Evaluating DTV

Datacasting analysts speculate on spectrum's worth

If you want to talk about generating new revenues in the DTV world, forget about CPMs and start thinking about POPs.

For broadcasters unfamiliar with the term, POP is short for population, and one POP stands for one person. It is an abbreviation coined by the cellular-telephone industry and shouldn't be confused with PoP, or "point of presence," which is an Internet term. And POP may become increasingly important to broadcasters looking to charge fees for transmitting data with slices of their DTV spectrum.

According to bankers and consultants who are trying to put a valuation on the DTV spectrum, broadcasters will need to change their competitive mindset before delivering new data services. Instead of worrying about Nielsen ratings and how they affect advertising rates, stations delivering wireless services for third parties may be judged solely on how many people their signal can reach, which is the way cellular licenses are defined.

"You can't really apply CPMs to datacasting. That doesn't make sense," says Rick Ducey, president of SpectraRep, a division of BIA Financial Network seeking to broker DTV data deals for broadcasters. "What's the next best analogy? It's probably on a POP basis, like cellular."

Says Robert Kricheff, managing director of high-yield research at Credit Suisse First Boston, "For the guys who are in TV for the long haul, it's a matter of switching gears fairly quickly to a slightly different business plan. But, as a business plan, I think it should improve their valuations and let Wall Street realize additional value in the overall television sector, which has been pretty beat up."

Ducey cautions that trying to value the DTV spectrum now is very difficult, since the demand for datacasting services is unclear and the way the spectrum would be used is undefined. He expects that datacasting proponents such as the Broadcasters' Digital Cooperative will look to use the FCC ch. 60-69 auction in September as a benchmark. That auction, originally scheduled for June, has been delayed so that broadcasters, regulators and potential bidders can work out a way to vacate that spectrum before 2006, the date by which it must be turned over under the current rollout plan, barring delays.

But the Cooperative is thinking about values now, says Granite Broadcasting President Stuart Beck, particularly since a wireless spectrum auction in the UK earlier this month netted close to $36 billion. "We intend to soon make contact with those bidding on 60-69," he says, "and we intend to have a major banking house as an adviser at that time."

If one uses the UK auction as a rough gauge, then the DTV spectrum Granite has pledged to the Cooperative would be worth more than $70 million on a straight auction basis, according to one banking source. The UK auction-which was for "3G spectrum" that could be used for two-way applications-netted $35.5 billion for 140 MHz reaching 59 million people. On an MHz-per-POP basis, says the source, the UK bidders paid $4.29.

After its deal with NBC is completed, Granite will control spectrum reaching 15.3 million people. Multiplying the roughly 1.2 MHz (of its 6 MHz of DTV spectrum) that Granite will contribute in each market, by the $4.29 per MHz-per-POP, by the 15.3 million people that could be reached, means Granite's spectrum is worth roughly $77 million.

Pure speculation, of course. But iBlast President Ken Solomon says his company, a consortium of 12 of the largest station groups, has already developed a preliminary rate card for the data-transport services it has proposed. Even with conservative projections, he says, the DTV data service would generate significant revenues for iBlast. "It's wonderful, because the demand is so high. We're already talking to people who could be anchor tenants."