation, representing Media Council Hawaii. “Although some argue that sharing news coverage can free up resources for more in-depth reporting or covering different stories, in most cases, the cost savings comes from firing news staff. … With less competition between local stations, reporters have less incentive to ask tough questions, seek out different viewpoints, or spend time developing a story.”