- - Thursday, August 27, 2015

The media landscape is changing in large and dramatic ways. There is an epic technological transition that is driving consolidation, which many are calling “merger mania.” Clearly, significant changes in the legal, regulatory and business framework over the past 20 years have paved the way for the media and communications environment we live in today.

Let’s look at the foundations: In 1992, Congress passed the Cable Act because the lack of competition among cable providers was forcing cable rates higher and higher. Remember when cable rates seemed to increase every year and consumers had little control. Well, that has changed with competition, although most Americans are still not happy with their cable rates. In fact, a growing number of consumers are choosing to “cut the cord” so to speak and abandon the cable system in favor of over-the-top (OTT) and online video (OVD) services. OTT refers to content that arrives from a third party via the Internet, such as Sling TV, Amazon Instant Video, Crackle, HBO, Hulu and Netflix.

A new study from Horowitz Research found that 45% of black viewers are more likely to have OTT a key part of their viewing lifestyle. The study also found the trend to be true among other multicultural viewers, with 46% of Asian viewers and 51% of Hispanic viewers in the study spending more than 20% of their total TV viewing time watching OTT, as compared with 39% among white viewers.

Convergence and consolidation

In 1993, Congress passed the Omnibus Budget Reconciliation Act, and gave the Federal Communications Commission the authority to institute an auction system to award spectrum to high bidders that wished to offer services in the wireless and satellite spaces. This system has matured such that in the last FCC auction for wireless spectrum in early 2015, companies spent more than $41 billion to acquire licenses for mobile and wireless services. Two minority firms were successful in bidding for spectrum, although their methods are now being challenged.

The 1996 Telecommunications Act, then the first major overhaul of telecommunications law in nearly 62 years, was enacted to allow any communications business to enter and compete in any market against any current player. You saw cable companies that already started building broadband infrastructure, going into the phone business. There were multiple mobile providers serving in many markets, offering competitive long distance and more.

Now, we are witnessing new trends. Last year, Comcast attempted to merge with Time Warner Cable and Charter Communications. This combination would have made Comcast the largest provider of broadband services in the nation by far. The size of the deal caused the FCC and many in Congress concern about the lack of competition, and ultimately, caused Comcast to shutter the deal. AT&T, however was successful in its bid to acquire DirecTV, which makes it a major player not only in voice, broadband internet and data, but also now in video content. And Charter Communications is in the middle of a transaction to acquire Time Warner Cable in a deal worth $55 billion.

All of this activity is happening during a period of convergence of all media onto a single platform — the Internet. Voice, video, data all sooner or later will be carried over broadband, and companies in each of these industries know it and are preparing themselves for the competitive battle ahead to win the hearts, minds and loyalty of consumers. There are a large number of broadband Internet connections and other technological advances, which have changed the way we access entertainment, news and information.

When we look at the scope of this change, and how many companies stand to be affected by this convergence, it is amazing. There are:

• Four major national wireless carriers

• Five major cable companies with four million subscribers or more

• Two top-tier satellite TV providers

• Five major commercial networks

• Thousands of local, over-the-air television stations

Legacy media

Of course, in the last two years alone, there has been a near record number of station acquisitions and consolidation in the television broadcast industry valued in the billions of dollars. The largest TV groups are getting bigger, with Sinclair Broadcasting Group at the cutting edge of that activity with a major acquisition of Allbritton Communications in 2014.

While the newer media platforms are growing stronger every day, the record demonstrates that most Americans receive their entertainment, news and information over traditional, legacy media platforms, which are broadcast television, radio and cable or pay TV and newspapers. The overwhelming majority of news content available online originates from newspapers and broadcast television stations.

Minority ownership

One of the enduring issues in the media has been the historical shortage of minority broadcast owners. In 2006, there were 19 African-American-owned full power commercial television stations. Today, there are four. Perhaps the most prolific of these owners is Armstrong Williams, the CEO of Howard Stirk Holdings and since 2014, the owner of full power television stations in Flint, Michigan; Charleston, South Carolina; Birmingham, Alabama; and two new stations awaiting FCC approval in Las Vegas, Nevada and Harrisburg, Pennsylvania. Mr. Williams, a longtime political commentator on radio and in print, was no stranger to broadcasting, having run a cable franchise in the District of Columbia during the 1990s. Mr. Williams combines conservative commentary with community focus to bring his national audiences a unique blend of programming.

