Local TV Stations Face Structural Challenges to Revenue Model

By Gary Kim April 21, 2014

Aereo, along with the broadcast TV networks and their local affiliates, will have a key U.S. Supreme Court hearing on April 23, when broadcasters challenge the legality of Aereo's “subscription broadcast TV online” service.

But some might argue that no matter what is decided, or not decided, the outlook for most local broadcast affiliates has structural similarities to the position many independent and rural telcos find themselves facing.

Eventually, one might argue, many local TV stations, which are distribution networks for video entertainment, will find it difficult to impossible to exist, after most video entertainment has shifted from linear to on-demand and Internet-delivered modes.

The value of a local TV station arguably lies in the network programs supplied to it by the national TV networks that will eventually shift to on-demand delivery as well.

Once the major TV broadcast networks shift to direct distribution using the Internet, local distributors are not needed, one might argue.

Small telcos face a similar, though not identical, structural problem. Demand for voice services has shifted to mobile. Demand for video entertainment will shift to the Internet. High speed access then remains the primary product a small telco can sell, but even there will face competition from mobile broadband.

The biggest problem is simply whether any telco can sustain itself solely on the strength of high speed access revenues.

For local broadcasters, revenue faces a long-term structural decline, as viewership and advertising revenues drop, even if not so dramatically, yet.

New sources of revenue, especially “retransmission consent” revenue (payments to broadcasters by video service providers for the right to retransmit their signals) has provided an offset to advertising dips.

In 2012 BIA/Kelsey estimates that retransmission consent contributed an average 6.5 percent of total local television stations revenues.

Such payments are expected to grow to 9.5 percent by 2017.

"Local is shrinking and revenue has been down year over year," said Joel Espelien, senior analyst for TV technologies at The Diffusion Group. "Right now the re-transmission rights are all that is sustaining local, so it is clearly on the decline without any help from Aereo.”

So, long term, it might not matter how the Supreme Court rules. Even if broadcasters find themselves on the losing end of a decision, they have the option of convincing the U.S. Congress to pass a law making services such as Aereo unlawful. 




Edited by Stefania Viscusi

Contributing Editor

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