Would the big U.S. TV networks sell their stations?

Earlier today, TVNewsCheck ran a story about the positions of the Big 4 U.S. television networks (ABC, CBS, Fox and NBC) on ATSC 3.0. The Advanced Television Systems Committee (ATSC) administers the U.S. standard for digital terrestrial television broadcasting, and ATSC 1.0 is the system currently in use. ATSC 3.0 is intended to implement capabilities that are limited or missing in the current standard, including support for image resolutions beyond HD. Most importantly for many broadcasters, however, is that ATSC is intended to bring mobile TV reception to parity with the fixed HDTVs that we use today, The broadcasting industry realizes that an ever-increasing percentage of its audience is watching television outside the home on smartphones and tablets, but today, access to those devices is mediated by the mobile phone carriers (AT&T, T-Mobile, Sprint, Verizon, etc.). Broadcasters want direct access to those devices and viewers, and are hoping that ATSC 3.0 will give them that access.

The transition to ATSC 3.0 won't be without problems: Broadcasters spent many billions of dollars on new cameras, production equipment and transmitters to move from analog to digital television. Moving from ATSC 1.0 to 3.0 probably won't entail that level of investment, but it will still be expensive for broadcasters. In addition, smartphone manufacturers, mobile phone carriers and consumer electronics companies will have to be convinced (or required by law) to support the new features of ATSC 3.0 in their products. That will take time--potentially as long as ten years.

According to TVNewsCheck, both ABC and CBS have gone on the record as withholding their judgment on ATSC 3.0. Both NBC and Fox support ATSC 3.0 in principle, but both are waiting for more details of the standard to emerge before making a commitment. That led me to wonder whether the network broadcasters actually want or need to make the investments needed to support ATSC 3.0 in the television stations that they own.

All of the top four commercial television networks in the U.S. own and operate several television stations in major cities; in the industry, these are called O&Os (for Owned & Operated.) For example, all four networks own and operate stations in New York, Los Angeles, Chicago and Philadelphia. In Dallas-Fort Worth, all but ABC own and operate their own stations; in San Francisco-Oakland-San Jose, all but Fox own their own stations. The local stations are a big source of revenue and earnings for the networks; for example, in 2013, CBS's network had gross revenues of $8,645 billion and operating income of $1.593 billion, while its local Owned & Operated stations, both television and radio, gross revenues of $2.696 billion and operating income of $807 million. On a percentage basis, the local stations, while not the most profitable unit of CBS, made a much bigger profit than the network (30% vs. 18%.)

On the surface, it seems obvious that CBS, and the other big networks, should keep their stations. However, when you look further, the choice becomes less clear:

• The major networks could easily get $1 billion or more for each of their stations in the top U.S. markets, and those sales would be taxed as long-term capital gains, not ordinary income.
• The networks are already getting a significant amount of their income from retransmission fees charged to cable, satellite and IPTV video operators. They get those fees directly from the video operators in the markets where they own stations, and indirectly in other markets through the fees that they charge their affiliates for carrying their programs. If the networks sell some or all of their stations, they would get affiliate fees from those stations without any of the costs of operating the stations.
• If the networks no longer own over-the-air stations, they would no longer be directly subject to FCC rules. That means no more multi-million dollar fines for "fleeting expletives" or unplanned nipple slips. The networks would still have to abide by FCC content rules to protect their affiliates, however.
• Over 90% of U.S. households already get their television via cable, satellite or IPTV. Over-the-air reception is increasingly an anachronism.

As little as ten years ago, it would have been unthinkable for the Big 4 networks to sell their stations--if anything, they aggressively wanted to buy more. However, since then, we went through the 2008 Great Recession, which hammered local ad revenues. Network television viewership has been declining for several years, and ratings for many of today's successful network series would have guaranteed their cancellation just a few years ago. Now, many industry analysts are forecasting that digital will supplant broadcast television as the biggest recipient of advertising revenue within the next few years. If the Big 4 have the choice between spending billions of dollars to upgrade their stations to comply with ATSC 3.0, or making billions of dollars from the sale of their stations, it's looking increasing likely that sales, at least of their smaller-market stations, will make more sense.

TWiT, Revision 3 and...Keith Olbermann? Television networks on the cheap

Update, February 8, 2011: In a teleconference this morning, Keith Olbermann and Current TV announced that Olbermann will do a nightly news and commentary show on Current beginning in Spring 2011, become the company's Chief News Officer and have an equity stake in Current Media.

Update, February 2, 2011: I fixed all of the capitalization errors for Leo Laporte's name (it's Laporte, not LaPorte, although he's known as "The Door" to his friends). In addition, NewTeeVee reported today that Revision3 reached profitability in the last quarter of 2010 and claims that it's the number one "over the top" television network in terms of viewers.

Last week, TWiT Network owner Leo Laporte signed a lease to move his operations from his farmhouse in Petaluma, CA to a 9,400 square foot building formerly occupied by the audio software company Bias. TWiT will turn it into multiple television studios, a radio studio and business offices. The TWiT Network is entirely Internet-based, although Laporte also does conventional radio and television shows for other outlets.

