June 25, 2018

If the Federal Communications Commission agrees, another regional TV station owner, Gray TV will become a national powerplayer. Gray, based in Atlanta, said it has completed a more than three and a half billion dollar deal with Raycom to become the third biggest owner of local TV stations in America. If the deal goes through regulatory approval, Gray will emerge with 142 stations serving 92 markets. Raycom is privately owned. Gray stock jumped more than 11 percent after the announcement.

The new company will include markets as big as Cleveland and as small as Ottumwa, Iowa. The press announcement said the new company will include 62 television stations ranked first in all-day Nielsen ratings in their local markets, which is the highest number of top-ranked television stations owned by any broadcaster, according to Gray.

The press announcement said both companies will provide top management to the new ownership:

Gray in particular is delighted to announce that, upon the closing, Raycom President and CEO, Pat LaPlatney, will become Gray’s President and Co-Chief Executive Officer. In addition, Mr. LaPlatney and Raycom’s former President and CEO, Paul McTear, both of whom are currently members of Raycom’s Board of Directors, will join Gray’s Board of Directors. At that time, Hilton Howell will become Executive Chairman and Co-Chief Executive Officer of Gray.

The new company will have to sell off stations in nine markets where both companies already own stations. FCC regulations limit ownership in the same market. The company says the sale will produce:

• 62 television stations ranked first in all-day Nielsen ratings in their local markets, which is the highest number of top-ranked television stations owned by any broadcaster.

• 92 percent of markets with the #1 or the #2 Nielsen rated local television station.

Raycom also is unusual in today's broadcasting business in that it also holds, and now will spin off, a number of print properties including community newspapers and other properties in 23 states. 

The FCC opened the gate to megamergers like this last year when it eased restrictions on ownership. Smaller regional owners may be feeling the heat to grow or be eaten. Last week, Disney and Comcast jousted over the purchase of Fox. The federal courts recently approved the AT&T/Time Warner merger. Sinclair Broadcasting Group is still awaiting federal approval to purchase Tribune Broadcasting amid protests. Late last week, Sinclair was still in conversations with the Justice Department about what properties Sinclair would have to divest to get the fed's approval. Last year, another local owner, Nexstar, purchased Media General putting it in the top echelon of local owners as well. 

What's behind the merger mania?

There are lots of reasons for local broadcasters to want to grow. They increasingly need leverage to bargain with cable companies for retransmission compensation, which has become a significant source of income for local owners. They also are feeling pressure from networks and syndicators to pay more for programming. Bigger ownership means more power to make better deals. Technology also allows local stations to hub some operations including master control, graphics production, business offices and recruiting. Bigger owners also provide upward mobility for staff to grow from small markets to larger operations.

But why would anybody buy television stations when younger audiences increasingly are turning away from TV, especially local TV news? The real opportunity for big media owners may not be in the present, but in the future as over-the-top (OTT) viewership (like Netflix) grows. Local stations may find digital subscription models will open new revenue streams in addition to their over-the-air programming. As Forbes pointed out recently, OTT will create a new advertising model for broadcasters, putting them on the same footing as social media and search engines in being able to deliver micro-targeted advertising:

Today, OTT delivers the best of TV with the capability to precisely target viewers down to the zip code level, and use factors like demographics, lifestyle and interests. More advanced analytics tools are enabling advertisers to target the right audience, buy the highest quality inventory and measure OTT campaign results more effectively. 

Broadcast owners are also optimistic about what they call Next Gen TV. (also known as ATSC 3.0) Broadcasters believe it will usher in a new way to deliver ads and content on demand. The National Association of Broadcasters explains how it will work on mobile devices without gobbling up your phone data:

Next Gen TV also supports enhanced mobile reception, so viewers can access unlimited live local and national news, the most popular sports and entertainment programs and children's shows on mobile devices – like your smartphone or tablet – over the air without having to rely on cellular data services. That means you won't run through your data cap, and there's no monthly fee – broadcast TV is free.

Next Gen TV is based on Internet Protocol (IP), just like online video services, and uses web languages for interactivity, so you can expect more innovation and new services in the future, and opportunities to bring you the best combination of online and broadcast television.

The NAB recently estimated that the first ATSC 3.0 televisions may be available for purchase by Christmas 2020. In addition to the new delivery paths, local TV stations are thrilled by the technology called "return data path" that will allow them to know precisely what Next Gen viewers are watching, much like websites can track web analytics. That same "return data path" may also allow broadcasters to deliver advertising that is tailored to viewing habits and interests, again similar to web delivery now.

It is still uncertain how broadcasters will deliver this ultra high-definition signal to mobile devices, but they dream of being able to send programming to your phone. It may be that phones of the future will have ATSC 3.0 receivers built in. CNET has a deep thoughtful piece on all of this.

So big mergers like the Gray/Raycom deal are partly based on the power and profitability of local television, but it is also a multi-billion dollar bet on a quickly emerging technology that may be a game-changer for the future of broadcasting.  

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Al Tompkins is one of America's most requested broadcast journalism and multimedia teachers and coaches. After nearly 30 years working as a reporter, photojournalist, producer,…
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