Broadcast TV cameraLast year, I wrote (here and here) about the way that TV video systems were changing, and that TV broadcasting’s future was unsettled. This week, there are several signs that good old fashioned broadcast TV might do pretty well for a while.

Most recently, the National Association of Broadcasters launched a site promoting The Future of TV. Much of the site promotes mobile DTV, of which I’m still skeptical. The NAB talks about getting mobile DTV added to cell phones, but they’re having trouble even getting a $1 FM radio chip added to cell phones. Standalone devices still look pricy, although I hear that the Consumer Electronics Show will include some battery-powered regular and mobile DTV sets. I wouldn’t mind having something like that in the basement when a storm rolls through.

Speaking of storms, a Rasmussen poll released this week (and quoted here) said that over half of us still rely on local broadcast TV as our primary source for weather information. That’s exactly the edge that a local station has over anyone else; it can broadcast whatever is important and immediate to local viewers.

While those are positive signs for local broadcast stations, the topper came in a TV Business Report article which described a new Moody’s Investors Service report. Moody’s analyzed all aspects of TV viewing, and when it came to locals, Moody’s saw an advantage that no one can match. Local stations might continue to lose viewers, but they “will still generate a sizeable share of local advertising dollars as the content will continue to generate the largest audience.”

In other words, don’t fixate on the audience numbers, think about the advertisers. If you’re a local restaurant or car dealer, where can you get exposure to more customers than through local broadcast TV? Certainly not through the local newspaper with its dwindling readership.

So even if advertisers are paying for 80% of the audience local stations had five years ago, there’s still no better way for them to attract local customers. As long as that holds true, broadcast TV stations should be just fine.

Economics logoFirst, before I forget, I owe you a review of the SatHawk / Solomend FTA receiver I’ve been using. (It uses the same innards as the OpenBox S9.) So far, everything is great, and even the DVR is working pretty well. I’ll write much more about it next week.

When Dish Network and Fox couldn’t reach an agreement to renew a bunch of regional sports networks and a couple of other pay-TV channels, Fox yanked them from Dish. Trade publications had a note on it, local newspapers where the sports networks went out mentioned it, and a few perceptive souls noticed that the dispute might spread to include some Fox over-the-air channels in November. Congress and the national media yawned.

But last weekend, when Fox yanked over-the-air channels away from Cablevision, which services New York and Philadelphia, that’s when US Representatives felt moved to act. Or at least talk about acting. In a way that somehow keeps the channels on while allowing the free market to work it out. But which punishes those who bargain in “bad faith”, a determination that courts rarely make.

Long Side Note: Dish and Cablevision often say they’re holding the line to keep customers’ prices low. That’s garbage. They’re holding the line to provide the best return for their investors, as is their duty. The retail cost of anything is set to maximize profit. Set the price too high, and reduced sales drop the total profit. Set it too low, and the thin margins produce a smaller profit.

Here’s a concrete example. Once upon a time, I bought and sold used and collectible books. (I bought them used and sold them collectible.) Suppose that I bought a pile of them at $1 each. Now suppose that the next pile I bought cost $3 each. Would I automatically raise prices by $2/book? Of course not! The price was always set based on demand and competition. Higher costs cut into my profit, but they had no effect on the customer’s price.

When a business has an increased cost, such as a higher wholesale fee for a channel, it merely changes the floor for the minimum price to consumers. And that higher floor only changes whether the business will sell that thing at all; it won’t automatically set a higher price. Back to the books, if demand for those $3 books fell off, the competitive price might drop to $2 or less. I’d sell however many I had left in inventory at below cost, but I’ll know not to buy any more of those at $3.

These rate disputes are all about which company gets to keep more of subscribers’ fees. This talk about protecting consumers from rate increases is hogwash.

Anyway, there’s one painless way to solve all retransmission disputes. It’s used in similar markets, yet I never hear it brought up as a solution to this mess. As personal inspiration and drive-in movie critic Joe Bob Briggs often puts it, “I’m surprised I have to explain these things.”

Get the networks (a handful of companies own most of them) on one side of a bargaining table. Get the cable and satellite companies on the other. Make them work out one national formula for how much any given network is paid per subscriber. Repeat every couple of years or so. Everyone gets a fair shake, and viewers never see holes in their lineup from channel disputes.

Personally, I’d like to see the formula tied to the number of viewers, not subscribers. If your channel adds interesting programs, ratings go up, then you get more money next quarter. If you rerun the same old crud and no one watches, you get less money.