TWiT didn't arise out of a vacuum. Laporte was one of the central figures in the creation of ZDTV, which originally started by producing programming for MSNBC and became a 24-hour cable network focused on technology news and information in 1998. ZDTV immediately ran into problems getting (and paying for) cable carriage, as well as advertising, and in 2000, it sold out to Paul Allen's Vulcan Ventures and changed its name to TechTV.

Allen and the programming team he put in place at TechTV tried a variety of programming approaches, but nothing worked to make the business profitable (and no one approach stayed in place long enough to build and sustain an audience). In 2004, Allen sold TechTV to Comcast, which merged the channel with its G4 games-oriented cable network and renamed or eliminated most of TechTV's programs. Today, only two of TechTV's on-air hosts remains at G4.

Laporte didn't make the move to G4; he stayed in Northern California and started the "This Week in Tech" podcast, from which TWiT gets its name. Laporte added more podcasts, then began simulcasting some of the podcasts with video, and eventually added some video-only shows. Last August, the Los Angeles Times reported that TWiT's revenues were $2.25 million in 2009 and were on track to reach $3 million in 2010, with 10 full-time employees and 30 to 40 contractors. Not a huge business, but profitable, according to LaPorte.

One key to TWiT's success is that Laporte has scaled its growth to fit its revenues. He still runs it out of his Petaluma farmhouse, and he's kept the operation "bare-bones". Even with the move to a larger facility and Laporte's intention to eventually offer programming 24/7, it's still operating on a much smaller scale than ZDTV or TechTV ever did, and that's essential to its success.

Another ZDTV veteran, Jim Louderback, runs Revision3, a spin-off of Digg (which was co-founded by yet another TechTV survivor, Kevin Rose). Revision3 is also an Internet-based news and entertainment video network, and in addition to his duties there, Louderback is a columnist for Advertising Age. He recently wrote about cable network WealthTV's decision to create a channel for the Roku set-top box, and in a follow-up article, suggested that cable networks that have been unable to get much carriage from U.S. cable, IPTV and satellite operators could follow WealthTV and create their own over-the-top Internet video channels.

The problem for these cable networks (Louderback calls them "zombies") is that the can't simply move their operations to the Internet and hope for a better outcome. Instead, they have to scale their operations to the revenues that they can generate from the Internet. They don't have to pay for carriage, but they're going to have an uphill climb to earn any significant subscription revenue. (TWiT gets the vast majority of its revenue from advertising.) That means that they're going to have to dramatically lower both their costs and their expectations.

That brings us to Keith Olbermann. Keith Olbermann? U.S. readers probably know that Olbermann anchored the most popular program on MSNBC, "Countdown with Keith Olbermann", until last Friday. Initially, it was thought that NBC, the owner of MSNBC, fired Olbermann, or that Comcast, the soon-to-be owner of NBC Universal, had played a role in the decision. However, it now appears that Olbermann wanted to leave the network and NBC wanted to get rid of him, so they worked out a mutually-convenient settlement.

Olbermann spent eight years at MSNBC, but he's bounced around among many networks for years, including CNN, ESPN, Fox Sports and a short previous stint at MSNBC. The only option he's had over the years has been to go to work for a different network, but the Internet offers him another option. The Huffington Post and The Daily Beast have both built large, profitable audiences on the Internet from nothing in just a few years (The Huffington Post, in less than six years, and a little over two years for The Daily Beast). Olbermann could create his own Internet video network, operating at low cost (like TWiT) while providing a forum for a variety of outside contributors (like the Huffington Post). Whether it would make enough money to keep Olbermann interested is a separate issue, but it would enable him to work as he wants without answering to a phalanx of corporate management.

The wheels keep turning: Dan Rather went to HDNet and Conan went to TBS. Could Olbermann go to the Internet?

Episode 4 of the Feldman File videoblog is live!

It's Sunday night, and that means that I've posted a new episode of the Feldman File videoblog on YouTube! Here's the rundown for this week's edition:

• Apple's less-than-earthshaking announcement about adding the Beatles' music catalog to iTunes
• Sony follows up on its Super 35MM camcorder, the PMW-F3, with yet another Super 35MM camcorder, the 35MM NXCAM
• U.S. cable operators lose 741,000 subscribers in Q3--are consumers really cutting the cord?
• The Obama Adminsitration is looking for 500MHz of additional broadband bandwidth, and the National Telecommunications and Information Administration found 2.2GHz of bandwidth available within ten years. So, do we really have a bandwidth shortage?

Pace to acquire 2Wire for $475 million

On the heels of passing Motorola in the worldwide set-top box business, Pace will acquire 2Wire for $475 million. 2Wire supplies DSL routers for AT&T and other service providers, and also supplies media management software. Pace has recently been chosen to provide next-generation set-top boxes to Comcast, so the addition of 2Wire will give Pace an excellent position in both the U.S. Cable and IPTV markets.

I'm now available full-time for work...

I suspected that my employer was going to let me go in a few months, but they showed the motivation, forward-thinking and determination that's a hallmark of the company, and let me go last Friday. As a result, I'm free to pursue full-time work and consulting projects in any area, including eBooks. If you've followed my blog for any time, you know about my experience and interest in eBooks, new media, consumer electronics, cable/IPTV, Internet services and building successful startups in general.

In both my blog and my business, I'll be able to speak more freely about the eBook business, and a lot of other things as well. If I can help you, or if you want more information, please email me at lfeldman257 (at) gmail (dot) com.