What happens to local cable advertising if broadcasters get the right to put all their multicast channels on a cable system? That's a touchy question in Washington right now. Cable says it shouldn't be forced to run every channel a local broadcaster invents; broadcasters say that's what must-carry is all about.
For local cable ad sales, it could mean more competition. If broadcasters prevail, every broadcaster in town could suddenly have two or three (or more) channels to provide consumers.
Or the scenario could get even more complicated. In April, Emmis Communications Chairman and CEO Jeff Smulyan unveiled a proposal designed to allow broadcasters in a market to pool their excess digital spectrum and, instead of starting new channels, cluster that spectrum to provide up to 30 cable channels that viewers would receive through a broadcast-provided set-top box.
It would be "like" cable—from A&E to Trio, in theory—but far cheaper and with fewer channels. Smulyan competitor USDTV is already up and running with its system in Salt Lake City, and the Emmis plan is attracting interest from big broadcasters.
Of course, if such systems develop, local cable advertising could get hurt some more—by viewers' leaving cable altogether.
So far, Smulyan's initiative has the support of Barrington Broadcasting Co., Citadel Communications Co., Clear Channel Communications, E.W. Scripps Co., Fisher Broadcasting Co., Media General, Meredith Corp., Nexstar Broadcasting Group, Prime Cities Broadcasting Inc., Raycom Media, and Sunbelt Communications Co.
Some skeptical media buyers have wondered whether local broadcasters could afford the tremendous costs of such a huge technological investment. Smulyan notes, though, that broadcasters have already spent $3.5 billion nationally for the digital build-out, so start-up costs would be limited.
"Research has shown the public is interested in a low-cost alternative to cable, with a selected number of targeted cable channels and high-quality customer service," he says. Under his proposal, the public would purchase a set-top box for about $99 and pay roughly $25 a month for service—significantly less than current cable rates—with access to local stations in high-definition and as many as 30 top-rated cable channels.
"Because of the limited upfront cost for broadcasters," Smulyan says, "resources can be focused on creating the first-class customer-service experience that consumers demand."
Still, media buyers wonder about the demand at the local level as well as local stations' ability to mount a challenge to HDTV models like Discovery Channel and ESPN. If Smulyan's plan flowers, local stations would be in high-def, but there wouldn't be enough spectrum space left to present all those cable channels in bandwidth-hungry HD. As interest in HDTV grows, that could be a big problem.
"Whichever channel has the content that brings out the best of HD," says Mike Bologna, manager, iTV/emerging media platforms, at Mediaedge:cia, "they'll have the advantage."
Other media buyers say the wider spectrum would balance the playing field between local cable and local broadcast, with a possible edge to broadcast, which would have greater resources in terms of news and other footage.
"Clearly, HD isn't necessarily the best use of the spectrum, though it could go a long way to helping stations try new things," says Tim Hanlon, senior vice president and director of emerging contacts, Starcom MediaVest Group. "Certainly, multicasting can have a role. Local stations are only just starting to figure it out.
"As an example," he adds, "I commend what NBC's station group is doing in coming up with a weather-alert channel. I'm sure that we're going to see some more things to come from the NBC Universal team, in taking the Universal content and using their channels to promote their movies. In turn, that will help their local affiliates. The beauty of multicasting is that it's limited only by broadcasters' imaginations.
"The down side for cable operators is that advertising that goes to multichannels won't be coming to local cable."
Opening up bandwidth for multicasting for locals could mean more 24-hour local news or sports channels, Hanlon adds. "Since those formats are so popular in the cable universe, it makes perfect sense to extend those kinds of franchises into other channels," he says. "It's a great way to amortize your talent costs, to amortize all the footage that never makes it to the 6 or 11 news; it's a great way to amortize your editorial resources. The 11 o'clock news could just be a 'best of' all the things that ran on your other channels. All the signs point to that being the route."
Decisions on these issues will be coming faster than many in the industry think. Smulyan expects his initiative to become reality by next year.
He does have his doubts about multicasting. "Most of the channels that have value are channels that are already there," he says. "We're certainly open to any new channels that can be created, but there's so much saturation, we're not sure that there's a lot of demand for new things. The point is, whatever the audience wants, we want to provide it. And we think most of that is the local stations in high-definition and some of the cable channels that have the greatest viewership. The only concerns we heard were along the lines of 'We've never done this before.' And I haven't found anyone who doesn't think this is a good idea."
Whether or not multicasting takes hold, local broadcasters are poised to reap the benefits after losing audience share for so long. "Over-the-air isn't necessarily a dinosaur," Hanlon says.
For broadcasters, the issue is twofold: what to do with the new-found spectrum that can have other-than-traditional broadcasting use, and how to ensure that the signal is distributed properly.
"I think a lot of people see the edges of the future in their rearview mirror," says Hanlon. "They're not seeing it as a pressing day-to-day matter yet. But they will, sooner than they think."
And cable operators can be edgy about that.