Federal Communications Commission fcc 12-81 Before the Federal Communications Commission

678 Nielsen 2010 & 2011 Television Audience Report at 4-5.

679 Nielsen, Advance/Preliminary 2012 National Universe Estimates (client communication), May 2, 2011. Nielsen data suggest that television penetration had actually begun to decline in late 2008 or early 2009, but waited for additional information to confirm whether this trend was temporary due to the digital television transition.

680 Other studies indicate that college students are watching video content on computers and laptops in lieu of television sets. See College-Age TV Watchers Have No Cords to Cut, eMarketer, Dec. 15, 2011, http://www.emarketer.com/Article.aspx?id=1008735&R=1008735 (visited Mar. 5, 2012).

681 See supra, Table 15.

682 Nielsen, National Universe Estimates, Jan. 1, 2008-Jan. 1, 2012. For the purposes of this Report, we use Nielsen’s January 1 estimates for our December 31 estimates of the prior year. For 2006, we use Nielsen’s estimates from its 2007 Television Audience Report. See Nielsen, Television Audience 2007 (2008), at 3.

683 Nielsen 2010 & 2011 Television Audience Report at 18. Total day viewing includes viewing Monday-Sunday, 6 a.m.-6 a.m. A share is the percentage of television households watching television who are watching a particular programming source. Due to simultaneous multiple-set viewing, Nielsen reports audience shares that exceed 100 percent when totaled. We have normalized the audience shares by recalculating them on a base (or denominator) equaling 100 percent and adjusting the numerators accordingly.

684 Monday-Saturday, 8-11 p.m. Eastern and Pacific Time (7-10 p.m. Central and Mountain Time), Sunday 7-11 p.m. Eastern and Pacific Time (6-10 p.m. Central and Mountain Time).

685 Since the last report, Nielsen has altered its methodology of measuring television viewing to include viewing on a time-shifted basis. For the 2009-2010 television season, Nielsen began releasing “C3” ratings data for television viewing, which measures the commercials watched both live and for three days via DVR playback. This is the metric under which much of broadcast and cable network advertising is bought and sold. See Nielsen, “C3” TV Ratings Show Impact of DVR Ad Viewing, Oct. 14, 2009, http://blog.nielsen.com/nielsenwire/media_ entertainment/c3-tv-ratings-show-impact-of-dvr-ad-viewing/ (visited Mar. 23, 2012). To include VOD, and online viewing in their ratings, networks must include the same set of commercials that appear in the initial live telecast. This measurement does not apply to local ratings.

686 “All other tuning” refers to tuning where the source was not encoded and Nielsen was not able to measure what was watched. Bill Gorman, Where Did the Primetime Broadcast TV Audiences Go?, TV by the Numbers, April 12, 2010, http://tvbythenumbers.zap2it.com/2010/04/12/where-did-the-primetime-broadcast-tv-audience-go/47976/ (visited July 10, 2012).

687 Bounce TV Powers Ratings on WVUE, TVNewsCheck, Jan. 13, 2012, http://www.tvnewscheck.com/article/2012/01/13/56717/bounce-tv-powers-ratings-on-wvue (visited Jan. 13, 2012). In December 2011, WVUE reported that its Bounce TV signal earned a 0.4 total day local market rating, tying CNN’s Headline News (0.4) and outranking cable networks TV One (0.2), Oxygen (0.2), BBC America (0.2) and CNBC (0.1).

688 Borrell Associates Inc., Benchmarking TV’s Local Online Sales, February 2011, at 19, http://www.tvb.org/media/file/Borrell_2010_TV_Internet_Growth_Feb2011.pdf (“Borrell Study”). Citing data from the Media Audit, Borrell measured the number of visitors who logged onto a major newspaper website during a month within the Fall of 2010 and compared it with the number of visitors who had logged onto individual television stations’ sites.

689 Tony Lenoir, Negative Growth Outlook for TV Station Revenue in ’11 but Double-Digit Gains Seen in ’12, SNL Kagan, Oct. 3, 2011. As noted above, revenues tend to be higher in even years.

