Friday, April 26, 2013

Free TV blogging -- betting against Felix Salmon

[Update: Andrew Gelman joins the conversation and, as usual, brings with him a fantastic comment section. Felix Salmon sites this Nielsen study to support his case. Rajiv Sethi (who was possibly the first major blogger on this beat) joins in. I'm still the only one talking about terrestrial superstations, but the night's still young so you never know.]

If you've been reading the last few posts, you know that Felix Salmon has weighed in on the free TV debate and that I find myself in the very unusual position of disputing pretty much everything he says (it is far more common for me to be completely in agreement). I'll be addressing the cost of Salmon's policy recommendations (born disproportionately by minorities and the poor) and questioning the economic implications later. Right now I want to focus on some disputed facts and assumptions.

In the post Salmon is dismissive of the claim that there are fifty million over-the-air television viewers:
The 50 million number, by the way, should not be considered particularly reliable: it’s Aereo’s guess as to the number of people who ever watch free-to-air TV, even if they mainly watch cable or satellite. (Maybe they have a hut somewhere with an old rabbit-ear TV in it.)
And he strongly suggests the number is not only smaller but shrinking. By comparison, here's a story from the broadcasting news site TV News Check from June of last year (if anyone has more recent numbers please let me know):
According to new research by GfK Media, the number of Americans now relying solely on over-the-air (OTA) television reception increased to almost 54 million, up from 46 million just a year ago. The recently completed survey also found that the demographics of broadcast-only households skew towards younger adults, minorities and lower-income families.
OTA can be tricky to measure -- unlike cable, there's no way of telling who has an old set of rabbit ears -- but we can look at other indicators and see which set of assumptions they are consistent with. Specifically consider the recent decisions of NBC and Fox to launch dedicated OTA channels this year

Let's assume Salmon's right and put ourselves in the position of a Fox or NBC executive who has to decide whether or not to create a new broadcast network. We can be reasonably confident that the executives have access to reliable data (particularly the Fox executive if the deal with Weigel included a look at some numbers from ThisTV and METV).

You find, given our premise, that the total over-the-air audience is, say, forty million, the technology is obsolete and entire medium will probably be gone in a few years. At this point, it's hard to imagine you'd proceed with an expensive, time-consuming project that is likely to be an embarrassing failure but the situation actually gets worse.

You are looking at launching an advertiser-driven, English-language station but the OTA market is disproportionately poor and immigrant (I get programming in over a half dozen languages); the maxim relevant audience for your station now drops to maybe thirty million and there's more bad news. You're going to have to share that thirty million with a crowded field of competitors. A major market will have dozens of OTA channels including multiple PBS channels, This, ME, Antenna, Bounce, RTV, three ION channels and various independents.

Given Salmon's assumptions about the size and trajectory of this market, there is simply no way NBC or Fox would have gone ahead with these channels. They couldn't possibly recoup their start-up costs before OTA is phased out. Put bluntly, both NBC and Fox are betting against Salmon's position.

Obviously this is not conclusive, but it's a strong piece of evidence and it's consistent with what we've seen elsewhere. It's also consistent with GfK's numbers.

There's more to come on this. There are many aspects to this story and I'll try to get to as many as I can but I've been looking at this for a long time from a lot of different angles and from every angle it looks to me like OTA is a promising technology supporting an innovative and growing industry, serving important economic and social roles.

The technology is doing fine in the marketplace. It's lobbyists who are likely to kill it.

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