Spectrum, Politics To Lead the Way in 2016

TV stations expected to cash in with political advertising and transformative spectrum auction

Why This Matters

2016 FORECAST
The spectrum auction will lead to a wave of consolidation; political dollars could obscure needed digital moves.

The year in local television will be defined predominantly by two things—the spectrum auction and political advertising.

Calling it “a seminal event,” Elliot Evers, managing director of Media Venture Partners, says the auction will create “meaningful realignment” in the industry. Meanwhile, political advertising for the 2016 presidential election should net local stations billions of dollars.

Those two events are really the prime movers for the twists and turns of the year. But it’s the strategies during, and the responses after both events that will leave the most lasting impressions.

TV’s AC: Auction and Consolidate

The spectrum auction will be transformative for all the stations that play, and even many that don’t. Some will sell and pocket the profit. Others might use that money to buy more stations.

A lot of companies and stations are holding off selling to try to cash out in the spectrum auction , says Larry Patrick, founder and managing partner, Patrick Communications; however, most stations won’t receive a bid from the Federal Communications Commission. As such, in the second half of 2016, Patrick predicts a significant amount of M&A activity, much of it involving “disappointed spectrum players.”

After the auction, when the dust settles, the new buzzword will be consolidation.

There’s pressure to consolidate to obtain more negotiating strength in dealings with networks and multichannel video programming distributors. There’s also pressure on the few big stations that haven’t done much lately.

“The urge to merge will remain unabated,” Evers says. “As far as regulatory capsule will allow, there’s no end of motivation and reason to do it.”

Patrick predicts a couple billion dollars or more in consolidation. “They will be out chopping and kicking tires and trying to make deals that’ll close at the end of the year,” he says. “If companies don’t buy and grow and become predators, they become prey.”

Politics Camouflaging Problems?

The year 2016 will look a lot like 2015, says Bob Papper, author of the annual survey of local TV from the Radio Television Digital News Association and Hofstra University—except for swing states. “If you’re in a swing state, 2016 will look like money is coming out of the sky,” he says.

Kantar has projected that $4.4 billion will be spent on TV ads for the 2016 election, with much of that going to local stations and most of that going to battleground states. Yet the massive political profits could camouflage the need to improve and innovate in the digital sphere.

When Papper does his surveys, he is receiving fewer and fewer answers about new things stations are doing. “I would expect most of the extra money is going to stay with the company,” he says. “I don’t think we’ll see a lot of reinvestment of that money .” Steve Schwaid, VP of digital strategy at consulting firm CJ&N, is likewise worried that the industry making billions as a whole in 2016 will rest on its laurels, which will mean trouble in the long run.

“[2017] will be a year of a lot of tightening of belts, and that’s even before you bring up digital problems,” he says. “In 2016, issues are going to be glossed over because there’s so much political money.”

While stations continue to emphasize broadcast, people are consuming more and more content on mobile devices—at a speed that is “moving a lot faster than folks expected,” says Bill Hague, executive VP at Frank N. Magid Associates.

It takes a lot of time and work and money to create a unique app or content, and then to continually update and improve it. There is money in mobile, he says. Stations and companies just need to keep at it.

“Stations have to be investing in that,” Papper says. “They can’t ignore it and say, ‘We’ll catch up down the road.’ That’s a mistake.”

Making Connections

Of course, everything is interconnected. The election that is bringing stations inordinate amounts of money will dictate FCC policy and strategy for the coming years. Station prices are partially dependent on whether they are in a swing state. And if stations don’t innovate and continue to make pushes to the digital realm, either their news won’t be consumed or they’ll be gobbled up by a bigger, more forward-thinking company.

Investing and innovating for the future is perhaps more important than ever. Because without the political ad dollars as well as the Summer Olympics on NBC, “[2017] is going to be super hard,” Hague says. Even for the consolidated supergroups.