This model works in music. It works for streaming radio stations. In Canada, it works for schools photocopying text and for retransmitting OTA channels. There’s no reason this kind of system couldn’t work here.

Think of all the money this would save these companies. Take the number of channels. Multiply by the number of cable/satellite providers. Multiply by the number of worker-hours (or lawyer-hours) needed to negotiate each carriage agreement. Multiply by the hourly cost of company workers or lawyers. No matter how much a central agreement would cost to negotiate, it would be a lot less than this.

However, without being forced to the table, the channel providers would never agree to this. Disney thinks that ESPN is indispensible (maybe it is), charges almost as much as HBO for it, and demands that it be included in the lowest tier on every system. Other providers also have a long history of winning the big fights like the current dispute. Why be forced to take a standard rate when you have the leverage to demand a premium? But if Congress really wants to build a system that’s fair to everyone, this is it.

Or Congress could mandate a la carte pricing, as supported by Consumers Union. Everyone pays a set amount to connect, then buys each channel separately, so if a channel raises its rate, subscribers can decide whether they’d rather pay extra or drop it. Opponents say a la carte pricing would make users pay more for fewer channels, but have the folks who make Consumer Reports ever been really wrong about anything like that?

Ned Beatty in Network

Ned Beatty as Arthur Jensen in Network

And our children will live, Mr. Beale, to see that perfect world in which there’s no war or famine, oppression or brutality — one vast and ecumenical holding company, for whom all men will work to serve a common profit, in which all men will hold a share of stock, all necessities provided, all anxieties tranquilized, all boredom amused.”
– Arthur Jensen, “Network”

In my last post, I promised predictions about the future of television viewing. Here’s the first of them, from the eerily prescient film Network. (If you haven’t seen it, run out and buy or rent an unedited, uncensored version. Don’t just watch it on broadcast TV.) When Network came out, according to one source, about 50 corporations controlled the US media. Less than 30 years later, we’re down to six that own the great majority of the TV networks viewed in the US. In general, they will work to ensure that they continue to own all significant sources of TV ad revenue.

I’m not pointing that out to say they’re somehow evil for concentrating network ownership so thoroughly. It’s the duty of a corporation to maximize profits; consolidation decreases redundant expenses and removes competitors. In the absence of legal restraint, it’s only natural for something like this to happen.

Anyway, the most likely scenario is that these huge content owners will continue to be the only source of “new” channels. They’ll populate them mostly by repackaging existing assets, adding just enough original shows to ensure demand. Even the broadcast networks, if they can get enough leverage over their over-the-air affiliates, might switch to national feeds supplemented by local advertising inserted by cable systems.

OR if you’d prefer to think positive, satellite TV may ride to the rescue with something completely different. Think of what Ted Turner accomplished in the late 1970s. He turned a local independent station into a national network. While the times are different now, there aren’t any barriers preventing others from doing the same thing.

The real trick is for a station to own national rights to all of its programming. For college stations, such as those run by the University of Washington and Brigham Young, it’s easy to get a cheap (student) workforce to create lots of content. For others, such as the kinda-comatose White Springs TV, the trick was to use a lot of content that nobody owns. Other national networks with very modest programming budgets include America One, RTV and Tuff TV. (I was going to include old FTA friend AMG, but I couldn’t find any active affiliates for it.)

If you can take that national content and add a very local presence for one underserved home market, then you can create a new superstation, one that relies on local car dealer ads as much as national dishwasher soap ads. Whenever big content owners squeeze out local voices, the new superstation can be there with extensive news coverage, local sports events, and a home-town feel to it. Then that station can go up on satellite to be picked up by FTA viewers, out-of-town cable systems, or both.

Or you can turn that equation upside-down and do it the way a lot of RTV and America One affiliates do it. They create a nice piece of local programming, then rely on the network to fill the rest.

Finally, there’s always FreeDBS. If those folks can really get that project off the ground, it could provide a great example for other folks who want to put something interesting on our TV sets. There’s always hope.

Ocean wave“Something’s comin’ up
And I don’t know what it is
Something’s comin’ up
And I don’t know where it’s gonna take me” –Barry Manilow

My apologies for starting a post with a Barry Manilow lyric. There’s a similar snippet in West Side Story, but that one is more optimistic. “Something’s Comin’ Up” matches what I see – the video viewing world will be much different 10 years from now, but no one knows exactly how it will look. Whether it will be good or bad for us viewers will depend on a lot of factors, especially how fast your internet connection will be.

