NextGen TV from Q4 '21 Transcripts

This week’s Q4 ’22 Earning Calls: ATSC 3 Comments from Broadcast Execs

Scripps (mobility, hand-off, 1st party data, spectrum usage, antenna, pacing with growth, nascent revenue this year)

Craig Huber (analyst): I guess, Brian or Adam, ATSC 3.0, maybe just give us an update on that. How it's going? How do you envision the long-term revenue model playing out for you guys? And maybe talk about the chances of maybe renting out your excess spectrum down the road. I mean, Nexstar obviously talked about this two days ago on their call, and they mentioned that they've been speaking with your company about potentially teaming up to rent out the excess spectrum in the marketplace. Just talk on that and just the long-term outlook. How many years do you think it will take for the business model to sort of play out and be meaningful to your guys' top line and bottom line?

Adam Symson: Yes. We are working with other broadcasters and through our leadership with Pearl to continue to advance the technology and the business use cases. I mean one recent example was the test we did across Michigan with Nexstar, which confirms what I would sort of refer to as the cellularization of the broadcast distribution of data, which was really a critical step for a number of the different use cases, including for mobile entertainment, telematics, data streaming.

Meanwhile, on the consumer side, we're seeing enough live ATSC 3.0 sets in some markets that they soon - that will soon rival the number of households in a market's Nielsen panel. And just as a reminder, that will also ultimately open up a first-party data and addressable advertising opportunity for us down the road. So, we continue to see opportunity there. I would say it's important to remember that Scripps is already the most efficient monetizer of spectrum through our Networks division.

And so we've set ourselves a challenge. We are looking always to identify the best and highest use of that spectrum. And we're very serious about looking for new business opportunities to lever that spectrum for programming like we are doing already with our over-the-air networks or with data casting. And we would always focus on identifying a way to create value that is the best and highest use of that spectrum.

We'll continue to do our work on the development of ATSC 3.0 and that spectrum opportunity for Scripps. And look, quite frankly, I want to encourage more broadcast companies to join our effort to inform America on the benefits of using a digital antenna for over-the-air TV, which is ultimately necessary for consumers to get the greatest benefit from 3.0. So, I'm very, very bullish on the opportunity for us because we're already doing so much with spectrum today.

Craig Huber (analyst): But I'm just curious, how many years out do you think it might be, so it could be meaningful for your top line, however, the model plays out? I sort of asked that just because we've been talking about this as an industry for feels like five-plus years now and stuff. I mean how meaningfully, how far out do you think it really is here?

Adam Symson: We'll actually probably generate our first dollar on ATSC 3.0 this year. That's not meaningful, that's nascent, but I think it's the first step. And then what we'll have to track carefully are the number of sets that are sold and the different market opportunities. So, if we take the path of identifying multi-versioning and data-informed advertising, obviously, we'll need a certain number of sets to be in the marketplace.

But on the other hand, if through our work with the big four auto manufacturers, we continue to see progress leveraging ATSC 3.0 as an opportunity for the cellularization of data casting that could come sooner. It's just all going to depend and we're being equally aggressive on all fronts to identify the best path for creating value.

Gray (Meredith acquisition contribution to NextGen, automotive, targeted ads, more sets, capX)

Hilton Howell: Looking ahead, we are thrilled with the company that Gray has become as we begin a new year firing on all cylinders. You're about to hear more color on the integration of our recently acquired television stations, our very healthy core ad business, and our growing retransmission revenues, and the great promise in both political revenue and with next-gen television.

…with the acquisition of Meredith television stations, Gray now has a much larger footprint operating on the next-gen TV standard. At the end of 2021, Gray had stations broadcasting in the next-gen TV standard in 10 markets, including Atlanta, Phoenix, Portland, Oregon and Charlotte. This number will increase significantly throughout 2022, and we currently anticipate ending the year with about 35 markets broadcasting the new standard. This group of markets represents a bit more than 25 million television households or about 21% of the total U.S. TV households, which equates to roughly 60% of the Gray footprint. Meanwhile, efforts across a number of other industries continue to progress on building out the infrastructure and business models that we believe will make next-gen TV the next big revenue driver for the industry.

James Goss (analyst): Okay. And the last thing I was wondering is with NextGen TV, and I assume it's ATSC 3.0, are there any ideas you've been coming up with so far as to how you might try to create revenue opportunities out of this potential?

Patrick LaPlatney: Yes. Sure. I mean I would tell you, they're still a little longer term, but there have been -- there's been a pretty healthy dialogue with the automotive manufacturers for years now, conversations with CDNs using that spectrum to deliver bits locally. And then as you've heard before, no doubt, I mean, it's a wonderful technology to use for targeted ad sales. So I would tell you that those conversations that have been going on for some time are progressing. The build-out is accelerating. The set manufacturers are building more and more models with a chip in it. And so there's a lot of momentum there.

Michael Kupinski (analyst): Got you. And Jim, you mentioned maintenance CapEx of $125 million. Does that include the cost upgrade to next-gen TV? And if it does, I was just wondering in terms of -- do you view that then your upgrades of next-gen TV more as a maintenance primarily because that you're just going through replacement of equipment and so forth? Or is there a type of return that you expect on the investment to upgrade to next-gen?

