WASHINGTON — Speakers at a conference of broadcasters here last week described new revenue sources that may make the difference between profit and loss for U.S. broadcasters.
And there was bad news for streaming media on line — which turns out to be good news for radio stations.
First, here’s a look at that new revenue for television.Actually, it’s not that new: it’s just suddenly getting bigger – billions of dollars bigger. That new money is from political ads, a revenue stream turning into a veritable Mississippi River of money, and it comes at a time when the local TV ad business is falling rapidly – down 20 to 40% year over year – and may represent the margin of profit for U.S. television stations as early as next year.
Political ads have now grown into a multi-billion-dollar business, and there is no sign candidates will reduce their ad spending any time soon. (See “2008 Political Ads Worth $2.5 Billion to $2.7 Billion,” Broadcasting & Cable, December 2, 2008, and discussion in the 2009 edition of The State of the News Media)
More good news for TV stations: off-year political spending, in those odd-numbered years when there are no federal elections for President, Senate or House, is increasing rapidly, courtesy of issue ads. We’re seeing more and more, and as Congress debates major new federal programs for health care, energy and other big-ticket items, the people with money at stake will be buying their way onto a television screen near you.
This may or may not be good for American democracy, but it is good news indeed for the bottom line at TV stations.
The second revenue stream for TV broadcasters is, well, cable. Yes, over-the-air broadcasters can and do collect per-household payments from cable TV and satellite companies, just like CNN or MTV, courtesy of an act of Congress. Here is how the FCC describes it: “The Communications Act prohibits cable operators and other multichannel video programming distributors from retransmitting commercial television, low power television and radio broadcast signals without first obtaining the broadcaster’s consent (Cable Carriage of Broadcast Stations, FCC).
And once a few pioneering TV station owners discovered they could charge for that consent — just like CNN or MTV – their fellow broadcasters decided to join the bandwagon. And like political advertising, the fees are rising so rapidly that they are becoming billion-dollar boosts to TV stations’ bottom lines – at no cost whatsoever to the stations.
Is this a good business, or what?
You bet, say station owners.
Now, wait just a minute, say ABC, CBS, Fox, NBC and other networks: The reason cable and satellite operators are paying stations all that money is not because of local news and syndicated "Seinfeld" reruns. No, the reason stations are reaping these big fees are because of CSI: and American Idol programs produced by networks, not by stations. So much or most of the “retrans consent” fees should come to the networks, not the local stations.
Watch that space. Or as William Goldman famously wrote (and Deep Throat evidently never said), “Follow the money.” It’s always good advice.
Now for the bad news for streaming web sites – which may be good news for radio.
That news is Performance Fees.
Performance fees would be mandated by legislation now before Congress, requiring radio stations – including Internet radio stations – to pay fees to musicians whose recordings they play. The fees scale up to 5% of a station’s gross revenues. Performance fees are strongly opposed by the National Association of Broadcasters. But it turns out these new fees could help, not harm, radio stations.
Here’s why: They would stifle Internet radio, a growing source of competition to radio broadcasters. Internet streaming is typically low-budget, undercapitalized and often a one-person operation. The new payments will drive many if not most of them out of business. (They could also drive many of them offshore, outside the US, 21st century digital versions of the 20th century pirate radio stations that broadcast from transmitters located offshore on ships outside of territorial waters.)
By contrast, many if not most U.S. radio broadcasters can afford the payments. So if enacted, performance fees, intended to benefit artists and performers, will also be a new cost of business — and a new barrier to entry for some of the most creative Internet radio sites.
Some radio broadcasters may also not survive the new fees: Cathy Hughes, founder of the African American-owned Radio One stations, predicts the demise of many black music stations, especially the small gospel music outlets, which have little or no profit margin. And note recent protests targeting one of the bill’s sponsors, Rep. John Conyers.
As with the growth of political advertising, performance fees may or may not be good news for democracy. But it is good news, indeed, for much of the radio business.
Credit where credit is due: Most of these data come from a fascinating presentation by a panel of media analysts from Wachovia Securities. Unlike politicians and public interest groups (often politicians by another name), the only metric that interested these bankers is whether their broadcaster customers can repay their loans. At least it kept the calculations clear.
And if you are curious about what your faithful correspondent had to say to a bleary-eyed 8 a.m. audience, you can view it here.