690 Id.

691 Net revenues equal all advertising, online revenues, and network compensation received by stations, plus retransmission consent revenues received from MVPDs, minus retransmission consent revenues network affiliates pay networks.

692 Nexstar 2010 Form 10-K at 28.

693 Smaller local businesses generally feel a recession’s impact more immediately than a large national business, and would be more likely to curtail local television advertising spending. Vogel at 303.

694 Some broadcast station groups cite higher percentages. Nexstar states that local advertising, excluding political, represented 52.9 percent of it stations’ gross revenues (that is, revenues before subtracting agency commissions) in 2010, 60.6 percent in 2009, and 57.0 percent in 2008. Nexstar 2010 Form 10-K at 30. Gray’s percentages were nearly identical: 52.9 percent in 2010, 63.2 percent in 2009, and 57.0 percent in 2008. Gray 2010 Form 10-K at 33. LIN’s percentages were: 55.1 percent in 2010, 63.2 percent in 2009, and 61.6 percent in 2008. LIN 2010 Form 10-K at 41-42.

695 NAB, Television Financial Report, 2008, at 2 (“2008 NAB Television Financial Report”).

696 2011 NAB Television Financial Report at iv. Nexstar states that national advertising represented 18.8 percent of its stations’ gross revenues (that is, revenues before subtracting agency commissions) in 2010, 21.2 percent in 2009, and 22.0 percent in 2008. Nexstar 2010 Form 10-K at 30. Gray TV’s percentages were nearly identical: 16.7 percent in 2010, 19.9 percent in 2009, and 20.9 percent in 2008. Gray 2010 Form 10-K at 33. LIN’s percentages were: 30.6 percent in 2010, 29.9 percent in 2009, and 30.6 percent in 2008. LIN 2010 Form 10-K at 41-42.

697 SNL Kagan, Advertising Forecasts: U.S. Market Trends & Data for All Major Media, 2011 Edition, at 23 (“2011 SNL Kagan Advertising Forecasts”).

698 “Other” includes the combined advertising revenue totals for the yellow pages, outdoor/out of home, and weekly newspapers for each year.

699 Nexstar 2010 Form 10-K at 6.

700 Vogel at 312-13, n. 7. Gross advertising revenues refer to the total amount spent by advertisers, while net revenues refer to amount of advertising revenues received by stations.

701 Nexstar 2010 Form 10-K at 28.

702 Tony Lenoir, Negative Growth Outlook for TV Station Revenue in ’11 but Double-Digit Gains Seen in ’12, SNL Kagan, Oct. 3, 2011.

703 2008 NAB Television Financial Report at 2.

704 2011 NAB Television Financial Report at 2.

705 Vogel at 312-13, n. 7. Sinclair states that it has focused on decreasing its dependence on national advertising, as overall spending by national advertisers has declined, and other outlets have merged. Sinclair 2010 Form 10-K at 38.

706 2011 SNL Kagan Advertising Forecasts at 23.

707 “Other” includes the combined advertising revenue totals for direct mail, magazines, outdoor/out of home, business publications, yellow pages and farm publications for each year.

708 See, e.g., Sinclair 2010 Form 10-K at 42.

709 Kate Brady, Political Ads: Final Tips From the Rep, TVNewsCheck, Oct. 1, 2010, http://www.tvnewscheck.com/article/2010/10/01/45773/political-ads-final-tips-from-the-rep (visited Mar. 3, 2012).

710 Tony Lenoir, Broadcast TV Guide to the 2012 Elections, SNL Kagan, Aug. 24, 2011, at 14.

711 Id. at 10.

712 NAB, Television Financial Report, 2007, at 2.

713 2009 NAB Television Financial Report at 2.

714 2011 NAB Television Financial Report at 2.

715 Kerri Byrd, What to Know About an Annual Media Buy, Evōk Advertising, Dec. 21, 2010, http://www.evokad.com/2010/12/what-to-know-about-an-annual-media-buy/ (visited Dec. 2, 2011).

716 SNL Kagan, TV Station Deals Databook, 2009 Edition, at 9; Tony Lenoir, A Look at the Evolution of the Networks/Affiliates Relationship, SNL Kagan, Jan. 3, 2011, at 9-10.

