TV Takeover

This is an open letter to anyone buying, or considering buying, one or more TV stations, particularly if you are part of a private equity group. This can be a moneymaking venture for you.

Full disclosure: I work for a company that has been the target of buyout offers from private equity firms. As of this writing it appears those offers will be turned down.

I don’t know much about private equity firms, but the prevailing fear is that they simply want to buy something, cut costs to a bare minimum to make the bottom line look good, then sell it, either whole or in pieces. The problem with that approach is that most local TV stations are lean operations already. Anything you cut could hurt the value of your station.

If you want to make money via financial tools, local TV is probably not the business for you. If you want to make money operating TV stations, you should know it is a changing business and that change creates opportunity.

I’m sure there are many ways to make a lot of money by investing in local TV. Here’s one of them:

Buy a group of underperforming (ratings-wise) stations in the same region, in small to medium markets.

There may actually be a few ways to cut costs, but in general, you’ll need to spend money. Provide these stations the infrastructure to create and produce good local programs. News is one of those programs, but there are many other programs waiting to be created.

The stations may be able to share some elements of their programs. Or better yet, create a program at one station. If it works, use that program as a blueprint for other stations.

One goal should be to reduce or eliminate syndicated programming in favor of locally-created programs.

There’s a good fiscal reason to do this: for every syndicated program on your air, you pay thousands of dollars to the syndicator. You also give up much of the advertising time to that syndicator. For every local program you produce, you save the syndication fee and get to sell all of your advertising time. A local show with moderate ratings can be as financially successful as a syndication hit–and let’s face it, there aren’t many new syndication hits.

The other reason is exclusivity. Many syndicated shows also appear on cable or satellite. Your potential audience with those shows is immediately reduced. You could also spend years and lots of money building an audience for that syndicated program, only to have another station outbid you for it next year and take that audience from you.

Now if you’re in the lucky position of owning the rights to syndicated hits like Oprah or Wheel of Fortune, I’m not saying you should dump them. Stick with what works. But don’t buy any new shows.

It’s much smarter at this stage of the game to control your own destiny with your own programs. You’ll create a new identity for a struggling station. You’ll build a great reputation in the local community. And you’ll make a lot of money. There are risks, but the rewards are much greater.

Another Local TV Crisis

The network-station relationship that has dominated local TV for decades is doomed.

Local network-affiliated stations used to be the only places to see network shows. That’s changing quickly. Networks are airing their soap operas on SoapNet, sharing shows with cable networks, making programs available on Video on Demand and even selling programs to viewers directly on the internet.

The networks clearly know something the stations don’t. Keep in mind that networks usually make more money by owning some of their stations than from the network itself. They wouldn’t cut out the stations if they didn’t know they’d make money some other way. They’ve made some concessions to local stations, in some cases giving them a cut of the sales in their regions.

Right now, you could add all of those “alternate” viewings together and they still wouldn’t compete with the number of viewers watching on local TV stations. But the new technology is starting to eat away at local station viewership–and revenue.

As more viewers become accustomed to downloading a show and watching whenever they want, how will a local station keep its audience? Why watch “24” on Monday night if you can download it straight to your settop box and watch whenever you want?

The solution for local stations’ survival is to come up with exclusive content. Virtually every station must create its own content. For most stations, the only local program is news. They must do more.

If it’s done right, this will mean a new round of hiring for TV stations, instead of the layoffs and cutbacks that are so common now. The current thinking, “do more with less,” will give way to a new thinking, “do much more with more.”

Surely the network-station relationship will continue in some form. But stations will run far more locally-produced shows instead of the mix of network and syndicated programming that fills the schedule now.

The End of Television As We Know It

I’ve worked at local TV stations since I was 16, so it is with great trepidation I predict the end of the industry as we know it.

Former CBS News President Fred Friendly once told me owning a local TV station was like having a license to print money. Mr. Friendly didn’t know the license came with an expiration date in the early 21st Century.

Back in Friendly’s heyday in the 1960s and 1970s, people in most American cities could watch three or four local television stations. Viewers had only one place to watch a given program; if a show ran on Channel 4, it wouldn’t also turn up on another channel.

Fast forward to 2006. TV viewers can choose from a few dozen or a few hundred television channels. On a given day, you can watch Everybody Loves Raymond up to nine times on two channels, or select any of 6 showings of Becker spread across three channels. Sex & The City? Four episodes a day on one local broadcast channel and two cable channels, plus On Demand episodes available whenever you want it.

See the problem? Stations that were practically printing money just a few years ago are seeing the value of their syndicated programming dwindle, because those shows are available elsewhere. Do viewers really care whether they watch Seinfeld on a local station or on a Superstation? For the 88% of Americans with access to cable or satellite (1), there is no difference.

The transition to digital television compounds the problem: digital stations have the ability to multicast, that is, broadcast several programs at the same time. Stations could easily have more than 800 hours to program every week. If they program the music videos and sitcoms that are on dozens of other channels, they will get lost on the cable and satellite lineups.

Local television stations can no longer depend on networks and syndicators. They must schedule the only programs that are truly exclusive: programs they produce themselves.

Local programming has dwindled over the decades. In most cases, it currently means “news,” and most local stations run anywhere from 30 minutes to 8 hours of news a day.

News is a great start, but it won‘t fill 800 hours a week. NBC is on the right track with WeatherPlus, a local-national hybrid that will give The Weather Channel serious competition once it’s available in more homes.

Now is the time for ideas:

Local court shows, using real cases and real courtrooms. Somewhere between Court TV and Judge Judy lies a serious but compelling local series.
Food programs. These used to be a staple of local “women’s” programs with guests who were right out of Home Ec. Update the concept for today’s lifestyle by bringing in chefs from local restaurants to teach viewers how to make some favorite dishes. (Restaurants might be hesitant to give away their secrets until they see how many customers they gain from the publicity.)
Local sports: high school football, minor league baseball, stock car racing and gymnastics tournaments are going on in every community. The production can be as simple or as elaborate as you like.
Call-in shows. Let viewers ask questions about their health, their gardens, their cars and their computers. These shows are already popular on radio, but on TV viewers can e-mail photos of their wilted plants for the expert (and the viewers) to see.

This is just a starting point. Station groups will quickly see what works in one market and add it to the lineup in another market. They will find opportunities to share segments and entire programs. Some may even create the next syndication hit.

The expiration date is approaching. What stations do now will determine whether they gradually die or start printing money again by creating a new Golden Age of Local Television.

(1) 2005 Residential Cable and Satellite TV Satisfaction Survey, J.D. Power & Associates.