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FCC Planning to Allow Sweeping Mergermania for Local TV Stations

Phillip Dampier July 26, 2017 Competition, Consumer News, Public Policy & Gov't 1 Comment

(Image: Free Press)

Along with a new TV season starting this fall, the Federal Communications Commission plans to launch a new season of sweeping deregulation in the broadcasting industry, allowing a handful of companies to acquire masses of local TV stations as a result of easing ownership limits.

Bloomberg News reports FCC Chairman Ajit Pai, with likely support from fellow Republican commissioner Mike O’Rielly, will unveil new rules that will allow TV station owners like Nexstar, Tegna, E.W. Scripps, and Meredith to acquire dozens of local stations, even in cities where they already own stations.

The new rules, likely to pass on a party line vote, would allow companies to own two of the four most-viewed stations in a market, in addition to several other lesser-rated outlets. Broadcasters are also heavily lobbying Republicans to insert another new rule that would lift the current ban on owning both the local daily newspaper and a TV station.

Broadcasters have been itching to launch a sweeping wave of station ownership consolidation to boost advertising revenue, cut costs, and gain more leverage over cable and satellite companies as they continue to raise fees charged for consent to carry those stations on pay television lineups.

The Obama Administration not only supported existing rules designed to protect local media diversity, it also strengthened them. The former administration believed that allowing local stations to consolidate was stripping some cities of competing local newscasts, reducing diversity of voices on local stations, and shifting local broadcasting further away from its public service obligations.

Public policy groups have criticized deregulation efforts for decades, particularly the 1996 Telecom Act, signed into law by President Bill Clinton. That legislation lifted ownership limits on radio stations, triggering a sweeping consolidation tsunami that allowed companies like iHeartMedia (formerly Clear Channel Communications) to build an empire of more than 1,200 stations nationwide (as many as eight stations in a single market) after a $30 billion spending blitz.

As a result of its heavy indebtedness, the company has struggled to pay back its $20 billion outstanding debt and has committed to multiple rounds of slashing expenses at its stations, resulting in dramatic cuts in local service and staff, and turning many of its stations into automated music jukeboxes with no local announcers or staff. Listener ratings declined as a result and on April 20, the company warned investors that it may not survive the next 10 months without bankruptcy reorganization protection. These groups worry consolidation will have a similar effect on free over-the-air TV’s sense of localism.

Ironically, Sinclair Broadcasting, now attempting to acquire the station portfolio owned by Tribune Media, will not be able to participate in the next wave of consolidation because it arguably has already broken another long-standing FCC rule prohibiting one company from owning over-the-air TV stations that reach more than 39% of the U.S. audience. That rule would not be changed as a consequence of the current deregulation proposals, but it would surprise no one to see Mr. Pai and Mr. O’Rielly attempt to repeal or modify it next year.

Pai and O’Rielly have been extremely critical of ownership restrictions in general. Pai has thus far advocated loosening local-TV limits, but O’Rielly has gone further calling for their complete repeal, arguing it “defies belief” that over-the-air stations have limits while they compete with “literally hundreds of competitive pay TV channels and essentially unlimited competitive internet content”

The Obama Administration argued the difference between over the air broadcasting and pay TV networks was primarily in their public service obligations. As a license holder, TV stations are required to provide service in the public interest in return for being granted a license to use the publicly owned airwaves. Since pay television networks do not use public property, they are not required to meet those obligations. Local stations, particularly those with local newsrooms, also have a long tradition of being critically important in times of public emergencies. Without an in-house staff, stations airing little or no local programming would be unlikely to continue that tradition.

Large TV owner conglomerates are already arranging financing for the impending station roundup. John Janedis, an analyst with Jeffries, told Bloomberg all of the larger TV station owners are eager for the relaxation of ownership rules so they can purchase their peers.

“The reality is everyone is talking to everybody,” Janedis said. “There are a lot of buyers out there.”

Wall Street Analyst on TV Network Fees: “Companies Are Not Supposed to Make That Kind of Money”

Phillip Dampier July 26, 2017 Competition, Consumer News, Online Video 1 Comment

A Wall Street media analyst called today’s television model of high returns and relentless rate increases passed on to pay television customers unsustainable.

