NAB 2012: FCC Chairman Does Hard Sell to Broadcasters on Spectrum Auction

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Julius Genachowski tells a resistant audience that it can mean millions for TV stations and pushes them to make ad files available online.

FCC Chairman Julius Genachowski received a mixed reception when he spoke Monday before an audience of skeptical broadcasters at the NAB Show in Las Vegas.

His big pitch was that broadcasters should embrace the opportunity to sell some of their spectrum, which allows them to raise millions of dollars. What many heard was that they should part with some of their valuable spectrum so the government and new media can use it to make many billions of dollars.

“Congress recently authorized the FCC to design and conduct the world’s first incentive auctions -- an innovative market-based approach for repurposing spectrum for flexible use such as mobile broadband,” said Genachowski. “And we’re now focused on implementation. Developing this first-of-its-kind auction will be complex, involving many challenging questions of economics and engineering.”

Genachowski used the speech to announce the appointment of Gary Epstein to lead a task force on the spectrum auction plan along with Ruth Milkman. Epstein is a lawyer with more than 25 years of experience on FCC related issues.

The options for broadcast TV stations, he explained, are moving to channel sharing, offering to give up the spectrum they currently hold and to move stations from UHF to VHF, so the UHF spectrum can be sold.

“A VHF move or channel sharing could be just the ticket,” the FCC Chairman said in his third address to the NAB since he took the job.

“In the case of a move to VHF, a broadcaster would stay on the air, retain must carry rights on cable and satellite, and generate cash from the move,” he continued. “As for channel sharing, it provides an opportunity to retain UHF transmissions, but to trade in a portion of channel capacity in exchange for a cash infusion -- again, while continuing to reach audiences over-the-air, via cable and satellite.”

That last portion was a reference to retransmission consent. In the past year or two, many stations have become aggressive about demanding payments from cable, satellite or others who carry their signals; as opposed to years past when they either gave it away or traded for carriage of cable channels owned by the same companies.

The FCC chairman said that the retrans efforts have already caused a backlash from cable systems that believe stations that enjoy the use of public airwaves should not be so greedy about making them pay for carrying their signals. Genachowski said the FCC is already looking into what to do about those complaints.

Genachowski also noted some 40% of stations are not going to ever get significant retrans cash because they don’t have local news or original programming that cable and satellite want.

“The good news,” he added, “is that the new voluntary incentive auctions law presents an unprecedented opportunity for broadcasters like these and others to improve their financial position.”

He said the FCC will get serious about these auctions by fall.

He added: “Don’t miss the boat on an opportunity you might regret passing up.”

Genachowski had opened his speech with the good news about broadcasting, which is that many stations are making more money than ever.  

“TV ad revenue is up 12 percent since 2009,” said Genachowski. “And analysts project another 14 percent increase in ad revenue in 2012.

Radio listening remains robust, too. More than 90 percent of Americans listen to the radio weekly. And even with the many new digital sources of audio, radio ad revenue is up 9 percent since 2009.”

“The world is changing, and stations that have been investing in online and other digital platforms are seeing accelerating usage and revenues,” the FCC chairman continued. “Online ad revenues for TV stations have crossed the $1 billion-a-year mark, at $1.2 billion for 2011, up almost one-third over the last three years. And analysts expect the rate of growth to continue to accelerate in 2012.”

He praised TV stations that have embraced broadband and the multi-platform approach to content distribution, which he noted was what he had asked them to do in the past couple years.

Then he ended his speech by asking broadcasters to embrace something most are dead set against -- making the records of their advertising sales to politicians easier for the public to see by putting them online.

For years stations have been required to make such data available on site, but few people ever got to a station and actually look at it. 

“The proposal,” said Genachowski, “would move to the Internet required broadcaster disclosures from where they are now: in filing cabinets that can be reached only at the station itself. Editorial writers have called it “an excellent idea” and encouraged the FCC to put in place. It’s the 21st century -- I call it common sense.”

Then he admitted the reaction from broadcasters has been extremely negative so far: “And yet, despite the proud history of broadcast journalism and the many innovative products broadcasters deploy today to harness digital technology to inform, explain as well as entertain, broadcasters and a few others have strongly resisted online disclosure. Using rhetoric that one writer described as “teeth-gnashing” and “fire-breathing,” some in the broadcast industry have elected to position themselves against technology, against transparency, and against journalism.”

What broadcasters have said, is that the public will not understand all the different ad rates and ways to slice and dice what they have to sell -- which will cause confusion and controversy.

“Now, I know many individual broadcasters don’t agree with all of the attacks on the Commission’s public file proposal,” he said in a conciliatory note. “Indeed, some worked valiantly to pull together an industry position that would demonstrate the strong work that so many broadcasters do to serve the public.”

But even Genachowski had to admit it wasn’t going to be an easy sell, although he couched it in the language of a salesman who remains optimistic he will eventually close the deal.

“We have a lot of work ahead of us,” he said in the conclusion to his speech. “Work to unleash the benefits of communications technologies for all Americans. Work to drive our economy. Work to accelerate the growth of the Internet, wired and wireless, and of broadcasters and others in our strong content industry, which has and will contribute significantly to U.S. global competitiveness.”

Genachowski did not stay around to take any questions, which didn’t sit much better with some broadcasters than his request that they sell their spectrum to benefit new media and put files with all their different ad rates online.