➤ In addition to providing improved video and audio to consumers, Next Gen TV affords broadcasters opportunities around enhanced distribution capabilities.
➤ Nexstar plans to launch Next Gen TV in 20 markets in 2022, reaching 50% of U.S. households by year-end.
➤ The expected rise of Next Gen TV-related revenues over the balance of the decade could provide cover as retransmission-consent revenue growth begins to slow.
Nexstar Media Group Inc., the nation's largest operator of TV stations, is taking a lead role in the move to the Advanced Television Systems Committee 3.0 standard. Under this digital broadcast technology, Next Gen TV offerings will provide consumers with significantly enhanced video and audio offerings and equip broadcasters with vastly increased capacity, opening the door to an array of potential applications tied to multicasting and datacasting.
Nexstar Executive Vice President and CTO Brett Jenkins is helping direct the company's Next Gen TV game plan, calling for it to launch another 20 markets in 2022 and reach 50% of U.S. markets by year-end. In a recent interview, Jenkins discussed some of the challenges and opportunities inherent to the new standard. An edited transcript of that conversation follows.
S&P Global Market Intelligence: Could you explain the conversion from 1.0 to 3.0 in layman's terms?
 Nexstar Executive Vice President and CTO Brett JenkinsSource: Nexstar |
Brett Jenkins:
Like the analog-to-digital transition, the current upgrade breaks is a non-backward compatible change. The difference is that the government mandated the analog-to-digital change and gave the station owners second TV channels so they could run both systems at the same time over the transition period. There is not enough spectrum for that now, because it's all been auctioned off to wireless carriers.
To do this now, four or five stations in a market need to get together, with somebody raising their hand and saying, "My station will flip to the 3.0 standard." That is the lighthouse station, which will take the other stations' 1.0 signals and make the conversion. In turn, other stations in the market will have to take my 1.0 signal and put it on their stick. We've figured out how to do channel-sharing.
That's the way transition is working. It's why it's slow and complicated, with a lot of legal paper. I applaud the industry for working together. We have been fairly aggressive to the conversion. Others are taking a more of a wait-and-see approach. You need multiple players to get everybody ready at the same time.
Nexstar and Fox Corp. took the lead role in Los Angeles?
That's right. Fox and Nexstar were ready. Others were saying, "This is a big market, Let's wait and see." With Fox, we both agreed there was no time like the present.
To read Kagan's take on Next Gen TV, click here: Broadcast TV groups expecting heavy growth in Next Gen TV development in 2022
Is there a date where 3.0 subsumes the 1.0 signals?
We pitched the Federal Communications Commission that this would be an industry- and market-driven transition. The FCC said it would help and create some rules. When the order was first released, the channel-sharing agreement required simulcasts in both formats for at least five years. When that five-year mark comes up in two years, there won't be enough penetration, so it would not be a surprise for the FCC to extend it a bit more. In letting the market make the determination, the business is not incentivized to disenfranchise viewers. No one wants to switch off the simulcast too early.
Some Next Gen benefits are 4K and high dynamic range video, improved and consistent audio. Internet content on demand. What do you see and hear?
The internet-like capabilities could be the biggest thing. It will allow us to deliver our content in the same way the streaming companies do because it will connect all back-end services.
There are dynamic ad insertion capabilities. Interactivity, allowing for e-commerce, or t-commerce, where you click to buy products via the TV. There will be sports-betting capabilities where a customer can track the bets they have placed, look at their fantasy team stats.
What about datacasting?
This is essentially a huge capacity upgrade. It grows the pipe so I can offer more signals over the same TV station. I can take my enhanced distribution capability and lease it to anyone interested in delivering content on any device through a tuner with chip built in.
So, there are two buckets. First, the core [video, sound, advertising and interactivity] enhancements. The other bucket is to use our capacity to fulfill needs. Look at automotive. A lot of vehicles have become very hungry for data. Broadcast signals work well in car. Think FM radio; it's pretty solid.
So online directions? Digital coupon for a fast-food restaurant? The kids in the backseat can watch Rewind TV?
All that and more. Cars need updated GPS information about detours, road construction, changes in the routes. That's stuff every car needs. We can get it out in less than a second; it's always up to date.
What about advertising?
Broadcast is good for reach and frequency. We like the capability of having dynamic ad insertion, but even if 15%-20% of consumers get TV over the air, that's just one segment of the audience.
[Advertising] is further off. Technically, we could pull it off today, but the market conditions aren't there yet. If you access the whole audience, including those with cable and other pay TV subscriptions, then you can go to market better.
Where do cable and the other legacy distributors fit in?
For right now, cable is not engaging with 3.0. We have run technical tests with a couple of big operators to make sure it works. It does.
Eventually, as 4K HDR signals launch, cable will want the best content. We think it's fair that paying customers receive a higher-quality signal. I think that incentivizes broadcasters and those on the distributor side to figure out the rules. We will see how that materializes over the next several years.
What is Nexstar's 3.0 rollout plan for 2022?
We did 12 markets in 2020. Seventeen last year, so we were up to 29, more than anyone else has on the air. Sinclair Broadcast Group Inc. is not far behind in terms of markets. FOX, TEGNA Inc. and The E.W. Scripps Co. have a lot of markets. Everybody is working on this to varying degrees.
If we get to 50% by year-end and the rest of the industry adds another 20% in aggregate, that's 70% and pretty decent scale.
It is. But what does the 70% mean? How many households receive/have 3.0 capabilities?
Right now, it's a relatively small number. We're tracking that with consumer technology groups and the trades.
I've seen some numbers: 3 million Next Gen sets sold last year; 4.5 million are expected this year. The vast majority of sets sold in 2025 will have those capabilities.
I think that's right. Nobody denies it's a long-term consumer uptick. Consumers keep TVs a long time; it's a popular device that works well.
Part of my job is to look into a crystal ball. One of my hypotheses is that as more streaming services grow, they are going to launch new capabilities and need new software. I think that and some other drivers will result in a faster turnover of TVs.
Estimates indicate the broadcast industry could generate revenue of $1.7 billion from Next Gen technology in 2025, $5 billion in 2027. By 2030 it could be $6.4 billion on the low end and $15.0 billion at the high end. Is that realistic?
Certainly, Nexstar and the rest of the industry have kept pace with growing retransmission-consent revenue, even in the face of strong [cord-cutting] headwinds. What we want to signal to the investment community is that as retransmission-consent growth starts to slow down, there is a new untapped revenue stream, beginning in 2024-25.
As to whether that's $6 billion, $10 billion or $15 billion in 2030 — there is a sizable chunk of business ahead.