717 Belo states that in 2010 it renewed its network agreements with ABC in four DMAs and CBS in three DMAs. Belo 2010 Form 10-K at 5. Sinclair specifies that it pays an annual license fee to ABC and a programming fee to FOX. Sinclair 2010 Form 10-K at 26. Likewise, Nexstar, referring to affiliation agreements with ABC and FOX, notes that as its network affiliation agreements come up for renewal,it may be required to make cash payments to the networks or accept other material modifications of existing affiliation agreements. Nexstar 2010 Form 10-K at 14. See also LIN 2010 Form 10-K at 27. As of 2011, NAB began reporting network programming as an expense rather than a revenue source. See 2011 NAB Television Financial Report at ii.

718 2011 SNL Kagan TV Stations Databook at 5.

719 NAB 7/8/11 Reply Comments, Attachment B at 38.

720 Tony Lenoir, Negative Growth Outlook for TV Station Revenue in ’11 but Double-Digit Gains Seen in ’12, SNL Kagan, Oct. 3, 2011. See also supra, Table 17. For Nexstar, retransmission consent revenues (consisting of a per-subscriber-based compensatory fee and excluding advertising revenue) represented 4.8 percent of net revenues in 2008, 9.3 percent in 2009, and 9.1 percent in 2010. Nexstar 2010 Form 10-K at 30. Nexstar explains that the increases are due to renegotiated contracts providing for higher rates per subscriber, as well as the addition of another television station in 2009. Similarly, Gray’s retransmission consent revenues increased due to improved terms of renegotiated contracts, representing 0.9 percent of revenues in 2008, 5.8 percent in 2009, and 5.4 percent in 2010. Gray 2010 Form 10-K at 33. Neither LIN nor Sinclair break out retransmission consent revenues separately. See 2010 Form LIN 10-K at 41-42; Sinclair 2010 Form 10-K at 42.

721 NAB 7/8/11 Reply Comments, Attachment A at 43-44. Nexstar CEO Perry Sook has noted that MVPDs may be less willing to pay for broadcast stations than cable networks, because they are unable to sell advertising time during broadcast network programming, while cable networks give MVPDs a fixed amount of inventory to sell. Robin Flynn, Network, Affiliates Defend Retrans Stance at SNL Kagan Event, SNL Kagan, June 22, 2011, at 10.

722 According to CBS CEO Leslie Moonves, “[a]s each new affiliate agreement comes up, there will be a sharing of [retransmission consent] fees; it’s in the very early stages. There’s a realization that . . . [affiliates are] getting [retransmission consent fees] because of [a] network providing NFL, 60 Minutes, and Letterman.” Claire Atkinson, CBS Retrans Fees Expected to Double in 2010, Broadcasting & Cable, Nov. 5, 2009, http://www.broadcastingcable.com/article/383011-CBS_Retrans_Fees_Expected_to_Double_in_2010.php (visited Jan. 20, 2012). In the Fall of 2011, Moonves predicted that the combined O&O retransmission consent revenues and fees the network will collect from affiliates will represent a total of $600 million to $700 million “over the next three to five years . . . .” CBS Corp., 2Q Earnings Call, Corrected Transcript, Aug. 2, 2011, at 11-12.

723 LIN 2010 Form 10-K at 27; Belo 2010 Form 10-K at 10. See also infra, Sec. V.A.

724 The Commission made this determination based on its belief that “once Comcast obtains a controlling interest in NBCU, it will have an even greater incentive and ability to bypass the NBC affiliates to advantage its cable systems in retransmission consent disputes. Moreover, since the News Corp-Hughes Order, the retransmission consent process has become more contentious. In this heated negotiating atmosphere, we believe that Comcast, as the nation’s largest cable operator with control of a broadcast network, would have an increased incentive to engage in affiliate bypass.” Comcast-NBCU Order, 26 FCC Rcd at 4311, ¶ 174.

725 The Commission decided to sunset this condition given that “the video marketplace is changing.” “[I]n light of [this] evolution,” the Commission was “reluctant to impose indefinite terms for [a] condition[] based upon the contractual provisions with fixed terms negotiated by the parties.” Id. at 4312, ¶ 178.

