What Will It Take to Put Local Stations Over the Top?

WHY THIS MATTERS

Nearly three years after owners began their OTT quest, the pace of industry change has made stations' primacy in the media landscape less of a given.

If broadcast affiliates had their way, they would be just like Netflix, only better. Via direct-to-consumer over-the-top offerings, they would beam their station signals far and wide, just like they do on regular TV-live, linear and, most enticing of all, free.

We want to provide all our programming-our locally produced programming, our networking programming and our syndicated programming-to our consumers, who want to see that programming on any device whatsoever, says Jeff Rosser, a Raycom Media VP who chairs the Fox Affiliates Board. That's what our customers want, and we want to be responsive to what they desire. The data trends back him up-59% of pay-TV homes in the U.S. also have a subscription to Netflix, Amazon or Hulu, a Leichtman Research Group study found in July, up from 47% in 2014. In cord-free homes, the number jumps to 70%.

Consumers' hunger to get TV content in ways beyond the traditional bundle is now an absolute. Sating that hunger, for affiliates, has proven to be a mind-bendingly complicated task. Against a backdrop of restless experimentation-networks launching stand-alone OTTs, skinny bundles proliferating, and consumers enjoying a Las Vegasstyle buffet of choices-affiliates' plans to light up live local TV on their own digital platforms remain stymied. Technology is no longer an obstacle-instead, the holdup is simple economics, operational mechanics and industry politics.

About two-and-a-half years since the idea of putting free TV over-the-top first hatched, TV stations and the networks whose programming they air are still hashing out issues from distribution rights and business models to who should be in charge of bringing the idea to fruition. That last point is perhaps the biggest impediment of all. The networks are trying to control negotiations with OTT, says Preston Padden, a media consultant and former top Disney and Fox executive. This can be a cause of tension between the networks and affiliates and a cause of frustration for new OTT players who want to pay for rights but are caught in the crossfire between networks and affiliates.

Hovering over the epic push and pull of negotiations is the stark reality that nobody really knows what is at stake with OTT-or how it's going to morph and grow. Stakeholders engaged in the talks are playing an elaborate game of Texas Hold 'Em, hoping to see the cards they want when the dealer flips them over.

Given how admirably many station groups have performed in recent years despite considerable headwinds, and the function they serve in communities faced with the retreat of newspapers, it's entirely possible that going OTT could be the ultimate energy shot. Mindful of this success scenario, networks and local broadcasters each want to make sure any agreement they reach positions them for a big payoff.

Ramping Up

For all of the fascination with OTT as an idea, the actual audience consuming it is very modest in size, at least for stations. Whereas broadcast TV is delivered to roughly 99.44 million pay-TV households, according to the latest figures from Nielsen, industry sources estimate that viewership via alternative digital means adds up to maybe 1% of that, at most.

The biggest stumbling block is that this is all new for everyone, says Graham Media president and CEO Emily Barr, who chairs the ABC Affiliates Board. When you go into negotiating these days, you are a bit blind because you don't know what is going to be. For that reason, everyone is treading carefully.

It is not a speedy process, she says.

Owned-and-operated stations, as vertically aligned assets of the broadcast networks, are immune from most of the issues and have been able to be featured in some digital offerings like CBS All-Access or Watch ABC. But many of the 800-plus ABC, CBS, Fox and NBC affiliates consider having control of the process as the only way OTT will ever actually happen.

Station groups want to drive their own carriage deals with digital platforms (Roku, Google Chromecast, Microsoft Xbox, etc.), much in the same way they have done with multichannel video programming distributors (MVPDs) since the early '90s. Under that model, station groups are the hands-on negotiators with cable and satellite services, working on behalf of their affiliates as well as the networks.

In exchange for selling their signals to subscribers, MVPDs pay local broadcasters a portion of that money in the form of retransmission consent fees. Station groups, in turn, fork over a cut of that cash-roughly 50%-to the networks as part of their affiliate agreements.

Because OTT distributors are not considered MVPDs (the FCC has yet to legally categorize them as such), ABC, CBS, Fox and NBC see the emergence of OTT as their chance to control what they can't in the MVPD world. And there could be big money at stake in that battle for control.

Early ventures indicate that networks favor the idea of offering live local feeds as part of subscriptions, skinny bundles or network-driven offerings like CBS All Access, a subscription video-on-demand service costing $5.99 a month. That, however, doesn't match the goal of many affiliates, which at this early stage are less concerned with getting a payout than getting their signals in front of, say, that Apple TV fan in Rockford, Ill., or a Seattle gamer more likely to flip on an Xbox than TV set.

That's also what differentiates affiliates' plans from TV Everywhere initiatives launched by pay-TV services as well as each of the networks, which offer live local to consumers who have to authenticate their MVPD subscriptions before tuning in. Watch ABC, an ambitious digital offering that features pr

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