There has been much talk—
brash and angry in some
circles, conciliatory and defensive
in others—about the
FCC’s coming spectrum payout
plans. But the time to
plan a strategy for action, as
they say in battle anthems,
is nigh.
Not long ago, one broadcast lobbyist said
the FCC’s proposal to pay some broadcasters to
turn over all or part of their spectrum to wireless
broadband was reminiscent of the Bataan
Death March. The rhetoric has softened in the
past couple of months, but when voluntary push comes to shove, will this be a tug of war
or a welcome relief? The answer is undoubtedly
a bit of both, and will depend upon who makes
the decisions for each bit of spectrum and
whether those parties are interested in shortterm
gains or longer-term profits. Either way,
the action will remake the way broadcast signals
are delivered throughout the country.
“The basic rule in Washington is that everyone
must be allowed to keep what they have,”
says Blair Levin, the former FCC broadband
czar, about the challenge of getting spectrum
back from broadcasters and others.
But broadcasters likely won’t be able to keep
it all. There has even been renewed pressure
from the White House, which signaled two
weeks ago that the Department of Defense and
other agencies will need to look in earnest for
precious MHz to give up in the effort to meet
the coming wireless broadband demand.
Meanwhile, the National Association of
Broadcasters continues to make a case for why
broadcasters need spectrum to maintain current
picture quality and for mobile DTV in the nottoo-
distant future. Broadcasters already turned
over more than a quarter of their allocation as
part of the digital transition, they point out,
and would have to give up more than a third
of what is left (120 of 294 MHz), according to
the NAB.
The FCC and the White House have said
that participation in the spectrum auction will
remain voluntary. There would, however, be
mandatory moves of broadcasters as the FCC
frees up swaths of spectrum. But it will stay
voluntary—provided the FCC gets the total it
feels it needs.
Cash boost for some?
Broadcasters with the right vested interest could
benefit from the FCC’s payout, as long as the
price is right. And since the government will
potentially pay out billions of dollars to an industry
in which many are still struggling, there
is some upside, according to Levin.
“Right now, there are some broadcast stations
that, as an ongoing matter, are worth less than
the value of their spectrum,” he says. “What
if there are developments that devalue some
broadcast licensees even more, such as multichannel
video providers developing ways of
having more effective, targeted ads; a court
overturning must-carry; or a new set-top box
that makes the multi-channel video offering
even more attractive?”
The Supreme Court chose not to hear the
latest must-carry challenge, and broadcasters
argue that they have ways of making their service
more attractive. But those are generally the
ones that require using the spectrum the FCC
wants back.
The commission, however, is not targeting
stronger, long-term players in major markets.
Instead, it will be looking at lower-ranked stations
or struggling independents. For those, the
offer may be worth it.
“For a broadcaster in a larger market that has
a station that is not profitable and wants to exit
the business, [the FCC proposal] could be very
interesting,” says Robin Flynn, a senior analyst
with SNL Kagan. “The FCC has been pretty
clear that it won’t be [getting spectrum from] a
major network with a profitable station. So, an
independent or a religious broadcaster might be
one that is interested in the plan.”
Nexstar President Perry Sook says he doesn’t
think it is a “compelling value proposition” for
most commercial broadcasters, but that “there
may be other folks with licenses and spectrum
for whom it would make sense.” Sook says he
has run the numbers on his stations and figures
that if each of his 34 stations were to turn in
half of its spectrum (3MHz), he would get about
$30 million. “That is less than 10% of our revenue.
It is a one-time shot, and then you have
lost all the option value of potential commercial development.” He likens it to getting enough to
pay off only a fraction of debt, “and you have
basically given someone else the right to drill
on your land.”
Flynn says that from an industry perspective,
it makes sense to push back against giving up
spectrum, particularly if the proposal is a reflection
of the government’s long-term view of the
future of broadcasting. But from an “individual
perspective,” she points out, the struggling,
“debtor-in-possession” stations will be looking
at it from a different perspective, which is
whether the FCC’s price makes sense. “For a
financial player, that is really what they are in
the business of doing, monetizing assets.”
While there would be benefit for struggling
stations looking to cash out, might not there
also be a value to stations faced with less inmarket
competition? “You could say to the extent
that there is less spectrum, what there is
becomes more valuable,” Flynn says. “And to
the extent that there are any fewer ad avails that
are sold in larger markets, maybe the ones that
are left are in more demand.”
“That is the way the FCC still looks at the
world,” Sook adds, “that our only competitors
are the other over-the-air commercial TV stations.
We all compete with the same satellite
choices, cable choices and Internet choices.
On the margin it could be slightly beneficial,
but I don’t think it changes the competitive
equation.”
Lynn Claudy, the NAB’s senior VP of science
and technology, recognizes the lure of the money.
“For those that voluntarily want to get out of
the broadcasting business, receiving a payout
as a result of spectrum auctions doesn’t seem
inherently a bad thing, as long as it’s voluntary,”
he says. “But we just don’t have a lot of evidence
that a lot of broadcasters want to stop being
broadcasters.”
And to Sook’s point of mining the potential
value of broadcasting, Claudy suggests broadcasting still has a lot of value beyond what it can
fetch at auction: “It is a viable standalone service
with universal reach, and the only media service
that isn’t subscription-based.”
Claudy also says that if a large number of
broadcasters took the buyout, or had to share
channels, “the diversity and strength of the
overall broadcast service will be weakened.
Broadcasting will not be as compelling an overall
standalone service offering if there are fewer
services available to viewers…That would truly
be a value gap.”
Lonna Thompson, interim CEO of the Association
of Public Television Stations, is not looking
to give up any spectrum. “There are just not
enough concrete details about where that [spectrum
reclamation plan] is going,” she says. “Our
stations are using their spectrum and using it
well for a lot of services.” While Thompson
says she is open to talking and to innovation,
“It can’t be at the expense of the public services
we provide.” She made that point in meetings
with FCC staffers last week.
Minority rules
There would be some irony if the groups that
would most benefit from getting cash out of
their stations by reducing or eliminating their
current or potential future service are religious
or minority broadcasters whose diverse voices
the FCC wants to promote. Ruth Milkman,
chief of the FCC’s Wireless Telecommunications
Bureau, says the hope is that “with the channelsharing
paradigm, it might be a way for smaller
stations to get an infusion of money that would
allow them to continue to operate if that is what
they want to do.”
David Honig, executive director of the Minority
Media and Telecommunications Council,
doesn’t quite see it that way. “A good case
can be made that this voluntary option helps
provide a way for small broadcasters, including
minority broadcasters,” he says, “to have access
to capital, monetize an asset that they may not
have a good use for, and be able to afford to use
those resources to provide better service with
the assets that they retain, and at the same time
providing spectrum that is going to be needed
in enormous quantities.”
Broadcasters will still have some time to figure
out whether they want to participate. The FCC
will need authority from Congress if it wants
to share auction proceeds with broadcasters.
Chances for getting that through the legislature
this year are slim, which would push any rulemaking
on an auction into next year at the earliest.
But as broadcasters know, “nigh” becomes
“now” in the blink of an electronic eye.