James Ryan: The $125 million would include what we think we need to add the additional next-gen in 2022. So it's just kind of ongoing business operations, how we kind of look at it. It's not necessarily a day 1, year 1 return hurdle, because, obviously, NextGen is really taking us out the next, probably a couple of decades, at least.

So I think as Kevin and Pat have already said, we expect some really nice revenue opportunities there. Probably not in '22. But as we move through the next few years, I definitely think that there is some new and untapped revenue both for us and the entire sector.

Nexstar (timeline, 4k, adoption, Scripps, data, BIA $)

Perry Sook: In 2021 we deployed NEXTGEN TV in 17 markets, expanding our coverage to 29% of all US television households and we're on pace to launch additional stations to increase our reach to 50% of the US population by the end of this year. Nexstar is among the nation's largest holders of spectrum and we believe our scale and national reach will be critically important to cultivating demand for its use. What we're most excited about are the myriad new revenue opportunities that our spectrum will represent.

Jim Goss (analyst): I was wondering with the efforts in ATSC 3.0 getting up to 50%. I'm wondering if the early efforts provide any input to judge the revenue and profit potential that might emerge as the rollout continues. Is it too early to tell anything, or are you getting any glimpses of the financial value?

Perry Sook: Yeah. Yes, it is Jim, a couple of things I'll say about that is that, we think you've got to build the toll road before you can charge people to drive on it. And all we're really doing now is activating 3.0 signals, it's not really a 4K viewing experience. It's a pass-through of an up converted HD signal, but it's basically to light the light in the TV, which will hopefully increase awareness and adoption and help the technology be more fully distributed.

We are involved in a test with Scripps in Michigan, which I think I've mentioned before where Scripps has a station at Detroit. We have stations in Lansing, Michigan and Grand Rapids, Michigan, both a Hollywood studio and an OEM are interested in driving a car across the state of Michigan and seeing what kind of an in-car viewing experience that is of either 3D navigation or sets in the headrest facing the back seat. And so there is interest in the technology.

But we've got to have a much more robust footprint of ATSC 3 signals. And again, you don't need to be broadcasting of 4K picture to take advantage of the ATSC 3.0 spectrum and signal utilization. So the business case might come even sooner down the road than any 4K viewing experience might for local consumers, because of the way the transition has to take place. We don't have a second stick that we can develop into 3.0 like we did with analog to digital and then one day turn all the other ones off right now. We have light houses for 3.0 signals and 1.0 signals during a transition. The transition is voluntary. So it won't be a big bang transition. It will be done kind of on a regional, maybe even market by market basis.

So it's hard, but it's not impossible. But again, we agree with BIA/Kelsey that spectrum revenue or rental or high-speed data transmission revenue could one day rival what retrans is to the industry today and so that's why we are leaning forward.

I will note that we have had some conversations with Scripps because with their portfolio of Ion stations they and we now have an unduplicated reach of almost 92% of US television households and so, we're talking about getting together to discuss ways we could work together to further advance the business case of ATSC 3.0. So, look for more to come on that as 2022 rolls on.

Sinclair (use cases, mobile phones, adoption, BIA $, spectrum value)

Chris Ripley: We've talked quite a bit in the past about ATSC 3.0, our next gen broadcasting and how it could be a real game changer for the broadcast industry. Besides the continued TV station rollout of the technology, which can now be received in about half of the TV viewing households in the U.S., our company and others in the industry made significant progress in testing and validation of numerous capabilities during the past year. These areas include provisioning precision GPS capabilities of the technology, developing and deploying a broadcast app that enables seamless movement between over the air and OTT streaming, and demonstrating advanced emergency alerting and distance eLearning capabilities.

One of the more compelling applications is the movement towards mobile phone deployment. This use of the technology is of keen interest to us as we seek to expand our reach of our services to people who are on the go and others throughout the world. It represents a rather efficient way of enabling significant functionality to hundreds of millions of users, including those who do not have internet access.

Notably, other countries that are exploring adoption of the ATSC 3.0 technology, trials in India utilizing the next gen broadcast technology are already underway with a particular focus on mobile applications. Brazil, several ATSC 3.0 technologies have been recommended to the Brazilian government for deployment. And even in smaller countries the new technology is taking hold. Jamaica has just announced that it's embracing and deploying the ATSC 3.0 standard nationwide in 2023.

We also continue our leadership efforts at the International Telecommunications Union to update its recommendations approving all aspects of the technology for international standardization. The data casting opportunity alone are compelling drop, but don't just take my word, or even other broadcasters worried about the potential of this technology. A third-party BIA Advisory Services recently issued a report seeking to size the opportunity enabled by this technology. Its conclusion was that ATSC 3.0 could account for as much as 22% of broadcasters’ overall revenue by 2030, totaling an estimated $10 billion opportunity. And with 75% of the country expected to be able to receive the signal by the end of the year, and 4.5 million 3.0 televisions expected to be sold in 2022 monetization opportunities should not be far behind.

The market value of our excess spectrum that can be utilized for ATSC 3.0. We have valued at 1.7 billion using past spectrum options, which we view as a floor for potential value creation from the new technology.