How local TV stations plan to remain relevant as viewers shift to streaming

The technology behind the distribution of television has evolved with time, from the antenna to cable to satellite, and most recently to streaming.

Now, according to EW Scripps Chief Executive Officer Adam Symson, the time has arrived for the next frontier of TV viewing:

The antenna.

As consumers shift away from traditional pay TV and toward subscription streaming services, the digital antenna will emerge as a necessary component of people’s viewing habits, Symson said in an interview.

Americans will need to find other, free ways to supplement streaming services as they max out on monthly subscription charges, Symson said. Broadcast networks, which offer local news, sports, soap operas, game show staples like “Wheel of Fortune” and “Jeopardy,” and prime time content from their national networks, will continue to air must-have content in American homes — even after streaming services replace linear TV as the dominant form of viewing, he said.

“There is no digital platform that reaches the ubiquity and availability of broadcast television,” Symson said. “Everyone is paying attention to the subscription video services. They’re all spending enormous amounts of money in very high-risk ventures, trying to create platforms. But for the average American consumer, if you sign up for all of them, I don’t think it’s economically sustainable.”

The shift to streaming is happening quickly. The average American already pays for four video streaming services, according to a Deloitte survey released this week. Nearly 7 million American households likely dropped their traditional pay-TV service in 2020, a record high.

But there’s significant risk to broadcast station groups — companies including Sinclair Broadcast Group, Nexstar Media Group, TEGNA, EW Scripps and Gray Television — as Americans ditch live linear TV for a mishmash of Disney+, Netflix, NBCUniversal’s Peacock, AT&T‘s HBO Max, ViacomCBS‘s Paramount+, and others.

The biggest existential concern for network affiliates is the hypothetical loss of billions of dollars in retransmission fees as Americans cut the cord and ditch pay TV.

For the past decade, broadcast station groups have collected fees from pay-TV operators — Comcast, DirecTV, Dish, Charter, etc. — for the right to carry their stations. The trend began around 2006 when station groups realized consumers wanted access to their local TV channels just as much as — if not more than — they wanted the most popular cable networks (such as ESPN or CNN) which had long charged carriage fees.

So station groups began turning down so-called “must carry” provisions, which required pay-TV operators to carry local stations and share ad revenue with them, and instead began taking direct payments from the pay-TV operators — with the risk that, someday, the pay-TV operators could change their minds and drop these channels.

That shift led to a booming industry. Total paid retransmission fees paid to station group owners grew from about $200 million in 2006 to more than $10 billion by 2018. They’re still rising. Research firm S&P Global expects fees to top $15 billion by 2023.

Nexstar, the largest U.S. owner of TV networks, took in nearly $2 billion in retransmission fees last year — about 44% of the company’s total annual revenue. Buoyed by soaring retransmission revenue, Nexstar’s total return between 2010 and 2020 was nearly 3,000 percent, making the company the fifth-best performing stock of the decade in the The Russell 1000 large-company index.

Nexstar continues to report increases in retransmission fees. Guggenheim analyst Curry Baker estimates Nexstar will take in about $3 billion in retransmission revenue by 2024. That’s assuming that estimated future upcharges in retransmission fees will more than offset the number of subscribers likely to cut the cord in the next three years. About two-thirds of all U.S. households still subscribe to a linear bundle of channels — either through cable, satellite or a digital bundle of networks, such as Hulu with Live TV or YouTube TV.

Fees may also be protected by a “rebundling” of digital streaming services and local broadcasting channels in a cable look-a-like package that doesn’t yet exist, said John Chachas, a longtime media banker who advised EW Scripps on its $2.6 billion acquisition of Ion Media, which closed earlier this year. In an unusual move, Chachas also personally acquired 23 Ion Media networks to ensure regulatory approval of that deal.

“Inevitably there will be a new streaming distribution platform that will offer a skinnier bundle of subscription streaming services and digital broadcast networks,” Chachas said. “Those platform bundles will have to pay broadcast stations for their local content, as they’re the only ones who will have it.”

But a fundamental shift in how Americans view television could drastically alter those forecasts.

The biggest entertainment companies have spent the past year reorganizing to shift resources to streaming and away from traditional linear networks. It’s possible entertainment companies will offer enough content within the walls of their paid streaming services that broadcast stations will slowly lose favor over time.

