Editor's Corner: ATSC 3.0 could pay off but retrans will be part of the gamble

NAB Show New York was held in November at the Javits Center.
Ben Munson

NEW YORK – For all the benefits ATSC 3.0 is promising to provide broadcasters, the fear remains that the new standard could kill retransmission revenues.

The ATSC 3.0 standards, which are likely to be finalized by the start of NAB’s annual show in April 2017, are comprised of sections including PHY, delivery, personalization and security. From there it’s broken out into standards at various stages of completion, including signaling and service usage reporting.

The main focus of day two of NAB Show New York was ATSC 3.0. At the TV2020 conference within the show, speaker after speaker took the stage to discuss how 3.0 will be able to transform the broadcast industry.

NAB CTO Sam Matheny discussed how 3.0 broadcasters will move to orthogonal frequency-division multiplexing (OFDM), which allow for more integration and device compatibility. He also discussed how the bigger pipe (24 Mbps, to be more or less exact) coupled with better compression technology will free up the bandwidth for broadcasters to offer 4K ultra HD, high dynamic range and immersive audio.

“That’s not just tech nonsense. It’s better storytelling,” Matheny said, adding that it will amount to better viewer engagement, more compelling ad content, and thus more revenue.

Sinclair Broadcast Group Chairman David Smith made the case for how valuable the viewer data generated by 3.0 will be from both an operational and advertising revenue standpoint, adding that targeted advertising is worth three to four times that of traditional spots.

“IP addresses are the ultimate holy grail for this industry,” Smith said. “Broadcasters have no clue what goes on in the real world. We have no legitimate, honest-to-god audience measurement data whatsoever. Does anyone here believe Nielsen’s ratings? Does anybody believe Rentrak’s?”

RELATED: Sinclair VP: ATSC 3.0 will allow us to ditch Nielsen, save millions

Fox Television CEO Jack Abernethy agreed that the broadcast industry needs a better way to measure its audience.

“If we could create a measurement system that’s actually accurate, that would be more valuable in my view than all the stuff you’re talking about,” Abernethy said.

Still, Abernethy, like many others in the room, remained nervous about how 3.0 could potentially derail the retransmission gravy train.

The primary cause for concern is the increased range and quality of OTA signals that would come with the transition to 3.0. As TVNewCheck’s Harry Jessell has pointed out, the bump in quality could promote more cord cutting, which in turn could erode the retransmission revenue broadcasters get out of pay-TV subscriber fees.

To get an idea of just how significant that retransmission revenue is, SNL Kagan estimates that total broadcast retransmission licensing fees will reach $10.6 billion by 2020.

However, if Mike Chapman, managing director of strategy for Accenture, is to be believed, the retrans fountain springs not eternal. Speaking in the early morning on day two of NAB New York, Chapman warned the audience that MVPDs are looking to trim programming costs by cutting channels, which could mean that reliance on retrans might not be a good strategy for prolonged growth.

Indeed, many U.S. pay-TV operators and vMVPDs are being extra cautious with what programming stays. Viacom has fallen victim to this strategy more than once, being dropped by Suddenlink last year and by Sony’s PlayStation Vue this year. Altice USA, which bought Suddenlink and Cablevision, has planned to build up its integrated operators by reinvesting money saved by slashing programming costs.

So there’s at least the potential that programming cuts could endanger retrans before 3.0 even has a chance. It’s hard to say with the standards still being finalized and FCC approval still pending.

It’s clear that broadcasters have a big gamble ahead of them. ATSC 3.0 represents a technological leap that will open many new revenue possibilities. But to get there, it looks like broadcasters could have to roll the dice with lucrative retrans on the betting table.

Based on the convincing arguments from NAB and Accenture as well as the early work larger broadcasters like Sinclair have already put into the standard, ATSC 3.0 seems worth the risk.--Ben