Local TV stations’ day in the OTT sun: $40B market is theirs to take, if they can reach it
With one of the largest station groups in the U.S. consolidating its advertising efforts among affiliates and a consortium of broadcasters looking to start a streaming app service for their regional-local affiliates, the market for local TV stations appears to be ready to bust wide open.
What is the market potential for local TV stations — what size audience can they reach, and what opportunities to monetize do they have?
Current online streaming efforts are widespread but not necessarily organized. For example, a local station may stream its newscasts via its website and may have a branded app that viewers can use on their smartphones or tablets, but it may not be reaching its online potential in terms of audience and ad revenues. Local stations may also stream via a third-party provider, and while that outlet may help the affiliate reach more viewers, there's no way for it to track the size of that audience, what they're watching and what ads they're seeing.
That gap in the marketplace is drawing a few companies that intend to aggregate feeds from local TV stations so that viewers around the country can access them.
If you build it, they might come
NAB spokesman Dennis Wharton said that out-of-market streaming today is limited to local newscasts due to copyrights around network programming.
“The challenge is if you want to watch that local TV station from Boston on a linear basis, sort of consistently — and we're talking about network TV programming or syndicated programming like Wheel of Fortune or Jeopardy or Judge Judy — you probably would not be able to get that programming from the Boston station in D.C., or Detroit or elsewhere.”
CBS All Access is currently working to resolve the problem for its subscribers using geofencing, Wharton said. “By using a spot beam device for example, a CBS affiliate in Birmingham is able to geofence that signal only to the Birmingham market. And that's critically important to preserve localism in broadcasting and the concept of what's served viewers well in the U.S., which is TV programming going to a particular market in which people live.”
Streaming local news is not an issue for the NAB or large broadcasters, and can be informative and important, he said. With Web streaming “you are able to watch local news from 500 or 1,000 miles away. For example when … tornadoes devastated parts of Oklahoma, I was watching the Twitter conversation and logged onto Oklahoma TV stations and watched them, in real time, deliver this lifeline news and information.”
Wharton said that making a Boston newscast available to a viewer in say, Los Angeles isn't necessarily a big draw. But at least two companies are planning to give local television stations greater reach to the online audience.
NewsON's complementary approach
A consortium of broadcast station groups including ABC Television Group recently got together to back Atlanta-based NewsON, which intends to be a standardized resource for local television stations. When it launches this fall, NewsON will enable stations in 84 viewing markets to offer a streaming app to their audiences to watch local news programming.
NewsON is set to launch this fall.
Why add several stations to a single service? For founder and CEO Louis Gump, NewsON solves both a distribution challenge and an access problem for users.
“We're doing the same thing that's already out there in the marketplace in some respects. Live streams and videos are available from these stations via their sites and apps. But the challenge is a lot of people don't know where to go,” he said.
NewsON complements local stations' existing online products, extending their audience reach. “I think a strong brand like WABC in New York or KGO in San Francisco or WSB in Atlanta, to name a few, these have strong brands and then more people who will use them and find utility in them if we make them easier to get to,” said Gump.
NewsON plans to launch sometime in fall 2015 but hasn't yet announced a formal launch date “until a few more Lego blocks fall into place,” Gump said. The app will be ad-supported, mixing dynamically inserted ads with the local stations' in-line ads.
He said that “quite a few” stations have signed up to participate, but didn't specify a number. “The response has been very positive. There is a wide recognition that what we're doing is an important and valuable way to fill a gap in the marketplace. And if we do it well, it's an important and valuable way to grow audience.”
Catching up on local with Watchup
For viewers who don't want to wait for NewsON, startup streaming service Watchup is already running. The company, which incubated at Stanford's StartX accelerator in 2012 and received $4.2 million in seed funding from several investors including Microsoft Ventures, has developed relationships with more than 150 local TV stations and numerous niche services, making their content available to subscribers on its mobile app.
