MediaTalk | Season 3 | Ep. 16 - Broadcasters Band Together Over Tech Advancements, Deregulation

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Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with S&P Global Market Intelligence's tech, media, and telecom news team. Welcome to "MediaTalk," a podcast hosted by S&P Global, where the news and research staff explore issues in the ever-evolving media landscape. Today I'm joined by S&P Global Market Intelligence, Kagan, Principal Analyst, Justin Nielson, and Kagan Research Analyst, Peter Leitzinger, both of whom specialize in the broadcast industry. Justin, how are you doing?

Justin Nielson: I'm doing well. How about you, Mike?

Reynolds: Alrighty, Peter, what's going on?

Peter Leitzinger: I'm doing good. Thanks, Mike.

Reynolds: Today we're going to have Peter and Justin return from their recent trip to Las Vegas, the site of the Annual National Association of Broadcasters Convention. First, I wanted to get a sense of what it was like out in the desert and then discuss some of the things that bubbled up on the show floor. Peter, you're an NAB veteran. Number 13 show. Was it crowded out there?

Leitzinger: I thought the attendance was really good. A lot of positive buzz around a lot of different things like AI and advertising technology, as well as NextGen TV. So it was a great show.

Reynolds: Justin, you've got Peter beat, 16 for you, right?

Nielson: I thought it was a good crowd. I actually got there a little bit early on Saturday for the small to mid radio conference that I presented at. And it was an interesting dynamic just because not a lot is talked about from the radio side of the business. With the two conferences being merged a few years ago with the NAB and the RAB, it gives you a different flavor in terms of what's happening in the small and mid-sized markets regarding advertising trends and their own challenges in the radio and audio business. It was interesting to hear from them and then also from the national side, like what's happening in sports, what's happening in AI, and all the different distribution strategies with streaming coming to take share away from the linear business.

Reynolds: Justin, you always give some Kagan information out to attendees, and this time a good focus on radio, right?

Nielson: Yes. We had some new forecasts that came out for the radio business to share. As long as I've been covering the radio business, it's been fairly up and down. There was a peak there in 2006 and 2007, and then we saw the Great Recession of ‘08 and ‘09, a rebound in 2010 and 2011, and then really just a flattening of the business. There was a dip again during the COVID years in 2020. But radio as a medium hasn't really recovered like you would see in the TV business. A lot of that has to do with the streaming providers like Spotify and Apple Music and others taking away listening share. The advertising business overall is shifting its focus away from analog to digital. And the radio broadcasters themselves have always focused on the local markets. In a lot of cases, those local markets have suffered during these recessionary and inflationary times and haven't really recovered in terms of their business model and their ad spend. It is a challenging environment. There are some positive aspects of the business model. It's still a very low-cost ad supplier to the local markets, and especially now that print and newspapers have gone by the wayside. It's really the only way to get those local patrons into the businesses, into the stores, and spending from that perspective. Based on our estimates, we see about a two to two-and-a-half percent decline in the radio business this year. It's about a billion dollars higher than it was in 2020 during the COVID year, but still about two billion below what the pre-pandemic year was in 2019. Still, ways to get back to those levels. From the perspective of podcasting or on-demand audio, in the case of radio, that has been a growth area. Some on the digital side, digital marketing services for local advertisers and live events business have been coming up strong. So there are still some areas of growth in the radio business. It's just a challenging environment for the advertising business, and they don't have the benefit like TV station owners in terms of retrans consent.

Reynolds: Okay. I was going to ask you about retrans a little bit. I think it obviously remains a key revenue stream for the TV business, but it's always being challenged. Justin, what's your take on Dish owner EchoStar filing a letter as part of FCC Chairman Brendan Carr's notice of public rulemaking on eliminating the rule that satellite and cable operators cannot replace "blacked out" local channels during retrans disputes with piping in the national feed from the Big Four networks?

