[opendtv] Interview: TV Stations Deserve More from Retrans

  • From: Craig Birkmaier <craig@xxxxxxxxx>
  • To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
  • Date: Tue, 18 Nov 2008 10:07:35 -0500


TV Stations Deserve More from Retrans

TVNEWSDAY, Nov 18 2008, 6:11 AM ET

Last July, Emmis Communications sold WVUE New Orleans to New Orleans Saints owner Tom Benson for $41 million, completing the sell-off of all 16 of its TV stations over three years and marking the end of the radio operator's decade-long foray into television.

Controlled and headed by Chairman-CEO Jeff Smulyan, Emmis remains a major radio operator with strong stations in New York, Los Angeles and Chicago and an expanding presence in Eastern Europe. Radio accounts for about 90 percent of the publicly traded company's revenue; the rest from a portfolio of city and regional magazines and a budding interactive division. In this interview with TVNewsday Editor Harry A. Jessell, Smulyan says he got into TV believing that TV broadcasters could tap into the badly needed second revenue stream of retransmission consent fees. He got out when he concluded that the fees that stations could get were simply not enough.

An edited transcript:

  Ten or 11 years ago, you began accumulating TV stations. Why?

We got into it probably for the same reason we got out. We looked at the business and said, this is a business that needs to be more entrepreneurial and we thought that we could bring that. Furthermore, it obviously needed a second revenue stream. We looked at the retransmission act of '92 and said, look, it's only a matter of time until these guys figure this out. Also, at the time, radio valuations were kind of crazy.

  So why the turnaround? Why did you start unloading your TV stations in 2005?

We were right about it needing to be more entrepreneurial. It was an industry that had really been run, we felt, the same way for 40 years even though the world had changed dramatically. There really were very few entrepreneurs in television.

We also looked at retransmission consent from every angle. First, we said, this is something that you could probably get everybody to come together on. You could either get congressional relief or antitrust relief so that broadcasters could negotiate collectively or get some sort of mandatory arbitration.

If you remember in '92 when the broadcasters tried to get together, [then TCI President] John Malone was the first to get antitrust counsel to raise questions about restraint of trade if broadcasters negotiated together. What's ironic about that is that the cable industry used to negotiate as a group through a whole series of measures. That was just John Malone's brilliance, really, in knocking the broadcasters off their game.

Why did you think broadcasters needed the ability to collectively bargain for retrans?

Because they had no leverage. By '96 or '97, the cable industry was getting stronger and the broadcasters were getting weaker. Today, 11 or 12 years later, broadcasters are just getting weaker and weaker.

But over the past three years, broadcasters, led by guys like Nexstar's Perry Sook and Sinclair's David Smith, have been able to get retrans money.

They're getting some, but not enough. We actually did a study on this to see what it would take to make the business work. We felt that you probably needed to get close to $1 a sub to compete for the best programming, whether it's sports or it's movies or now long-form drama or syndication. Almost everything is going to the other side of the fence.

ESPN is the best example. They get almost $4 [per sub] a month. They start with $5 billion in the bank before they sell a spot. How do you compete with that? You're going to lose everything. I remember negotiating with Direct TV and they said it wasn't reasonable to ask for 15 cents for the CBS affiliate in Portland, Ore. At the same time they're paying ESPN with half of our audience $3.

  So you think it's at least a buck or forget about it?

Well, I don't think you forget about it. I just think Haim Saban is right. Univision ought to be worth at least a dollar. The NBC affiliate in Indianapolis ought to be worth a dollar. It gets back to the same thing: What are people paying for? If the American public understood that they're paying for things they've never heard of and they're not paying for things they really care about. ...
Why didn't the legislative approach to retrans work?

You needed a unified industry and you never could get it. Now part of the reason is because the networks had cast their lot with the cable side and you and I both know that. It was very profitable for them. How can I argue with an ABC executive today who tells me that ESPN is worth 10 times as much as the ABC television network?

  From a financial standpoint, how did you do in television?

We actually made money. We made a few hundred million dollars on it, which isn't bad. We got out at a good time; we got retail prices.

  If you're so smart, why are you still in radio?

I didn't say I was smart. I think anybody who has stayed in the American media business today doesn't look very smart at all. Getting out of TV and staying in radio is like parachuting from the Hindenberg and landing on the Titanic. For all of its challenges, at least radio goes direct to our customers every day, from our transmitter to our customers without a middleman.
What's going on in the radio business these days?

Radio, it's interesting. Look at three big media. Newspaper has three problems. It has a gigantic consumption problem. It has a massive capital cost problem because it's so expensive to produce and it has obviously lost the classifieds. TV's just been fragmented to death and the economics are uneven. Radio's problem is perception. Radio has more people listening today than ever before and even though time spent listening is down, that's less fragmented than TV or newspapers. Total TV viewing is higher than ever, but it keeps getting fragmented by more and more and more players and so the average NBC or CBS affiliate is way down over the last 20 years. Radio hasn't had that kind of fragmentation

Radio's problem is perception. People look at it as a dinosaur. The average person says, well there's iPods, there's satellites, there's cell phones. How can radio survive? That's why radio in small markets has done much better than in the big markets.

  So why is that?

Because the major advertisers have kissed radio off. Major agencies have cut back on radio and that's our fault as an industry.

  So what's the solution then?

I think there are the three things we're doing: No. 1 we've got a major rebranding initiative that the NAB's doing with the RAB and seven or eight of us. Then, my mission is to get radio tuners in cell phones like they are in most of the rest of the world.

  And three?

Three is just massive new national selling. The perception of radio on Madison Avenue is awful and that's our fault. We need to rebrand it.

You are among the few active Democrats in the ranks of stations owners. What do you think Obama will mean to the industry?

At the end of the day, he's going to be very pragmatic. When everybody talks about reregulating the industry, it's always the local TV stations and the [broadcast] networks they're talking about and that's just a small part and the least dynamic part of the whole industry. Look at the fleeting expletive thing: It only applies to 10 percent of the business. The other 90 percent can do whatever they want. I mean, it's craziness.

These are old-style ideas. You've got to regulate the broadcasters. You can't let them combine. You've got to make sure that they do all these things that really are from another time. Somebody's going to have to look at the reality. These industries are suffering mightily.

 "Pragmatic." That sounds hopeful.

The initial response is you've got to regulate it, but I think you really do need to step back and take a look at this industry. Over- the-air TV and radio are really struggling. As I always say, this country loses a lot if it loses free broadcasting.

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