Making DTV Pay: Leveraging The Secondary Channels
Making money: It’s the reason commercial TV broadcasters exist, despite what the FCC may believe. So when it comes to the millions of dollars U.S. broadcasters have spent installing DTV transmitters and the infrastructure to support them, any ideas that might convert these expenses into profits are welcome.
One such idea is to offer additional programming on a broadcaster’s secondary digital channels; specifically the DTV spectrum that remains after the broadcaster’s HDTV feed is taken care of. Such multicasts can be akin to getting a second or even a third broadcast license (or more when there’s no HDTV programming). However, they will only pay off if the content being shown makes money, which is what broadcasters are in business to do.
Mindful of this opportunity, many U.S. broadcasters are already staking their claims in the secondary digital space. To date, “of the 1,614 U.S. stations that are broadcasting in digital, 632 are multicasting,” says Dave Cechota, director of data product development for Decisionmark Corporation (www.decisionmark.com), which provides software and data solutions to broadcasters. On secondary digital channels, “weather is huge,” he says. “Also popular are local news and sports, but nowhere to the same degree as weather.” The national average of channels per multicasting station: 2.8.
Of course, the fact that broadcasters are profit-oriented means that many secondary DTV weather channels feature little more than “weather radar loops,” Cechota notes. It’s not exactly what one would call compelling programming, but at least it’s cheap!
Making Weather Profitable
To make secondary digital channels economically worthwhile for broadcasters, they must meet certain goals. First, these channels must offer content that stands a chance of turning a profit both through ad sales and low operating costs. Second, their content should be such that it doesn’t cannibalize viewers from the broadcaster’s primary DTV/HDTV feed. Otherwise, what’s the point?
This is where weather makes such sense for secondary digital channels. Most broadcasters already have their own weather radar systems, plus access to content providers such as AccuWeather. As well, larger stations usually have a meteorologist on hand during the day that is capable of doing double duty on the secondary channel when the news isn’t on.
Such is the model being pursued by WHEC-TV 10 (NBC) in Rochester, NY. Owned by Hubbard Broadcasting, WHEC is transmitting local weather on a secondary digital channel, which is also being carried regionally on Time Warner digital cable.
“We’ve been doing it for a number of months, and it’s pretty basic,” says Arnold Klinsky, WHEC’s general manager. “Our viewers see our Weather Lab radar feed supplemented by an audio voice over, with an occasional on-camera appearance by meteorologist Kevin Williams.”
Despite the fact that this isn’t the most eye-catching of formats, WHEC is selling ads on its DTV weather channel, which is cross-promoted on the station’s main analog feed. However, Klinsky anticipates revenues picking up when WHEC starts carrying NBC Weather Plus on this channel. Small wonder: By combining its local weather data with Weather Plus’ polished 24/7 programming, WHEC will provide its DTV viewers with comprehensive always-on weather information comparable to that of The Weather Channel, but for free.
“We have no doubt that people will tune into Weather Plus, especially because local weather data will constantly be shown in the screen’s graphic L-bar,” Klinsky says. He adds, “we don’t think that people will stop watching our main channel to watch Weather Plus. Instead, they’ll select it instead of The Weather Channel, or other services which already compete with us.”
This value proposition is helping NBC sell Weather Plus to U.S. broadcasters, says NBC Weather Plus general manager Michael Stieb. “Since going live in 2004, affiliates in 85 markets have committed to or are carrying Weather Plus on their secondary DTV channels,” he tells Television Broadcast. “When you factor in our availability on digital cable, this works out to about 70% of the U.S. market.”
When it comes to making money for affiliates, NBC Weather Plus delivers in two ways. First, “each of our affiliates are granted a large chunk of inventory that they can sell locally,” Stieb says. “Second, each of our affiliates is an equity holder in NBC Weather Plus. When we sell national ads, the profits from those sales go back into the company, and are shared with our equity holders.”
The bottom line: If all goes as planned, services such as NBC Weather Plus can help broadcasters turn one of their secondary digital channels into a revenue generator.
Music Videos on DTV: What a Concept!
As the co-founder of MTV and VH-1, Les Garland can safely be characterized as a music video believer. So when he grasped the possibilities of secondary digital channels as moneymakers, it only made sense for Garland to return to music video programming. Now, as president of The Tube Music Network (www.thetubetv.com), Les Garland is marketing a music video service meant to attract eyes and advertisers by targeting the people who buy 55-60% of all music sold—namely the 35 and older demographic!
“We initially considered launching a music channel targeted to the 12-25 demographic for The Tube, but we would have to broadcast very controversial ‘hip-hop booty’ videos on-air to attract them,” he says. “Having fought that battle during my years in radio, at MTV, VH-1, and most notably at The Box in the 90’s, I didn’t want to go there again. Then it struck me: The concerts that are selling out for $150 a ticket are those being staged by Paul McCartney, the Rolling Stones and Prince. These are the major acts favored by the 35-plus crowd, whose music isn’t being played on radio or television!”