726 Nexstar Broadcasting President and CEO Perry Sook states that “size matters . . . when dealing with networks and MVPD[s] . . . .” Nexstar Broadcasting Group, Inc., 4Q Earnings Call, Transcript, Mar. 10, 2011, http://seekingalpha.com/article/257622-nexstar-broadcasting-group-s-ceo-discusses-q4-2010-results-earnings-call-transcript?part=qanda (visited Jan. 12, 2012).

727 Titan Broadcast Management, Titan Marches to a Different Drummer, Aug. 11, 2010, http://www.titanbroadcast.com/story/12962571/titan-marches-to-a-different-drummer (visited Jan. 12, 2012).

728 Filing of FCC Annual DTV Ancillary/ Supplementary Services Report, Public Notice, 18 FCC Rcd 23972, 23973 (MB 2003). See also 47 U.S.C. § 336(a)(2), (e).

729 FCC Form 317. Fees are reported in the year received, although they may be for services rendered in past years, in future years, or both. This occurs very few times and involves small sums of money. The 2006 numbers are higher than those provided in the 13^th Report because of late filers. Starting in 2009, some licensees reported that they provided some ancillary and supplemental services that generate fees and some services that do not generate fees. As broadcast stations decide to use DTV for broadcasting rather than ancillary services, e.g., to launch a new network such as Bounce TV, fluctuations in the reported figures for non-broadcast ancillary services may occur.

730 Tony Lenoir, Negative Growth Outlook for TV Station Revenue in ’11 but Double-Digit Gains Seen in ’12, SNL Kagan, Oct. 3, 2011. According to NAB, in 2010, Internet revenues represented 2.2 percent of an average station’s net revenues. 2011 NAB Television Financial Report at 2.

731 Borrell Study at 6.

732 2011 NAB Television Financial Report at 2. NAB calculates online revenue as a percentage of a broadcast station’s net revenue (i.e., the amount spent by advertisers on a station (gross advertising revenues) – advertising agency commission – national and regional sales rep firm commission = all other sources of station revenue).

733 2008 NAB Television Financial Report at 2.

734 Borrell Study at 14.

735 Id. at 6, 8. For its calculations, Borrell relied on two databases: one that estimated online advertising spending by more than 15 million U.S. and Canadian companies, and one that estimates online advertising receipts by more than 4,400 U.S. and Canadian online media companies that participate in its surveys. Id. at 32.

736 Id. at 6. For example, LIN has invested heavily in websites, mobile applications, and other digital technologies. It states that since the launch of its digital businesses in 2007, digital revenues, including retransmission consent revenues, have grown nearly 309 percent and as of 2010 comprised 15 percent of its total net revenues. LIN 2010 Form 10-K at 8. In addition to paying LIN retransmission consent revenues for carriage of its broadcast signals, MVPDs pay LIN for online and advertising media services through its subsidiary online Red McCombs Media, LP. See id.

737 2011 NAB Television Financial Report at 2. NAB defines mobile revenue as any revenue derived directly from streaming to mobile devices. Id. at 164.

738 Borrell Study at 22. Borrell defines mobile advertising as advertising derived from mobile applications. Id. at 5-7. Borrell states that “[b]y 2015, most forecasters agree, the majority of all ‘online’ advertising will become untethered from desktops and delivered to mobile devices such as iPads, smart phones, and GPS-enabled laptops.” Id. at 7.

739 2011 NAB Television Financial Report at 2. To calculate total net revenues, NAB subtracts agency and rep firm commission for gross advertising revenues, and adds all other forms of revenue.

740 Vogel at 307-10. See also Price Colman, For Sale: Young Broadcasting for Just $350M, TVNewsCheck, June 30, 2011, http://www.tvnewscheck.com/article/2011/06/30/52237/for-sale-young-broadcasting-for-just-350m (visited Mar. 25, 2012).

741 FCC staff estimates based on data from NAB Financial Reports and SNL Kagan.

742 Each of the station groups incurred non-cash expenses by writing down the values of, among other assets, their broadcast licenses, including Nexstar in 2008 and 2009, Gray in 2008, LIN in 2008 and 2009, and Sinclair in 2008, 2009, and 2010.

