Stations Tap a Digital Revenue Stream

When CBS News offered affiliates live coverage of Pope John Paul II’s April 8 funeral, WCTV Tallahassee, Fla., didn’t want to miss out. Rather than sacrifice WCTV’s popular early-morning newscast, President/GM Nick Waller gave the funeral feed to its new sister UPN station. Such sharing is standard when stations have a common parent. But Waller’s duopoly is different: His UPN station in Tallahassee is broadcast on one of WCTV’s secondary digital channels.

WCTV is just one of dozens of stations that are already using their government-mandated digital capabilities to cut costs and build profits, however slim. TV stations have spent millions upgrading their facilities to phase out analog equipment in order to deliver digital television. The new digital spectrum can handle up to four standard-definition channels, creating new revenue and programming opportunities for stations.

In an industry plagued by slow growth and increased competition from local cable, fresh opportunities are few and far between. Secondary digital channels offer an attractive new revenue stream, a venue for selling more advertising and sponsorships.

But, because Nielsen doesn’t rate secondary channels yet, stations can’t provide hard data to advertisers. As a result, advertising on digital services is much cheaper than on the primary station.

Gray Television, which owns WCTV, exploits its digital capabilities in Tallahassee and three other markets by carrying UPN stations on digital. WCTV-DT carries UPN’s regular prime time fare and also takes WCTV programs, such as a second run of The Oprah Winfrey Show and sports. “This allows us to have more control of our programming,” says Waller. Startup costs are low—Gray estimates it takes just $300,000 in capital to launch each UPN station—and the company says its UPN affiliates are already contributing to its coffers.

“We’re all looking for opportunities to enhance localism and generate new revenue,” says Deb McDermott, president of Young Broadcasting, whose 11 stations are testing the digital waters. Four have local weather channels, and independent KRON San Francisco takes some programming from HDNet, Mark Cuban’s all-high-definition cable channel. Tiny KELO in Sioux Falls, S.D., the 116th-largest TV market, carries a UPN feed on one digital channel and weather on another.

Broadcasters had hoped to force their digital channels onto cable systems by way of the FCC’s “must-carry” guidelines, which compel cable operators to carry their local broadcast stations. In February, however, the commission ruled in favor of cable, saying operators are required to pick up only a single digital feed. Now broadcasters will have to negotiate distribution for any additional channels, the same as cable networks.

The ruling, some local broadcasters say, will stymie development. “Without cable carriage, it makes it difficult to invest heavily in new programming,” says Alan Frank, CEO of Post-Newsweek Stations.

The FCC’s ruling is not a roadblock, says NBC Executive VP Brandon Burgess, an architect of the network’s 24-hour digital channel, Weather Plus. “It comes down to the quality of the idea.” NBC will launch a second multicast service in the next year or two, he says.

CBS, which has, to date, focused its attention on high-definition, is also expected to get aggressive on digital-channel ideas.

In some cases, cable operators are eager to air the stations’ digital channels. During the recent NCAA men’s college basketball tournament, CBS stations in a dozen markets offered—and cable operators agreed to carry—extra games on specially designated channels.

Across the country, more than 300 local broadcasters are programming their digital channels. Many are PBS stations that don’t take advertising.

Of ad-supported ventures, 24/7 weather channels are the most common play. NBC’s Weather Plus, co-owned by NBC and its affiliates, is the largest and best-known. Currently, 20 NBC stations offer the service, and another 33 are scheduled to launch.

Weather is a hot field. Forecasting service AccuWeather, which already supplies data to 50 stations, is shopping a hyper-local channel. So far, no stations have signed up, but Accu-Weather plans to unveil the service at this week’s NAB show.

News channels are another attractive option. Stations already produce hours of news a day, along with documentaries and special-event coverage. An all-news channel would help amortize those costs. A handful of stations, like tech-savvy WRAL Raleigh, N.C., and WFAA Dallas offer such channels. In Raleigh, Time Warner Cable carries WRAL’s weather and news channels.

ABC is trying to build a national and local hybrid with its broadband news network ABC News Now. The network, which will relaunch in July after a test period last fall, will offer stations local cut-ins and opportunities to rerun their news. So far, though, only the network’s 10 owned-and-operated stations are committed.

In the future, some local broadcasters hope to deliver more-entertaining fare, such as movies, classic TV shows or sports, on digital channels, possibly as subscription services. At last year’s NAB, Emmis Communications Chairman Jeff Smulyan unveiled a plan to air the popular cable channels via digital broadcast. USDTV CEO Steve Lindsley launched a similar business in Salt Lake City, Las Vegas and Albuquerque, N.M. Despite bullish projections, however, neither system has expanded to other markets.

For now, many stations are on the sidelines, waiting to finalize their business models. For now, most simply simulcast their analog feed on the digital channel.

To watch a digital channel, viewers need a TV with a built-in tuner or a digital cable box, and digital TV penetration is low: Only about 11 million sets have been sold, compared with hundreds of millions of analog TVs. But digital-cable penetration is projected to hit more than 25 million subscribers this year.

In Allentown, Pa., independent station WFMZ understands the need for a big cable company all too well. The station launched a weather channel in 2001 offering forecasts, ski reports, stock quotes and news headlines all set to soothing jazz music. It counts 250,000 subscribers on small area cable systems, but the regional heavyweight Comcast does not carry it. GM Barry Fisher keeps pushing the cable giant. “The cable companies can use this as a tool to keep people away from satellite,” he says.

NBC’s Weather Plus has cracked 7 million cable homes in just four months on the air. That growth has allowed NBC to sell Weather Plus to brand-name outdoor-related advertisers like Subaru and Gortex. Says Jay Ireland, president of NBC’s station group, “This is focused programming and an alternative.”