Consolidation Leaves MarkOn Operations Business

Mega-deals for local TV stations mean make-or-break profit or loss for many technology vendors
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The $8 Billion in deals for TV stations announced so far this year are starting to have a major impact on the broadcast technology business. Over time, these big-ticket transactions promise to increase demand for some technologies and vendors while creating challenges for others.


Why This Matters
Technology will play a crucial, deciding role as TV station groups look to justify their  shopping sprees.

In fact, tech vendors have also been bulking up their operations, recognizing that maintaining signigicant scale will protect them as the station landscape shifts.

"Consolidation of the stations will continue to produce more deals and consolidation among vendors," says Jonathan Hodson-Walker, managing partner at the investment bank Silverwood Partners.

Hodson-Walker and others also expect the larger station groups to try to standardize their operations around certain vendors and reduce integration costs by limiting the number of suppliers they utilize, which will generally help the larger players. That view was confirmed by data from the International Association of Broadcast Manufacturers showing larger companies are now growing at 6% a year, compared to 4% for the smaller players, reversing a long-standing trend.

"That was not the case until last year," says IABM director general Peter White.

One big acquirer, Sinclair, has long pushed to centralize operations as a way to control costs, and the most recent round of deals is likely to accelerate that trend.

This will include a greater push to centralize graphics, master control, and sales and traffic operations, factors that a number of groups have begun consolidating in recent years. But this push will now also expand into newer areas such as automation, and encourage the adoption of cloud-based services and other newer IP technologies, vendors say. "Operations will get more automated not only at the station level but at the hub," says Brian Cabeceiras senior VP, North American sales at Harris Broadcast.

HD Comes to Town

Although hi-def video seems like old news, an IABM survey earlier this year found that HD upgrades were the third-highest priority among buyers, particularly in smaller markets, where many of the recent station sales to Sinclair, Nexstar and others have occurred.

To boost revenue to justify the deals, these groups are likely to put more emphasis on technologies for low-cost HD upgrades, such as channel-in-a-box solutions, says Ed Casaccia, VP, product marketing for Grass Valley.

Lower-cost ways of launching or improving news operations will also be top of mind.

IABM surveys in the last two years have put technologies for multiplatform content delivery at the top of the shopping lists for broadcasters, followed by technologies for streamlining operations.

As larger station groups look for ways to boost digital revenue, that demand will only increase. "We know that broadcasters are leaving money on the table, because they can't easily repurpose content for multiplatform delivery, says W. Sean Ford, VP of worldwide marketing and CMO at Avid.

Improving multiplatform distribution offers a particularly appealing way to increase the value of acquired stations, Ford and others argue.

A recent consumer survey conducted by Avid and Ovum found, for example, that effective multiplatform strategy can drive on-air viewing, which could in turn boost ratings and sales. That survey found that 14% of consumers try out new shows on websites, tablets or smartphones and that 30% of consumers then return to live TV viewing once they become fans.

The push to better monetize content on multiple platforms will also put more emphasis on metadata, media asset management systems and streamlining workflows, Ford says.

Price Sensitive Giants

Larger station groups are also likely to continue to push down prices for broadcast equipment, says Joshua Stinehour, managing director at Silverwood Partners, which has produced several major reports on consolidation in the broadcast equipment sector.

"The customers will have greater leverage," he says. As the deals are completed, the station groups may decide to standardize on one vendor. In some cases that will mean the "vendors will be competing for greater opportunities" but at the same time it raises the risk that they will lose existing clients.

The groups will also be able to play different vendors who already supply equipment to their stations off each other and push down prices, Stinehour believes.

Recent IABM data would seem to confirm this: It shows that equipment sales are rising fairly slowly while the number of units has increased.

"That shows that they are either paying less or buying less costly product," says White.

Attempts to boost revenue by adding more news programming will further increase demand for smaller, lighter, less expensive cameras and less expensive ways to send video back to stations, such as cellular bonding backpacks that transmit video over 4G and 3G cellular networks.

Lower cost solutions will be in particularly high demand in many of the smaller markets where many of the recent deals have occurred.

But the drop in equipment costs also reflects a general industry trend toward infrastructures based on low cost IT equipment, software and IP technologies, White and others says.

This will likely make the consulting services offered by vendors more lucrative and push station groups to hire more people with IT and IP backgrounds.

How this will impact integrators remains to be seen. Silverwood Partners' Hodson-Walker says that larger station groups might find it less expensive to develop their own in-house talent for major upgrades.

"There may be less of a place for middlemen," he says.

At the very least, these integrators will have to learn new skills for facilities more heavily based on software and IT-centric upgrades.

Cloud-Based Consolidation

The growing prominence of IT technologies and better networks to move content around is also likely to boost the demand for cloud technologies that can be used to centralize operations and share content at these larger station groups.

"With the progress towards an IT file-based architecture, you are quickly moving away from a world where we need to have all the facilities on premise," says Craig Dwyer, senior director, Global Center of Excellence, at Avid. "You see organizations thinking about how they are resourcing newsrooms so they can get more people in the field."

Cloud technologies also allow companies to be more efficient in their use of capital, which would be particularly appealing to the acquiring groups that will be carrying a heavier debt load.

"You can have a very elastic infrastructure where you can scale up to a few hundred new users for a major sporting event and then scale down when the event or show is over," Dwyer says.

These cloud technologies could also be used to centralize a number of newer functions that are currently done at a local level, such as automation, adds Cabeceiras at Harris Broadcast.

"I think in the next year or two we will see automation be a fully virtualized in-the-cloud technology," he says.

"Historically [mergers and acquisitions] in broadcast have been associated with centralization of operations," adds Grass Valley's Casaccia.

The push toward centralization and cloud-based solutions could also increase demand for larger overarching solutions and fewer vendors.

"As these station groups get bigger and bigger they will want to deal with fewer and fewer vendors and standardizing some of their best practices across the group," says Boromy Ung, director of strategic marketing at Miranda Technologies. "If you're a station group buying stations, you want to accelerate your position with viewers and cut operational expenses by consolidating and possibly centralizing operations. Those are the kinds of solutions we have been working on for years so we feel pretty good about the impact of consolation on us."

While merger mania in the station business is likely to encourage greater standardization of vendors and reduce the number of suppliers a station uses, vendors and industry analysts caution that the broadcast industry will remain fairly fragmented with a wide array of approaches.

Casaccia notes that some of the acquiring groups have a tradition of standardizing around a few vendors while others give their local stations greater control over the technology they select. "Right now, there are acquiring companies of both camps," he says.

IABM's White also stresses that their research shows an "interesting counter argument to standardization. Our user surveys continue to show a strong preference for best of breed solutions rather than one end-to-end solution from one supplier. They want the best technology and they want vendors to find ways to get them to work together."

Developing solutions that can easily be integrated with products from other vendors is important both to broadcasters-who are unlikely to throw out perfectly good equipment to instead rapidly standardize around one vendor-and technology providers.

Cabeceiras adds that Harris Broadcast has been very active on standards committees along with aggressively embracing standards such as BXF and MFX that are used to integrate different systems. "It is in our own interest not to have to do one-off integrations of all these devices to get things to work," he says.

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