Pluria Marshall Jr., CEO of the Marshall Broadcast Group, owns television stations in Quad Cities, Iowa; Shreveport, Louisiana; and Odessa/Midland, Texas. Mr. Marshall is also the owner and publisher of the Wave Newspapers in southern California. DuJuan McCoy is the current CEO of Bayou City Broadcasting, which is the owner of a television station in Evansville, Indiana. He previously owned two stations, which he sold for a tidy profit several years ago. And the fourth African-American owner is Joseph Stroud, who heads a religious station in Hammond, Indiana.

These broadcast owners will face a new challenge in 2016, when the FCC is offering broadcasters the opportunity to sell their broadcast spectrum at auction to meet the high demand for spectrum in the mobile and wireless space. If these minority broadcasters choose to auction their spectrum, the ranks of African-American broadcast owners could shrink once again.

Low-power television (LPTV)

Broadcast licensees fall into three categories: full-power stations, Class A stations and low-power stations. Most viewers cannot distinguish the difference between the three, primarily, because the only difference is the strength of the signal. When it comes to programming, low-power stations can carry the same quality and type of programming as full-power stations and Class A stations. But there is one key difference: low-power stations tend to focus on local programming, and they tend to be owned by small businesses, minorities and religious/faith broadcasters. For over 30 years, community based LPTV has been broadcasting over the air. LPTV provides free, ethnically and culturally diverse and religious programming. There are over 1,575 LPTV stations nationwide, with 2,500 local and diverse content channels.

The Low Power Television Service (LPTV) was established by the FCC in 1982. It was primarily intended to provide opportunities for locally oriented television service in small communities, both rural and individual, within larger urban areas. LPTV presents a less expensive and very flexible way of delivering programming tailored to the interests of viewers in small localized areas, providing a means of local self-expression. In addition, LPTV has created abundant opportunities for new entry into television broadcasting and has permitted fuller use of the broadcast spectrum.

LPTV stations are operated by diverse groups and organizations — high schools and colleges, churches and religious groups, local governments, large and small businesses and individual citizens. LPTV modes of operation and programming vary widely. These include satellite-delivered programming services, syndicated programs, movies and a wide range of locally-produced programs. LPTV stations sometimes tailor program segments or entire schedules to specific viewer groups (based on age, language or particular interest).

On the technical side, LPTV stations transmit on one of the standard VHF (2-13) or UHF (14-51) television channels. The distance at which a station can be viewed depends on a variety of factors — antenna height, transmitter power, transmitting antenna and the nature of the environment (rural or urban, hilly or flat terrain). The FCC does not allocate channels for LPTV service. Applicants select channels and apply during a given time period.

There is no limit on the number of LPTV stations that may be owned by any one entity. Current broadcast licensees, cable operators and newspapers may own LPTV stations. LPTV stations are subject to a minimum of program-related regulations. There are no prescribed amounts of non-entertainment programming or local programming, and there are no limits on commercials, and no minimum hours of operation. However, the broadcast of obscene material is prohibited at all times, and the broadcast of indecent and profane material is prohibited between 6 a.m. and 10 p.m.

In almost every single town, at least 15% of people rely only on over-the-air stations — not cable, not satellite, not internet TV. This is a relevant minority segment of the U.S. served by LPTV. Here are a few facts about low-power television few Americans hear about:

Over 200 programming networks use LPTV. There are 850 Hispanic DTV channels, 550 religious DTV channels and 260 family / classic TV channels. There are 100 African-American DTV channels. Fifty-seven percent of LPTV stations have been on air for 10+ years, and 20% of LPTV stations have at least 10 employees.

When it comes to ownership, 24% of LPTV owners are Hispanic; 10% are African-American; 34% are multiracial; and 60% are owned or partially owned by women. Sixty-six percent offer at least some foreign language programming, and 83% have local programming. Fifty-five percent offer religious broadcasting and 36% offer local sports and local news.

Today, the fate of low-power television stations is in jeopardy as the FCC prepares to auction broadcast spectrum and repurpose that spectrum for mobile and wireless use. As full power and Class A stations are repacked or reorganized into a smaller spectrum footprint, there will be no room for low-power stations. This valuable and unique group of broadcasters may be lost forever unless Congress acts to amend the law or prevail upon the FCC to change the rules.

There is much more we could highlight about today’s dynamic media landscape, but suffice it to say that consolidation, convergence, competition and capital are the order of the day.

Adonis Hoffman, Esq. is the founder and chairman of Business in the Public Interest in Washington, DC. He is the former chief of staff and senior legal advisor at the Federal Communications Commission and an adjunct professor of Communication, Culture & Technology at Georgetown University.

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