Sanford Bernstein media analyst Todd Juenger told attendees of The Independent Show (courtesy: Multichannel News) in Indianapolis that media companies expecting to profit from linear TV’s increased advertising revenue and retransmission or carriage consent fees are going to get slapped in the face soon as consumers revolt.

Juenger, like BTIG’s Rich Greenfield, is becoming increasingly pessimistic about today’s costly bundled-TV model. Juenger warns high revenue and profit expectations are only going to accelerate the growth of disruptive technologies like on-demand, online video.

Juenger notes cable and television networks never seem satisfied with the massive amounts of revenue they are already earning, and keep seeking ways to raise prices further. The TV business, Juenger notes, already enjoys some of the highest profit margins of any U.S. business in modern history.

“This is a very, very rare thing,” Juenger said. “Companies are not supposed to make that kind of money.”

Most cable networks now expect 40% annual revenue increases and a 30% return on capital, which is what causes runaway programming rate increases to be passed on year after year to consumers. Yet the quality of those networks has not significantly improved in many cases, and consumers are gradually shifting away from watching live television (and the commercials that accompany it).

Viewers, starting with younger generations, are increasingly ditching linear-live television and finding on-demand content to be more appealing. Much of that viewing isn’t taking place on the cable industry’s on-demand or TV Everywhere platform, which has become as littered with advertising as live television. Instead, viewers are drawn to original productions produced by Hulu, Netflix, Amazon, and other content platforms — often commercial-free, and on-demand network shows on platforms like Hulu.

“The whole reason for being for networks is called into question,” Juenger said.

Juenger dismisses the current industry trend of creating virtual online alternatives to cable television bundles — skinny or otherwise — for streaming online. Those efforts, like Sling TV, DirecTV Now, and PlayStation Vue still depend on linear television as their core product, and cord-cutters are showing a growing lack of interest in this model.

Cord-cutters and cord-nevers don’t want smaller, more economical bundles of cable networks delivered online, according to Juenger.

“I don’t think there is anybody who wants these products on an incremental basis,” Juenger said. “If the purpose of these services is to recapture subscribers that were lost, they’re not going to work.”

Viewers want an entirely new model, built around on-demand access to individual shows without viewing restrictions or having to pay for unwanted channels. Many are also willing to pay a little more to avoid commercials altogether.

AT&T Using $9.7 Million in Public Dollars to Bolster its Cell Towers in South Carolina

Phillip Dampier July 25, 2017 AT&T, Competition, Consumer News, Public Policy & Gov't, Rural Broadband, Wireless Broadband 5 Comments

AT&T will spend $9.7 million in annual public subsidies to bolster its cell tower network in South Carolina in part to expand its rural wireless broadband program. Perhaps services like mobile tower lease would come in handy.

The Federal Communications Commission approved the funding, which is expected to cost Americans nearly $10 million annually until 2020 to boost wireless coverage in 20 mostly rural counties in South Carolina to reach an estimated 12,000 new homes and businesses by the end of this year. Nationwide, the company is getting almost $428 million a year to extend access to 1.1 million customers in 18 states, the FCC says.

AT&T plans to spend the money to improve cell towers it already has in place for its mobile phone customers. The company admitted it will rely on existing infrastructure and won’t lay a single new strand of fiber optics. Instead, wireless broadband customers will share space with AT&T’s existing mobile customers on AT&T’s backhaul network.

“Because of the wireless aspect of it and the greater ability to deliver that last-mile connection, it does help to overcome any obstacles that may be in the cost equation,” Hayes said. “This initial build, with it being infrastructure that we have in place with these towers, that comes from years of investment.”

AT&T will also be able to promote its own products and offer customers discounts and free installation when they agree to sign up for other AT&T services. Hayes said the service will cost $60 a month for everyone else, along with a one-time installation fee of $99.

“Because of the wireless aspect of it and the greater ability to deliver that last-mile connection, it does help to overcome any obstacles that may be in the cost equation,” spokesman Daniel Hayes told The Post and Courier. “This initial build, with it being infrastructure that we have in place with these towers, that comes from years of investment.”