There are already signs of this happening. Comcast‘s NBCUniversal and ViacomCBS recently signed an 11-year-deal with the National Football League, whose games are perennially the most popular content on TV. On the surface, this was good news for the broadcast stations, who now have more leverage to keep increasing retransmission fees.

But the deals also give NBCUniversal and ViacomCBS the right to stream local NFL games to paying subscribers of Peacock and Paramount+. That may accelerate cord cutting.

Football isn’t the only content that’s moving beyond broadcast TV exclusivity. NBCUniversal has made “The Tonight Show Starring Jimmy Fallon” available first on Peacock, before it airs nightly at 11:35 pm ET on NBC affiliates. Time shifting programming to favor paid streaming services could upend the value of broadcast TV entertainment, which has historically aired prime time shows first.

There are no retransmission fees associated with an antenna. So while an antenna may help sustain local advertising revenue associated with broadcast TV, it isn’t a good solution for the retransmission problem.

It’s also going to be difficult to convince younger consumers to buy an antenna, said Jack Perry, founder and CEO of Syncbak. About 15 years ago ago, Perry developed a website called AntennaWeb that told consumers which free broadcast stations are available with an antenna. He quickly discovered that while millions of people would use the site each week, it didn’t lead to actual sales of antennas.

“When you say antenna, people think ‘old fashioned,'” Perry said. “If you want to use an antenna, great, but there needs to be a streaming solution.”

If younger consumers reject buying a digital antenna, NextGen TV is a potential answer.

NextGen TV — or, more wonkily, ATSC 3.0 — is 4K over-the-air TV that can be repurposed for streaming. It’s accessible with new smart TVs that come with a built-in tuner. Sony, Samsung and LG already make them.

So far, it exists in only 26 cities. But 14 more are coming this summer and more than 50 by fall, including New York, San Francisco and Miami.

“By merging over-the-air antenna TV with the Internet, local stations will be able to personalize their news, sports, live events and shows with interactive features that give viewers the content that’s most relevant to them,” according to NextGen’s website.

Still, NextGen TV requires a consumer buy a new TV. With so much viewing done on mobile devices, developing a streaming option for local stations is essential.

That’s what Syncbak’s Perry has developed. Syncback debuted a digital platform called VUit, which is attempting to be “the Netflix of live, local and free” broadcast TV. A VUit user can get access to more than 200 local TV stations for free and watch live linear feeds from local stations plus other local content specifically made for the service. The platform debuted in September.

There are also free advertising-supported national streaming services, such as Fox Corp.’s Tubi, which have begun to offer local news feeds. ViacomCBS’s Pluto TV has begun asking local stations for access to their news programming as well, according to people familiar with the matter, but the digital feed wouldn’t be live — which would avoid retransmission payment.

Sinclair Broadcast executive Adam Ware said Pluto executives have asked for access to Sinclair’s 186 stations, but thus far, the company has turned them down. Instead, he’s using this moment in time to develop a streaming service for Sinclair Broadcast Group called Stirr.

Stirr is a free linear service that includes Sinclair station local news programs and other local content specifically made for streaming — and it’s the company’s plan to go direct to consumers. Sinclair has also started making original local content for the service, such as Stirr City, a linear feed of news, sports, lifestyle and entertainment programming based on where a person lives.

“Right now, what’s first in our minds is using content to which we own the rights to drive Stirr, which we think is a growth component of Sinclair,” said Ware. “If you look at the ratings so far, it counters this notion that local stations are nothing but network programming. Au contraire. These stations have meaningful value because of the local content they’re offering.”

Whatever the solution, the key for broadcasters is to start thinking of new revenue streams in case retransmission fees eventually plateau and decline, Perry said. The key ingredient, he said, is more creative hyperlocal programming that only a community broadcaster can provide — content that goes beyond local news, which appeals to an increasingly older audience.

But that’s easier said than done. It’s reasonable to associate hyperlocal video with cable access television or other low budget, little watched programming.

“The focus for local broadcasters really needs to be ‘let’s get our viewers something compelling to watch that you can’t find anywhere else,'” said Perry. “Let’s leverage what we do best, which is covering our communities. And then having done that, let’s bring our local advertisers into the mix. That’s the winning formula.”

Disclosure: Comcast is the owner of NBCUniversal, the parent company of CNBC.

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