743 Recurring earnings before interest, taxes, depreciation and amortization. SNL Kagan, Nexstar EBIDTA and FCF (Free Cash Flow) Analysis. Free cash flow is a measure of financial performance calculated as operating cash flow minus capital expenditures. It represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base.  Investopedia, Dictionary: Free Cash Flow, http://www.investopedia.com/terms/f/freecashflow.asp#axzz1qAPFGRjM (visited Mar. 25, 2012).

744 Vogel at 308-09.

745 Nexstar 2010 Form 10-K at 29.

746 For example, in 2009, Nexstar began regionalizing certain accounting and traffic functions, resulting in layoff of 93 employees. Nexstar estimates that the restructuring saves the company about $2.2 million per year. Nexstar 2010 Form 10-K at 34.

747 Nexstar 2010 Form 10-K at 34; Gray 2010 Form 10-K at 39; LIN at 43; Sinclair 2010 Form 10-K at 38-39.

748 FCC staff estimates based on data from NAB Financial Reports and SNL Kagan.

749 Sinclair also claims that duopolies and LMAs enable it to realize significant economies of scale in capital expenditures. Sinclair 2010 Form 10-K at 10.

750 Nexstar 2010 Form 10-K at 36.

751 Id.

752 Gray 2010 Form 10-K at 22, 46.

753 LIN 2010 Form 10-K at 7-8.

754 See supra, n. 6; Further Notice, 26 FCC Rcd at 14112, ¶ 52. To the extent that MVPDs also provide video to their subscribers online, for example as part of triple-play or TV Everywhere service, those offerings are discussed supra, Sec. III.A. We note, however, that, in the future, some MVPDs may distribute video content online to non-subscribers as well. See, e.g., infra, ¶ 281.

755 See, e.g., Comcast 6/8/11 Comments at 31-36; NCTA 6/8/11 Comments at 19-21; DIRECTV 6/8/11 Comments at 22-24; Google 6/8/11 Comments at 5-6.

756 See Nielsen, The Cross-Platform Report, Quarter 2, 2011, at 1.

757 See, e.g., Comcast-NBCU Order, 26 FCC Rcd at 4298-99, ¶¶ 144-46 & n. 365; Letter from William T. Lake, Chief, Media Bureau, to Michael H. Hammer, Counsel, Comcast Corporation, et al., MB Docket No. 10-56, Attach. at 3-6, 8-9, 14 (May 21, 2010).

758 Comcast-NBCU Order, 26 FCC Rcd at 4268-69, ¶¶ 78-80.

759 Id. at 4269, ¶ 79.

760 Id. at 4256, ¶ 41.

761 Id. Some commenters in this proceeding argue that OVDs already are becoming true substitutes for traditional MVPD service or that consumers may well see OVDs as substitutes for MVPD service in the future. See, e.g., DIRECTV 6/8/11 Comments at 22-25; Digital Broadcasting 6/8/11 Comments at 32.

762 See OVD viewership information, infra, Sec. III.C.4.a.

763 See, e.g., ABC, http://abc.go.com/watch (visited Feb. 13, 2012) (“ABC Network Portal”); NBC, http://www.nbc.com/ (visited Feb. 13, 2012) (“NBC Network Portal”); CBS, http://www.cbs.com/ (visited Feb. 13, 2012) (“CBS Network Portal”); FOX, http://www.fox.com/ (visited Feb. 13, 2012) (“FOX Network Portal”). In addition, local television stations often act as OVDs by making video content, for example clips from their own newscasts, available online. See, e.g., KLAS-TV, http://www.8newsnow.com/category/28259/8-news-now-video (visited Feb. 13, 2012); WFAA-TV, http://www.wfaa.com/video/ (visited Feb. 13, 2012). See also NAB 6/8/2011 Comments at 27-29 (noting extensive efforts of local television stations to make news content available online).

764 See, e.g., TBS, TBS Mobile, http://www.tbs.com/mobileapp.jsp (visited Feb. 13, 2012) (providing a TBS mobile app with access to some TBS shows, including

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