Will Philly TV stations cash in their chips?
The Federal Communications Commission has laid out a plan for local TV broadcasters to voluntarily relinquish their frequencies, in return for a huge payday.
There may be fewer local TV channels on the air next year in Philadelphia and other markets, if broadcasters are willing to take the money and run or downsize their operations as participants in the so-called "broadcast incentive auction" firmed up by the Federal Communications Commission on Thursday.
"We've got sixty days to say if we'll participate," said a local station manager talking "off the record, so as not to tip our hand. Of course we're considering the options. The potential payouts are staggering."
Philadelphia ranks as the fourth biggest television market in the U.S. by audience rating service Nielsen. But given the heavy demands – now and in the near future – contemplated by spectrum-craving mobile phone companies, our beach front broadcast properties rate third most valuable nationwide, in a projected compensation chart put out by the FCC to encourage auction participation.
The agency guesstimated the opening bids to acquire a single Philadelphia station's 6 MHz of bandwidth could loom around $400 million when the auction process commences March 29, 2016. Such would represent an especially huge and attractive payday for a low-profit, non-network aligned station now focused on religion, infomercials or vintage TV shows. Ion Media, operator of multicasting Philadelphia channel 61, was one of the first station groups to jump in for a serious auction discussion with the FCC, reported the website TV Technology.
And in a viewing market like ours that has multiple public broadcasting stations (WHYY12 and WYBE35 in Philadelphia, plus South Jersey's WNJS 23 and Lehigh Valley's WLVT39) all begging for subscriber bucks, one or more of those players might opt to use that auction moolah to pay off debts and morph into something even more attractive, current and cost efficient. Say, a web-streaming, on demand video service.
So what's wrong with this TV picture? "In a normal auction, you start with an opening bid and go up from there," said veteran Washington, D.C.-based communications attorney Peter Tannenwald. "In the broadcast incentive auction, the bidding will most likely down. The first offer is a tentative number to see how many participants are willing to sell at a certain price. Then if six stations say 'count us in at $400 million' and the wireless bidders really only want the bandwidth of four, they'll then lower the price to see who hangs in and who drops out. 'Will you still participate at $350 million? At $300 million?' The actual payout per station might be a lot lower, in the $200 to $250 million range."
And that's just one of many issues that could give a station pause, even in this day and age where the competition for our eyeballs is ever expanding and a broadcast station's "share" of the audience keeps shrinking:
The FCC says it will be okay if one station makes a deal to "share" its current frequency space with a rival. An NBC 10 could lease part of its bandwidth to a CBS3 and viewers might be none the wiser. But both stations would likely have to give up on the extra (.1 and .2 channels) currently carried, like NBC10's "classic TV" focused Cozi.
Stations could also make money by agreeing to move to a less desirable frequency location with lower signal reach. But if the FCC doesn't get enough broadcasters to relinquish their space, those moved will be sent to a newly carved out "duplex gap" between the data uploads and downloads of mobile phone operator services. That's "a haphazard variable band plan destined for decades of interference disputes," said Dennis Wharton, the National Association of Broadcasters executive vice president of communications.
Verizon and AT&T have been the major lobbyists pushing for this spectrum auction, "not because they need more bandwidth for mobile phone service, but because they want to get into the streaming video business. Verizon has already said and demonstrated as much," said Tannenwald. In essence, they'll be creating even more competition for remaining broadcasters.
Station owners who cash it in now will lose out on the opportunities possible with the next generation digital TV format looming on the near horizon, ATSC 3.0. "It'll be a lot easier for broadcast TV viewers to upgrade their current digital sets to ATSC 3.0, with just a little box or addition to their antenna, and the format will be much more efficient, ready to carry much higher resolution Ultra High Definition broadcasts or allowing as many as 20 TV and data services to be carried simultaneously in a single 6 MHz channel," said Tannenwald.