News Articles

Loosen Up, Already

With few ways to grow, hundreds of stations exist in economic limbo 4/17/2005 08:00:00 PM Eastern



Author Information
Mark R. Fratrik, Ph.D., is a vice president of BIA Financial Network, a financial and strategic advisory firm serving the media and communications industry.

Even as cable networks attract greater shares, public-interest groups and other critics want more rules to limit the ability of local television broadcasters to conduct business.

Don't they get it? Don't these proponents understand that further constraints jeopardize the viability of local television stations? Don't these critics recognize that, without the modest deregulation of ownership rules proposed by the FCC in 2003, television stations in many midsize and small markets are finding it difficult enough to keep the lights on, let alone serve their local communities?

As it stands, stations located in political-battleground states enjoyed strong revenue growth in 2004. But in many of these markets, revenues will decline in 2005, some by as much as 5%-10%. For the majority of markets that did not have close political races, 2004 was not a great year, and 2005 looks tough.

The impact of cable networks and the growing concern by advertisers about the efficiency of TV advertising have already hurt station revenues.

It's only going to get worse. Cable networks continue to invest in new programming, providing even stronger alternatives to television-station programming. Personal video recorders are growing fast, reducing the effectiveness of the only product that stations sell: advertising time. And in the future, wide access to video programs via the Internet will become a reality, adding an infinite number of choices for the local consumer.

Small and MidSize Stations SuFFer

In the midst of this increasingly complex and competitive marketplace is the total absence of any relief to support the viability of local broadcasters, especially some of the small operators. For over 300 commercial stations in middle markets and over 350 in small markets, growing through acquisition—thereby creating new efficiencies they need to compete—is not possible now. Modest ownership deregulations offered by the FCC have been blocked from being instituted. Any relief would not even become effective for at least another 12-16 months.

There is another wrinkle: Stations are now required to transmit digitally at their fully allotted power or risk losing that service area, though they can currently serve 90%-95% of their communities at reduced power. But stations are required to make upgrades—a substantial investment—even though few viewers have digital receivers.

Those television broadcasters trying to look at alternative revenue streams just received another blow. Recently, the FCC—over the objection of its new chairman, Kevin Martin—decided to require cable systems to carry just one video stream from local broadcasters. Broadcasters who had hoped for a new revenue stream from multi­casting now see that, without mandated cable carriage, the idea has very limited marketability.

At the same time, regulatory relief has stopped in its tracks. Judicial review of even modest changes in ownership rules has slowed considerably, and the FCC will not begin reviewing these rules until later in the year. The net result has been little activity in station trading, since creating combinations in many medium-size and small markets is not allowed under present rules.

And yet, even with all of these constraints on revenue growth and operational flexibility, critics continue to ask for additional restraints and obligations on local broadcasters.

Additional public-service and children's- programming requirements are being proposed and would increase operating costs for television stations. And the current debate over “indecency” will further constrain the ability of these stations to generate revenue if their primary competitors—cable and satellite providers—don't face similar restrictions.

Dire Straits

What's the final outcome? Certainly some local television stations will continue to prosper, especially the stronger operations in the largest markets. Those stations still provide the access to large audiences that is attractive to advertisers. But even those stations will face more struggles in the future as consumers are offered more choices and have different viewing alternatives.

The more immediate concerns are the weaker stations or the stations in the smaller markets. Without any ownership-rule relief, local stations now facing increased, unregulated competition from hundreds of cable and satellite-delivered systems are finding themselves in dire times, threatening their position and ability to serve their communities.

So who wins by further regulating over-the-air television stations? Who wins by the delay in changing local-ownership rules and the lack of adequate consideration of those changes to the rules for small- and medium-market television stations? Clearly, not broadcasters who are prevented from becoming more efficient and are saddled with further expensive obligations that their competitors do not face. And clearly, not the communities served by these broadcasters.

It is time for the FCC—with its new chairman and commissioners—and Congress to recognize that relief is necessary and that further obligations threaten the system of local broadcasting that has served these communities for more than 50 years.



Author Information
Mark R. Fratrik, Ph.D., is a vice president of BIA Financial Network, a financial and strategic advisory firm serving the media and communications industry.

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