AT&T is treating the fixed wireless program, which offers up to 10Mbps service, as an alternative to wiring fiber optics in outer suburban and rural areas.

With taxpayer/ratepayer dollars financing a significant part of the cost, AT&T will have a de facto monopoly in its rural service areas where it has traditionally declined to offer or maintain DSL service or consider fiber optic upgrades, leaving these areas without broadband service until the subsidy program began.

Gouging Legacy Time Warner Cable Customers: Set-Top Boxes $11.75/month

Phillip Dampier July 25, 2017 Charter Spectrum, Consumer News 1 Comment

Charter Communications customers with Spectrum and Time Warner Cable packages in several parts of Ohio are being notified analog cable television is about to be switched off in favor of all digital, fully encrypted cable service starting in August, and that switch will cost some subscribers plenty.

More than two million customers across the state are getting robocalls from Charter warning all cable-connected television sets must have a digital receiver attached by the time the switch takes place or they will lose television service.

“They only mention digital receivers, which is what Spectrum calls their basic set-top box,” said Charles Pierson, a Charter customer in Columbus who is still hanging on to his old Time Warner Cable package. “The recording doesn’t promote alternatives like a CableCARD, Roku or a digital adapter, which can cost considerably less than what Charter charges its legacy Time Warner customers for cable equipment.”

Pierson notes that because he has not abandoned his Time Warner Cable package, he faces a huge rate increase if he puts digital receivers on his three spare television sets that do not have boxes attached to them.

“Charter really wants to gouge you off of your current plan and make you switch to a Spectrum plan, so they have told us that Time Warner Cable plan customers like us will pay $11.75 a month for each set-top box while Spectrum customers can qualify for free equipment for up to five years or, at worst, pay $4.99 a month. That means we have to pay more than double the price for exactly the same equipment.”

For many customers, “free” equipment will not be an option. Charter usually only provides that promotion to customers who have never had a set-top box before or are on a qualified public assistance program. Charter’s customer service representatives are trained to urge Time Warner Cable legacy plan customers to walk away from them, offering the fact Spectrum plans charge lower prices for cable equipment. If that does not work, legacy customers like Pierson are told the price for each box is nearly $12 a month if they insist on keeping their current TWC plan.

Although written communications about the digital conversion from Charter mention the availability of poorly understood CableCARD technology as an alternative, only a tiny percentage of customers choose this option. Charter’s own support pages don’t help with “clarifying” information like this:

CableCARD customers subscribing to any service package in which Spectrum equipment is included in the package price may receive a discounted price, reduced by an amount equal to/greater than the fee for such equipment not leased from us. We lease CableCARDs for $2.00 per month per CableCARD for use in customer-owned retail CableCARD-ready devices. Our leased receivers also include either a CableCARD or integrated security inside the device. Our lease rate for cable boxes with CableCARD includes a $2.00 imputed charge for the included CableCARD.

Considering the fact CableCARD technology used by Spectrum does not support on-demand features, the majority of customers follow Charter’s recommended upgrade path to digital receivers or cancel service when they learn how much their bill is going up. Many will wait up to two hours in long lines at cable stores to manage either.

Charter customers facing a forthcoming digital conversion can skip the line in many areas and order digital receivers online from Charter to be delivered by mail. Visit spectrum.com/digitalnow or call 844-278-3408 to verify if you qualify. Delivery takes 3 to 5 days, with no delivery charge.

Customers can also bypass Charter’s equipment by placing Roku devices on spare televisions. The majority of Charter’s television lineup can be found in the Spectrum TV app in the Roku channel/app store.

America’s First $3 Cord Cutter’s Bundle Coming from Discovery/Scripps Networks?

Phillip Dampier July 24, 2017 Competition, Consumer News, Online Video 1 Comment

Discovery Communications, occasionally left out of online video alternative bundles targeting cord-cutters, is preparing to retaliate with a $3-4 web-delivered bundle of channels featuring Discovery Channel, Animal Planet, TLC and other affiliated networks and possibly Scripps Networks’ bouquet of channels including HGTV, Food Network, and the Cooking Channel.

