Mobile DTV Prospects Remain Uncertain, Gray TV CEO Says
Broadcasters’ future with mobile DTV is “up in the air,” Gray TV CEO Bob Prather told investors Thursday. He said the formation of Pearl Mobile DTV group at this year’s NAB show with just nine large station groups created a split among station owners. “There’s now a split between those guys and the rest of us out there,” he said. “It’s delayed us from coming up with a plan overall. At this point mobile DTV is in flux.” The technology works, and Prather is still optimistic about it, but “it may be delayed a little longer than I initially thought,” he said.
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Gray is testing mobile DTV technology at two stations. But it’s also making money from multicasting at nearly all its operations, Prather said. The CEO may come to Washington to testify about how Gray is using spectrum if the government holds hearings on reallocating part of the TV band for wireless broadband, he said. “We think we're a poster child for the right use of the spectrum.” The federal government probably won’t force stations off their spectrum, he said. “I don’t believe they'll ever take it away from us involuntarily,” he said. “I think they'll probably offer at some point to buy spectrum from people who want to sell it, and I'm sure there will be people who want to sell,” he said. Gray won’t be among them, Prather said.
Comcast’s pending deal to buy control of NBC Universal will be good for Gray, Prather said. NBC Universal-owned stations affiliated with the NBC network are in Gray’s largest markets and represent some of its most profitable stations, he said. Given NBC’s poor performance among broadcast networks in the last few years, the deal can only be good for the network, he said. “They can’t do much worse than NBC has done over the last two or three years.” Comcast will bring in new management and probably spend more than current NBC Universal parent General Electric on programming development, he said. “I don’t think it can be anything but good for us in the near term,” he said. “Long term I'm not sure."
Gray has some retransmission consent contracts with pay-TV operators expiring at the end of 2011, Prather said. That’s before the company’s next cycle of affiliation agreement negotiations with the networks begins in 2012, he said. So for now, Gray will get to keep all of its retransmission consent revenue, a source of cash the networks are increasingly seeking a share of, he said. Asked whether he’s concerned other station groups will set the tone for how much stations pay the network in affiliation fees, Prather said he’s confident Gray will be able to show that its stations bring more viewers than others.
There’s still not enough debt available to station groups to finance major acquisitions, Prather said. Banks are not eager to finance deals, he said. Because so many station groups refinanced in the last year or so, they might be reluctant to finance a buyout on new terms that may not be as favorable, he said. “If you were to put two of the big groups together right now, one of those groups’ bank debt has got to be refinanced,” he said. “I think people would be reluctant to bust up those deals unless they thought they could get better terms.”
Gray Q2 gained 16 percent to $75.6 million from a year earlier. Revenue from retransmission consent agreements increased 18 percent to $4.7 million, while online ad sales gained 1 percent to $3.1 million. Lower sales to telecom carriers, a result of Verizon’s acquisition of Alltel assets in Gray markets, were offset by gains in nearly every other ad category, Prather said. Profit of $534,000 compared with a net loss of $6.6 million in the year-ago quarter that partly was the result of higher interest expense. Gray shares fell 6.3 percent Thursday.