Add the fact that today’s teens are getting into their parents’ music—“some teens know every single song that Paul did,” says Garland—and an older-skewed format makes sense.
This said, “we’re not trying to do a VH-1 style oldies format,” he notes. “The Tube is honest, has integrity in the music, is simple, intelligent, [and] slightly irreverent while being slightly funny. [Working with Radical Media], we have successfully deconstructed the way music has or has not been on television these past twenty-something years.”
Okay: Let’s talk money. Under The Tube’s affiliation deal, the company gets to sell five minutes of national ads hourly, and provides one minute of sellable hourly ad time to its local partners. “As well, we pool 15% of our national ad revenues, and kick a share of this back to our affiliates,” Garland says. Since The Tube is also targeted at digital cable networks, this pool ensures that the network’s broadcast affiliates effectively get a share of those eyeballs, revenue-wise. He adds, “The Tube’s online music store will make music CDs, DVDs, tickets, memorabilia, rock’n’roll trip packages and more available to our viewers, and share that revenue with our broadcast partners as well.”
So how is The Tube doing in signing up broadcast partners? Well, on April 25, 2005, the company announced that Raycom Media would be launching The Tube into 29 markets later this year. “Raycom’s broad national reach, encompassing affiliates of Fox, ABC, NBC, CBS, UPN and WB, will provide local viewers capable of receiving new digital television signals the most innovative offering of music programming in more than two decades,” said Raycom Media CEO Paul McTear.
Given Garland’s impressive track record, The Tube’s slick production values, and the fact that an all-music video channel is once again a novelty in America, one would expect this format to be a winner in the secondary digital space. At the very least, The Tube gives broadcasters something strikingly different to put on secondary digital, as long as they don’t ruin the video by compressing it to death, which some viewers of The Tube have complained about.
Just the Beginning... The two formats noted above are just some of what’s possible for the secondary digital space. Both have been adopted by the Sinclair Broadcast Group, which is running The Tube and an AccuWeather-based weather service on WNUV 54’s (WB; Baltimore) secondary digital channels.
Other potentially profitable secondary digital formats include local news and sports, plus national alternatives thought up by the networks themselves. For instance, during the Association for Maximum Service Television’s 19th annual convention in Washington DC on October 5, 2005, CBS Executive Vice President Martin Franks said that his network is planning a second network-style program feed called CBS.2. According to MediaWeek, Franks said the new service’s lineup “complements or counterprograms, frankly, the mother ship.”
Then there’s U.S. Digital Television (USDTV). Taking advantage of broadcasters’ opportunistic or left-over spectrum, USDTV offers consumers approximately 30 all digital channels, comprising local digital and HDTV broadcast channels and 12 leading cable networks, including FOX News Channel, ESPN and The Disney Channel, for less than $20 a month. It’s cable without the cable or, if you prefer, digital MMDS.
USDTV leases spectrum from its television station partners in each market, providing those stations with DTV secondary revenue. Meanwhile, consumers receive the USDTV service through a VHF/UHF antenna connected to a proprietary USDTV set-top box.
The service is currently being tested in three pilot markets, Salt Lake City, Albuquerque and Las Vegas, and commercially launched in the Dallas/Fort Worth market on November 14. Planned technology upgrades include the introduction of video on-demand content and digital video recording services.
Last month, USDTV signed a $25.75 million funding agreement with an investment group that includes Fox Television Stations, Hearst-Argyle Television, McGraw-Hill Broadcasting, LIN TV, Morgan-Murphy Stations and Telcom DTV.
Whatever broadcasters choose to put on their secondary digital channels, there is money to be made. In fact, Kagan Research (www.kagan.com) predicts that “a TV broadcaster can make anywhere from $7.3 million to $206 million in cash flow in year 10 by operating a multicast cluster of digital broadcasting channels,” says Kagan research associate Patrick Johnson, author of HDTV Spectrum Monetization 2005: The Economics of Datacasting & Multicasting.
To accomplish this, such channels will have to offer compelling content, Johnson tells TVB. “That’s really at the heart of the whole multicasting issue,” he says. “As well, unless you offer new channels that attract new viewers to your company, you run the risk of simply dividing up existing single-channel ad revenues among your family of multicast services.”
This isn’t to say that carriage doesn’t matter, because it does. “That’s why the broadcast lobby is doing everything they can to get approval for mandated multicast must-carry [on cable and satellite],” says Johnson. “ If they do prevail and are granted carriage, then the content they provide will not have to be ‘as compelling’ as it would if they were to privately negotiate carriage of the channels.”
Ironically, one of the best ways to win this fight is “to get our multicast channels into the home over the air, without having to rely on satellite or cable,” comments Mark Aitken, Sinclair’s director of advanced technology. “Once you have this DTV access combined with compelling content, then you can leverage it to win space on the satellite and cable bands.”
That said, content is still king when it comes to winning viewers and ad revenues. This is why—when properly packaged—secondary digital channels can make money for savvy broadcasters. Of course, so can primary digital channels, while properly-managed analog channels have been profitable for decades.
James Careless covers the television industry. He can be reached at email@example.com.