First comes an amazing story published by Advertising Age. According to report from Horizon Media, the median age for prime-time broadcast TV viewers has gone up by four years during the last four years. That means that there were only as many new, young viewers added as there were older viewers who died. The same median almost-47 year old in 2006 kept watching and became the median almost-51 year old today. (Props to Tod Sacerdoti for mentioning the report on his blog.)

Think about it. This means that very few young people care about broadcast TV. But they do care about the internet. FCC Chairman Julius Genachowski seems to be recognizing and anticipating this shift, finding wireless internet spectrum from mobile satellite services and setting his sights on taking a chunk away from broadcast TV. The broadcasters are fighting hard against this idea even though they’d get paid for relinquishing the space and that, well, they don’t actually own those pieces of spectrum in the first place.

Second, there’s Nielsen’s Law of Internet Bandwidth: A high-end user’s connection speed grows by 50% per year. It used to be crazy to think that every home user could get any channel he wanted, live or on demand, via IP. Now with ever-faster speeds and load-balancing, widely distributed content servers, that’s not so crazy. It used to be easy to say that satellite broadcasting offered the least expensive way to simultaneously reach hundreds of millions of live viewers. At some point, an IP-based delivery system will be cheaper. Already, PBS has announced it will shift some of its non-real-time program delivery from satellite to IP.

Third, more households are cutting back or dropping traditional pay-TV services. A report from Yankee Group said that one in eight would at least cut back in 2010. Add in anecdotal evidence of viewers who are switching to broadcast HDTV with dozens of channels in most markets. With an increasing minority of broadcast TV viewers, maybe it’s not so simple to predict the end of over-the-air TV.

(Or maybe we can anyway. At least one federal spectrum reallocation plan suggested free lifeline cable TV for soon-to-be-former OTA viewers. One TV repeater district servicing far-flung households in rural Nevada suggested switching everyone there to satellite pay-TV.)

So what does it all mean for FTA satellite? Leave a comment and tell me. Meanwhile, I’ve got one crazy prediction that I’ll save for my next post.

TV under attackThe perfect complement to FTA TV is over-the-air (OTA) TV, and OTA is under attack. The FCC is talking about selling some of the OTA TV spectrum to folks who will use it for broadband internet. An op-ed column in The New York Times last week suggested that we should sell off all OTA TV spectrum. For folks who get free TV now, the column says that most can get cable or satellite pay-TV, then suggests that the FCC could require “a low-cost service that carries only local channels.”

This is crazy on several levels. Folks who love high-quality video know that OTA HD is usually much better than what cable or satellite provides. Folks who honestly cannot afford to waste even $20 a month on TV entertainment will not benefit if their free TV is taken away from them. And the idea that weather emergencies are best communicated via cable? When I had cable, the way I knew there was a storm in progress was that my cable had cut out.

There are some people who really want to get all of that juicy, wall-penetrating TV spectrum to use for their own commercial projects. Those airwaves belong to all of us, and I don’t want to see free OTA TV go away just to enable the latest internet access flavor of the month.

And while I’m talking OTA, another hot topic is retransmission fees. If a cable or satellite TV company wants to carry an OTA station, it has to pay a fee that it negotiates with that station. (If the company doesn’t want to carry an unpopular station, then the station can insist to be carried for free.) Every time the retransmission contracts come up for renewal, there’s a good chance for public posturing and the occasional loss of a channel to the company’s subscribers.

I’ll skip over the idea that because OTA stations use our public airwaves at very little cost, maybe they should be free to everyone. Given that retransmission fees are appropriate, the current system is inefficient and hurts viewers. The chairman of the Senate Communications Subcommittee says maybe a station should have to show that the cable or satellite company is bargaining in bad faith before it yanks its signal away. That’s not the right answer, either.

When an internet broadcaster streams music, it doesn’t have to negotiate with each song’s publisher. When a jukebox operator changes records, it doesn’t have to figure how much to pay each songwriter. The stakeholders in these cases negotiated mechanical royalties, ensuring that all sides get fair terms without having to bargain about every transaction.

That’s exactly what retransmission consent needs: a negotiated national contract. Fees could be based on size of market, audience share, the end-user’s bill, or any other appropriate factors. It could be tied to the cost-of-living index, it could have negotiated yearly increases, or it could just be reopened for fresh national negotiations every five years or so. The stations would get what’s fair, cable and satellite companies would get some cost assurance, and viewers could be sure that they’d get all the local channels that they’d paid for. Too easy?