Nielson: It's an interesting conversation around retrans because the industry has been shifting more and more to streaming. Those traditional multi-channel operators are feeling squeezed in a sense in terms of programming costs, including retransmission consent fees from broadcasters that have been increasing in every renewal period. There have been some high-profile disputes with Dish and also DirecTV with the local broadcasters, including Nexstar, TEGNA, and others. In those cases, they have lost signals to local channels during those disputes. From Dish's perspective, they want the option to bring in the national feed for those big four network affiliates and go through the negotiation process with the local stations in those markets. Now, from the broadcasters' perspective, that's all their leverage, right? In terms of these retrans agreements, it's really around these major events that happen when these renewal periods are scheduled. So you've got NFL football, or you've got the Masters, or you have some big event that's happening in the sports realm. That's forcing the issue in terms of negotiating those higher rates in those renewal periods. From the broadcasters' and NAB's perspective, they definitely feel like the retrans rules on the books are currently working as constructed, even though those disputes happen.

Reynolds: Alright, let's switch gears a little bit to the advertising side, guys. 2024. It's an even-year presidential cycle Olympics. A good year for the advertising business overall. Peter, you and I spoke about political advertising and revenue last year a few times, and I think we were somewhat surprised that the numbers grew so high despite the absence of a primary season, at least on the presidential side.

Leitzinger: Yeah, it was very limited. So early in the season, we didn't see a lot of political advertising, and we thought that it could come in a little bit lower. But the second half of the year, with the political climate changing and the number of tight races and all the different issues that came up, we saw political advertising just absolutely surge at the end of the year. Political advertising came in at about 4.1 billion, which was actually a 17% increase from total political ad revenue reached in 2022, and it was a 14.1% increase from political reach in the last presidential election cycle.

Reynolds: Alright, so we're in 2025. It's an odd year, so there's not nearly as much political activity as last year. We did see, I think over $90 million was spent on the Wisconsin Supreme Court's most expensive state court race in history and a real political football. But overall, Peter, I think there's only a couple of gubernatorial races, and I don't even know that there's a lot of big mayoral races going on, so we're looking at a significant drop this year, right?

Leitzinger: Oh yeah. Being a non-political season, we're expecting a large drop. However, political seasons are molding into one giant election cycle. So the down years that we've seen in the past aren't as big as a down year. And so we're seeing a lot of political advertising start almost the day that the election ends. And that seems to be a trend that we're seeing over the last few election cycles. A lot of political advertising after the election is used for posturing for a lot of the candidates going into the political election year.

Reynolds: If you lived here in the New York area, like I did, you would be seeing a lot of activity for the Jersey gubernatorial race. And I'm assuming all the local stations here, big four affiliates, are benefiting greatly from that side. Justin, what's your sense for the core market coming into 2025?

Nielson: It is interesting that this year the posturing around — from the core advertisers' perspective, so that includes categories like automotive, retail, professional services, telecommunications, and pharmaceuticals — that they would wait on the sidelines until the political season was over. But really in this environment, Q1 is always soft. You come into the Super Bowl, which is always a big tentpole advertising event, a couple of events around March Madness and the Masters. But really, Q1 has always been the trendsetter, and then it builds off it for the year. In the first quarter, it was relatively light. There's still economic insecurity around what the tariffs are going to bring in terms of advertising spend. There are a couple of launches in terms of new products that tend to switch to and others that were shelved a bit to see where the tariffs would land. So it's a wait-and-see approach, to be honest. And that's what I heard from a lot of the broadcasters, that advertisers are still continuing to spend in the core categories, but it's more of a wait-and-see approach in terms of increasing those budgets. Really looking at it from the perspective of the consumer is still spending, but we were hopeful that interest rates would be lower. The big-ticket items like vehicles and home improvement in other categories would do a lot better this year because of lower interest rates, and that just hasn't really occurred so far.

Reynolds: Peter, what about in your travels in Vegas? What's the sense for consumer confidence and the potential impact of tariffs? What were people talking about?

Leitzinger: Yeah, I think I would echo what Justin was saying, that it's a wait-and-see approach. They haven't seen any pullback just yet, but there's definitely a lot of uncertainty surrounding inflation and the impact from the tariffs. Things like the core ad market with auto and financial being the drivers of the core segment, there's definitely some uncertainty that may appear in the second half of the year.

Reynolds: Alright, we will have to keep close tabs on that as everyone in America will be. We'll see. Interesting development from Sinclair, the broadcasters working with Mercurious Media Capital and Media for Growth to provide advertising resources and strategic support in exchange for equity in Sinclair's local media segment. I think over the past year, Sinclair said investments have been made in things called Best Day Brewing, Crush Yard, Puroast Coffee, Air Tasker, LA Golf, Captain Experiences, Deskera, Edly, and RVnGo. Were people talking about this? I think Chris Ripley, did he make a presentation about this out there?