Discovery is one of two bidders (Viacom is the other) vying to take charge of Scripps Networks Interactive, one of the few remaining independent network owners not affiliated with a cable company or Hollywood studio.

Bloomberg News reports Discovery wants the networks to bolster its forthcoming inexpensive online video bundle, which will sell for $3-4 a month. While Discovery has advocated selling a sports-free package of networks in partnership with Viacom and AMC for under-$20 since April, those negotiations appear to be stalled, so Discovery is reportedly moving forward on its own.

Discovery Networks¹

Channel Launch Date U.S. Households 2015 Notes
Discovery Channel 1985 91 million Flagship network
TLC 1980 89 million Acquired by Discovery Communications in May 1991, previously known as The Learning Channel.
Animal Planet 1996 88 million
Investigation Discovery 1996 84 million Formerly Discovery Times, Discovery Civilization
OWN 2011 77 million Joint venture ownership with Harpo Productions
Velocity 2002 71 million Formerly Discovery HD Theater and HD Theater
Science 1996 68 million
Discovery Family 1996 61 million Initially launched as Discovery Kids in 1996, relaunched as The Hub in 2010, renamed Hub Network on 2013 and rebranded as Discovery Family in 2014.[55]
40% of the network is owned by Hasbro.
American Heroes Channel 1999 53 million Formerly Discovery Wings, Military Channel
Destination America 1996 52 million Formerly Discovery Home and Leisure (1998–2004), Discovery Home (2004–08), and Planet Green (2008–12)
Discovery Life 2011 46 million Merger of Discovery Health Channel and FitTV, previously known as Discovery Fit & Health
Discovery en Español 1998 6 million Spanish-language version of the Discovery Channel Unavailable in HD
Discovery Familia 2007 5 million Unavailable in HD

If Discovery successfully snares Scripps, it will own five of the top 20 U.S. cable networks. That is likely to be important in future negotiations with cable and satellite providers at contract renewal time. Discovery, like most cable network owners, pitches cable companies bundles of networks sold at wholesale prices, whether a cable operator wants all the channels in that bundle or not. Discovery plans to avoid alienating cable and satellite providers by using them to market the bundle direct-to-consumers. A prospective customer would call their local cable or satellite provider to order the bundle of web-streamed networks, not Discovery. Cable operators would likely also handle billing and customer service issues.

Scripps Interactive Networks¹

Channel Launch Date U.S. Households 2015 Notes
HGTV 1994 96 million households Frequently among the first networks to appear on digital cable.
Food Network 1993 97 million households Part owned by Tribune, which means Sinclair will own a stake in this network if acquisition deal approved.
DIY Network 1999 61 million households At initial launch, DIY was often skipped over by cable systems.
Cooking Channel 2010 62 million households A spinoff of Food Network.
Great American Country 1995 59.5 million households Started with country music videos, was uncommon outside of southern U.S. until the 2010s
Travel Channel 1987 91.5 million households Originally owned by Trans World Airlines, sold to Discovery, which sold it to Cox, which sold it to Scripps.

This type of sales partnership is not unprecedented. Before the era of DirecTV and Dish Networks, home satellite dishowners using C band TVRO satellite dishes as large as 12 feet across often ordered satellite-delivered programming from cable companies, particularly those owned by John Malone’s Tele-Communications, Inc. (TCI) and sold through its home satellite programming division Netlink. Customers would be billed directly by the nearest TCI cable system on an ongoing basis, which irritated a lot of dishowners in the 1990s who sought satellite reception as an alternative to dealing with the cable company.

The practice did not come without problems. Many local TCI systems were baffled when their customer audits revealed they had customers in cities 100+ miles outside of their immediate service area. Many were accidentally disconnected after their subscriptions were purged from TCI’s systems in error. By 2005, TCI was five years out of the cable business and had sold Netlink to Echostar, which owns Dish Networks. That same year TVRO owners were informed they could no longer subscribe to a number of networks for their giant backyard dishes and were converted to Dish Network small dish service instead.

¹-Information sourced by Wikipedia and Stop the Cap!

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