Watchup's iOS interface
“Those channels are basically trying to adapt to a new digital ecosystem,” said Adriano Farano, co-founder of Watchup. “They weren't about to understand how the Web worked, when the mobile revolution came. And they were learning how mobile worked when the OTT wave hit. So it's always about catching up.”
Farano said that Watchup gives local stations greater reach online without having to invest in more OTT infrastructure. “They just give us an MRSS feed, and we do everything,” he said, including adding supplied metadata, classifying and categorizing each video.
Watchup then pushes the video content to users based on their preferences and app usage history.
Unlike NewsON, Watchup isn't tying live streaming into its app; its experience is primarily on-demand. “The experience is designed for people who want to have more density in the content they consume. With live television, you feel you are losing control of what you're watching,” Farano said. “With Watchup you have this flow, this feed of vids playing on after the other. We borrow the effortlessness of the live experience [via autoplay].”
How well these one-size-fits-all streaming services play with OTT audiences remains to be seen, but the big factor for local stations is monetizing their aggregated strategy.
A potential $40 billion payday
According to The Diffusion Group, ad revenue for OTT streamed content will grow to $40 billion by 2020 and the ad load via broadband will grow 63 percent, with 5.1 minutes of advertising per half hour of OTT content, up from 3.2 minutes currently. In the meantime, ad revenues for traditional television will stay flat at $85 billion annually, while its ad load will fall 38 percent by 2020.
That could have a telling effect this election season: Local TV stations made $20 billion in ad revenue in 2014, with $1 billion going to political ads, a TVB study said. Political advertising during the 2016 presidential race may jump 21 percent compared to the 2012 campaign. And 8 percent of that advertising may take place online, not on broadcast television. In response to lost revenue from political ads shifting to ad-supported online video or social media sites, local TV stations may increase their focus on selling ad space on their OTT units to local businesses.
The online shift is already impacting local television stations, changing the way their sales divisions interact with local businesses. “Increasingly, local TV salespeople are being asked to position themselves as digital-advertising consultants who can help local SMBs (small- and medium-sized businesses) manage their digital portfolios,” a TV News Check article said.
The change has created a niche opportunity: While most programmatic platforms were built to cater to national broadcasters and large distributors, some companies are beginning to cater directly to local TV stations.
Case in point is ZypMedia. Recently rebranded from its original name, ExtendTV, ZypMedia's advertising platform was purpose-built from the ground up to serve local television stations, integrating into their existing ad structures.
“A lot of tech platforms are out there. Most are built and focused on national advertisers. For local, they're not really built for it,” said ZypMedia Co-founder and CEO Mark Goldman. “Some groups are specifically looking to address the same market opportunity. Centro, Ad Taxi and others are approaching the same local businesses that we are. But we're the only guys who built the platform from ground up for this purpose.”
ZypMedia in June partnered with the largest broadcast group in the United States, Sinclair Broadcast Group, to provide its ad platform solutions to all of Sinclair's 162 owned stations in 79 U.S. markets. Goldman said the integration with local stations has gone smoothly, with ZypMedia helping to transition hundreds of advertisers to its platform.
With greater online distribution opportunities, easier access for viewers via mobile apps and online video ad platforms that are increasingly purpose-built for local ad sales, television stations could be entering a golden age in terms of reach and revenue.
“Local TV stations are clearly aggressively diversifying their businesses, and building stronger online presences,” Goldman said. “Sinclair is rolling out a major new website and infrastructure [to support its stations], and it's one of leaders in the space.”
Unlike newspapers, which stumbled badly in the early digital transition, television across the board has a better opportunity to not just stay alive, but turn a profit. “Newspapers have lost a lot of audience but TV has a powerful place in media ecosystem,” Goldman said. “Sitting here watching the business … I see huge growth. It has taken a few years for it to sink in to the [station] salesforces and local advertisers, but now it's on a roll.”