Nielson: This was a conversation that came out of a Q&A session with Chris Ripley. So it was interesting because there were a bunch of announcements from Sinclair, be it from their spectrum leases for NextGen TV. And this was really interesting because we've seen this overseas in certain markets in Europe where it's basically a media-for-equity swap. Where a media outlet, be it a TV broadcaster or a network, provides airtime to a startup in return for equity in that startup. So I just thought it was interesting in the sense that Sinclair was going that route in terms of instead of selling this ad space in the marketplace, actually trading it for equity in some of these startups, almost being a VC in a sense.

Reynolds: Interesting. And this is something that has taken place overseas to limited success. Justin.

Nielson: It has. And I talked to our counterparts in London, and they've seen this actually increase over time, where you have broadcasters that come in and offer up this media-for-equity plan and have been quite successful in terms of some of the startups.

Reynolds: Guys, let's go political for a moment. The GOP administration historically is more favorable to industry consolidation. FCC Commissioner Brendan Carr seems to be leaning that way. Before the convention began, NAB sent a letter to the FCC asking for a quick end to the 39% ownership cap or whatever that might mean. And I'm sure the blog from Wilkinson Barker and now David Oxenberg was a major point of discussion. It pointed out that there was movement afoot to this end to end the cap in 2017. Peter, Justin, is there more impetus this time around for cap relaxation?

Nielson: I think there is, especially given the fact that FCC Chair Brendan Carr put out that NPRM basically asking for public comments on deregulation, and there has been a lot of feedback and interest in media deregulation, especially from the broadcasters. Nexstar has formed their own letter with other station group owners, as well as the NAB has put forth their own list of recommendations in terms of deregulation, including the elimination of the 39% national ownership cap, the relaxation of the duopoly rules, and then also in radio, the elimination of the subcap. So the number of FM and AM stations that you can own in a market has all been on the docket in one form or another for the past two or three different commissions. It has waxed and waned in terms of support, but I think there's a lot of at least industry support this time going forward. And it seems like from the FCC's perspective, they are definitely bringing up a lot of these deregulatory moves, forcing the issue. But in some cases, they're still going to need support from Congress and the DOJ in terms of removing some of these restrictions because they are tied to legislation that was implemented decades ago.

Reynolds: Alright, let's go to NextGen TV. The percentage of households, I think, is above 76% now, and the new standard can be used with up to a hundred devices. What does that really mean? This is not widespread despite that kind of numbers, right?

Leitzinger: The percentage of households has reached 76% of US households. But I think that's going to grow for some of the markets that are outside the 100 to 150 top markets. And I think that eventually they'll need to convert to NextGen TV, or they're going to miss out on some of the added revenue.

Globally, how far is NextGen along? Were there a lot of companies showcasing what they're doing overseas?

Leitzinger: Yeah, I think certainly Korea is one of the front runners in its adoption, and more countries outside the US are adopting the standard. I think it was Brazil that recently announced that it had adopted ATSC 3.0. They're expecting to broadcast the 2026 World Cup matches and the matches leading up to that using the new standards. So that was a big revelation there.

Reynolds: Justin, in your travels, did you see anything on the show floor again in terms of new programming adaptations through the standard that caught your eye?

Nielson: Yeah, it's interesting. The standard isn't new anymore; it's been almost 10 years in the making. You look back to when the transition happened in terms of analog to digital, and you can liken that lifecycle to what's happening on NextGen TV. Although it's a voluntary transition for consumers and for broadcasters, you don't have the kind of forced switch-off period like you did from analog to digital and the whole converter box program and the like. But I do see that there is momentum in terms of a sunset of ATSC 1.0, which would be the current standard for broadcast because of the capabilities for NextGen TV or ATSC 3.0. They have increased in terms of the bit rates. They have the ability to do UHD or HDR broadcasts. They can also have different types of audio channels, as well as secondary channels and alike. And then potentially, because it's an IP-based standard, they can add in VOD content, interactive content in terms of advertising, targeted advertising. So there's a lot of opportunities there to monetize their spectrum in different ways. In NextGen TV, the one disconnect, I would say, is the adoption in terms of ATSC 3.0 capable devices. There has been a lot of focus on getting those chipsets into smart TVs. There are also set-top boxes and dongles that have been launched in terms of getting those signals, and it's really more of a marketing push, to be honest. Getting those relationships with the consumer electronics vendors is building up that base in terms of users. And now that we've got to a point where you've got 76% of US households have access to the new standard, I think once it gets to that level of scale, you will have that user adoption follow, but it's really that device lifecycle that really has to happen next because you've got the signals; you now need the devices to receive them.

