For better or worse, the recent UHF incentive auction is over, with a net to participating broadcasters of about $10B. We have now entered into the second or transition phase of the reallocation plan, scheduled to last for 39 months, at the end of which broadcasters must turn over their auctioned-off frequencies. Options include everything from entirely exiting the broadcasting business, to ceasing all over-air transmissions and relying entirely on wired transmissions (cable or Internet), to consolidating over-air operations with a VHF station in the same broadcast area (a Channel Sharing Agreement or CSA), to migrating over-air transmissions to the VHF band. Whichever path a station chooses, if it voluntarily participated in the auction, all associated transition costs need to be paid for out of its auction proceeds. Ideally, for UHF broadcasters transitioning to an alternative form of transmission, there will be something left over to put into an annuity fund, or to be spent expanding and improving existing operations, or creating new services to grow income.
Among the stations that participated in the auction, the division of the $10B received is far from equal. 174 stations are scheduled to receive some amount of revenue, with shares ranging from a low of about $173K to a high of about $304M. The arithmetical mean value of share payments is about $57.5M, while the median payout sits near the $42M mark.
145 of the 175 participating stations indicate they plan to entirely cease all existing over-air operations, while the other 30 will migrate their over-air operations to VHF. Of the 145 stations planning to cease individual over-air operations, however, all but 17 indicate they have, by the close of the auction phase, entered into a CSA with a VHF station in their broadcast area.
Legally and financially, a CSA is straightforward. A VHF station has no way to share in the revenue from the spectrum auction except by entering into a CSA with a local UHF station. Legally, each station in the CSA then receives a separate license from the FCC for its half of the shared channel, with perhaps some restrictions on the ability of one partner to sell its half-share license (e.g., right of first refusal to the other half-share partner).
The more critical issue, which CSA stations must address before the current transition period ends, is how to make a single channel serve two stations. No doubt, the simplest solution is for the two stations to just co-brand a single broadcast stream. However, where the two stations address different audiences—as is perhaps the usual case—this solution may not be workable. Even where it is workable, it may be less than satisfactory, since it would involve two businesses splitting the revenues available from a single stream.
Assume, then, that a shared channel must be made to support two streams, one for each CSA party. Also, assume there is no general transition to ATSC 3.0 before the allowed 39 months expire (with its associated bonanza of additional bandwidth). Then, each partner in a CSA must figure out how to do everything they used to do—or, at least, everything they still want to do—in just half the 19.39 Mbps supported by a 6 MHz ATSC 1.0 channel.
One obvious answer to this technical challenge of doubling capacity in the same bandwidth is to switch from MPEG-2 compression, specified by the ATSC 1.0 standard, to MPEG-4 compression. Since, compared to MPEG-2, MPEG-4 compression is between three and four times better, this would not only allow each station to continue broadcasting a full HD stream but also simulcast a lower bitrate SD or mobile stream alongside it. In short, levering MPEG-4 compression technology, each partner in a CSA could not only continue to do everything they used to do in 6 MHz (while using just 3 MHz), but they could also provide new services, with associated opportunities for new revenue.
But is this feasible? To be sure, some existing over-air receivers can now take a MPEG-4 signal successfully, and more will have this ability by the end of the 39-month transition period. But how many? Is this figure closer to 10% or 90% of the potential audience? Assuming it is not 100%, at what point does the opportunity to gain revenue, with new services empowered by MPEG-4, outweigh any losses from a smaller MPEG-4 audience base? After all, a simulcast aimed at a mobile audience might reach everyone with a cell phone—doubtless, an even bigger audience than everybody with a TV. Does this make it worth taking the plunge at 60% of TV households? Or Lower? At 80%? Or higher?
If the MPEG-4 option is ruled out because of the potential audience loss involved, what are the other options? Are these more or less expensive? More or less audience-friendly?
What certainly is no longer in doubt is that stations entering into CSAs have a total of 39 months to figure out how they are going to share an existing channel. If you have an opinion on this subject that you would like to share, please click the link below to leave a comment on this blog at our LinkedIn page.
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