Broadcasters Don't Have To Guess About Consolidation

The broadcast TV industry doesn’t have to guess whether it’s moving toward consolidation. With last week's release of the FCC incentive auction procedures public notice, TV licensees even have a firm timeline for how it's going to happen. While it’s not clear where participation will fall on the continuum between the FCC’s largest Greenhill auction book projections and the most gloomy broadcaster predictions, most industry observers said some stations will be going dark and selling their spectrum and some portion of existing low-power TV (LPTV) and translators could be displaced. Some said that may hurt diversity -- and consumers' choice of programming available for free for those owning a TV and over-air antenna.

The auction will “thin the herd,” allowing surviving broadcasters to reap big rewards, said Expanding Opportunities for Broadcasters Coalition Executive Director Preston Padden in a July webinar. Broadcast industry officials in both the low-power and full-power TV industry have said they believe the auction will mainly wipe out the smallest broadcasters, lessening the diversity of voices in broadcasting. Nearly everyone interviewed conceded that any guess on what TV broadcasting looks like after the auction hinges on one thing. “It all depends on who participates,” said broadcast attorney Jack Goodman.

Even longtime critics of the incentive auction such as Sinclair have joined other large companies such as CBS in publicly declaring interest in participating. With some of the largest broadcasters throwing their hats in, the auction still may not make enough of a dent in the broadcast TV industry to make an appreciable difference in its level of consolidation, BIA/Kelsey Chief Economist Mark Fratrik told us. “I don’t think the industry will be materially different,” said Fratrik, who has been consulted by many broadcasters considering auction participation. “Many of the volunteer stations will be the lesser performing full powers and class A's,” Fratrik said. The exit of those stations won’t affect industry concentration, he said, and neither will participation by large broadcasters, since they will continue broadcasting through channel sharing, Fratrik said. Since the most well-situated stations are unlikely to be exiting the business, there won’t be many more attractive targets for merger and acquisition or expansion after the auction than there were before it, Fratrik said.

Business opportunities in a smaller -- even if only slightly -- broadcast industry don’t have to come from M&A and expansion, industry officials said. “There is going to be programming that will need to find a new home,” said Gray Television Senior Vice President Kevin Latek. When some stations sell their spectrum, it's likely to leave some markets minus a network affiliate, creating an opportunity for one of the remaining stations in those markets to pick up the slack, possibly on a subchannel, some said. Because of this possibility, LPTV Spectrum Rights Coalition Director Mike Gravino believes it may be better for LPTV stations if there's “a heavy taking” of stations in the auction. If a lot of full powers exit the business, it will leave many of the lower tier networks looking for host stations, Gravino said. That could present an opportunity for LPTV stations, he said. “MeTV needs to be somewhere, the CW needs to be somewhere.”

With smaller stations more likely to sell their spectrum, it's viewed as a near certainty that the auction will decrease the number of minority-owned stations and stations that serve minorities, said National Association of Black Owned Broadcasters President Jim Winston and National Hispanic Media Coalition Vice President-Policy Michael Scurato in separate interviews. “The owners of large stations are far less likely to be people of color,” Scurato said. He and Winston said it wouldn't be right to tell minority broadcasters to leave the incentive auction money on the table. “We aren't asking anyone to not participate,” Scurato said. Since the incentive auction will disproportionately incentivize minority broadcasters to leave the business, Winston said he wishes the FCC would also enact rules encouraging minorities to enter it.

The incentive auction also could indirectly create M&A opportunities, executives said. Broadcasters that incorrectly expected their competition to exit the industry, may find themselves in a mood to sell once the dust settles, Gray's Latek said. Broadcasters expecting to get the higher estimates from the Greenhill book may also become interested in selling if those figures don’t materialize, another broadcast official suggested. Though some of the larger broadcasters would need the FCC to relax ownership rules to pursue M&A after the incentive auction, they're likely to try, said an executive.

Channel sharing after the auction is also seen as a way for surviving broadcasters to enhance earnings, said Goodman. A station that's operating on another's spectrum doesn't create as much overhead as an entirely separate station, Goodman said. That means certain lower costs for broadcasters that sell the spectrum of stations where they have duopolies, and likely lower costs for other stations that share, though it's likely many channel sharing agreements will involve deals for sharing partners to chip in on facilities costs, broadcast industry officials have said. Channel sharing could also be a solution for LPTV stations, but it's difficult to gauge, because there are “no guideposts” for value in channel sharing, Gravino said. Channel sharing may be the best chance for broadcasting to maintain some diversity after the auction, said Wilkinson Barker broadcast attorney Rosemary Harold. “The more licensees you have at the end of the day, channel sharing and controlling their own programming,” the more opportunities there are for minority ownership, she said.

Broadcasters left after the auction also will have the opportunity to take advantage of next-generation broadcasting standards, some broadcasters said. ATSC 3.0's adoption may or may not sync up with the repacking, but only broadcasters that remain in the business will be able to take advantage of the new technological options it offers, an industry official said. A new standard may represent a chance for LPTV, Gravino said, since it will expand the capabilities of the remaining stations. “We do know some things, but the best we can do is base it on the simulations,” Gravino said. “Nobody knows how it will go,”