Reynolds: Peter, I think they're talking about sunsetting 1.0 in 2029. And that's four years from now, which may seem like a long time, but not really. Is that doable? Do we think that we'll be a 3.0 nation by then?

Leitzinger: The consensus from broadcasters is that they want it to be done as soon as possible. On one of the panels that I was at, Michael Baird of Nexstar said that he thinks it's going to be critical to sunset 1.0 by 2028. That's going to signal to those not yet on board that it's coming down the pipeline. I think right now the FCC is currently seeking comments on the topic. But what the NAB has asked for is a two-phase plan with TV stations in the top 55 markets covering 70% of US households to switch to ATSC 3.0 by February of '28.

Reynolds: Okay.

Leitzinger: And then the second phase would cover all the remaining markets to switch before February 2030.

Reynolds: Okay. Alright. Peter, was there a lot of talk about Edge Beam Wireless? It's a collaboration among Nexstar, Sinclair, Gray, and Scripps. What's going on with that endeavor?

Leitzinger: Yeah, that was one of the biggest announcements that I saw at the NAB show. And that's a collaboration from four of the major broadcasters, Nexstar, Sinclair, Gray, and Scripps. That centered around data casting opportunities and attracting national advertisers to their collaborative footprint. There are opportunities for data casting that are widespread. One of them is that they can offload bandwidth from cellular and do it at a much cheaper rate. Then there are other things like wireless automotive software updates that can easily be done. So it's an interesting agreement that they announced, and it really opens up a lot of new revenue sources for all these broadcasters moving forward.

Reynolds: That being said, and we talked about this last year, guys, there are some estimates, and maybe they're old now, given what the new technology can bring, that next-gen data casting revenue could reach some $5 billion in 2027, and that figure could hit $11 billion three years later. Justin, are you seeing progress toward that level, or are those numbers realistic?

Nielson: I think it's still a wait-and-see approach. Essentially, because some of these new announcements have just materialized, and we still haven't really focused on how that's going to happen in terms of a marketplace for the spectrum. So I think once we get those details formalized in terms of this collaboration—how they're going to be pricing the spectrum, how they're going to deliver it to the marketplace in terms of transaction models—I think those numbers will materialize. I think those are tentpole numbers, to be honest. I would be a little bit more conservative in my forecasting in terms of the opportunity, but again, I think it is a valuable opportunity for broadcasters to get on board, especially if they have additional spectrum once they transition to 3.0 to license out for data casting. Now, it's going to be a decision that station owners are going to have to make in terms of whether they develop the spectrum on their own and develop new channels and new programming and new functionality, or do they take a slice of that spectrum and lease it out to these initiatives.

Reynolds: Many things at play there. Peter, last word to you.

Leitzinger: I think they're optimistic numbers as well. I still think that there are a lot of business models that are in the concept phase that will help drive revenue, but we just don't really know about them yet. So the infrastructure is built; we know that. And we're seeing broadcasters attempt to make things happen. So I think that bodes well for the growth. But I think a lot still remains with the sunset of 1.0. The spectrum that it opens up is huge. I think it goes from nine megabits per second right now to something close to a hundred megabits per second when they can finally sunset 1.0. So I think that really has to take place for everything to move forward.

Reynolds: Alright, we'll all be keeping tabs on that in the years ahead. And that concludes this episode of "MediaTalk." I just want to thank Justin and Peter for spending a lot of time sharing their views on the broadcast industry and their most recent tours of NAB in Vegas. Thanks, guys.

Nielson: Thanks, Mike.

Leitzinger: Thank you.

Reynolds: And this is Mike Reynolds. As always, thanks to all of you for listening. We'll catch up soon on the next installment of "MediaTalk."