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KHON2, KITV, Hawaii News Now Face Uncertain Future

Stations grapple with new business models to survive

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Local television news was once a great way to make money, but now its future is as clear as 3-D movies without the glasses.

Revenues from advertising sales are up, but nowhere near what they were in the glory days before the recession. The Internet and mobile devices are areas for growth but pose challenges and costs, and little revenue, so far. And, the legality of Hawaii News Now, the two-year experiment in shared services, depends on an upcoming federal decision.

“With the growth of Web and mobile platforms and all the big changes that have happened in Hawaii in the past several years, anyone who thinks they’ve got this business figured out is fooling themselves,” says KITV president and general manager Andrew Jackson.

Despite the plethora of online and mobile news options, nearly two-thirds of Americans still rely on TV for local news, according to the 2009 People and the Press Survey Report from the Pew Research Center.

But the Hawaii industry has changed dramatically since the days of locally owned stations, newsrooms filled with reporters, and all the day’s top stories culminating in the 6 and 10 p.m. newscasts. Today, Mainland corporations own all of Hawaii’s network affiliates; there are fewer reporters and other employees; and you can watch local news from 5 to 8 a.m., and at 5, 6, 9 and 10 p.m.

All of those newscasts mean there is money to be made in ad sales. But the recession slashed revenues and the stations laid off newsroom staff. Then, in 2009, came the bombshell: Alabama-based Raycom Media, owner of KHNL and KFVE, and MCG Capital, which owns KGMB, announced they were consolidating operations. That resulted in about 70 more layoffs and the closure of the landmark KGMB station on Kapiolani Boulevard. Raycom CEO Paul McTear said the shared-services agreement (SSA) would help secure the future of the three stations, which had become less profitable.

From 2007 to early 2009, Hawaii News Now general manager Rick Blangiardi estimates overall advertising revenue in the state plummeted nearly 30 percent. Given that reality, Hawaii could no longer support five separate major stations, McTear said at a 2009 press conference, adding that the SSA would mean better coverage and more stories of local, national and international importance. Two months later, on Oct. 26, the three stations launched their first joint newscast as Hawaii News Now.

“Combining our resources and consolidating,” Blangiardi says, “resulted in a much larger, more dynamic newsroom with a real enhanced capability to cover the stories of the day.”

Soon after the launch, the Media Council of Hawaii, a nonprofit watchdog, filed a complaint with the Federal Communications Commission. The complaint said the SSA was a breach of the public trust and a violation of FCC rules that prevent one entity from owning or controlling two of the top four stations in a single market. The complaint also said the consolidation diminished the quality and diversity of news.

Raycom, which owns or operates 46 stations nationwide, says the SSA is an operational arrangement – not an ownership change – and, therefore, does not violate the FCC rules. University of Hawaii journalism professor Gerald Kato, who is a member of the media council, isn’t buying it.

“They’ve created this fiction that they’ve maintained separate operations when MCG Capital is like a silent partner and Raycom runs the show,” Kato says. “What they’ve actually done is formed a media cartel that controls about 45 percent of the marketplace.”

Blangiardi declined to comment on issues concerning the media council’s complaint because a ruling by the FCC is pending. McTear was not reachable for comment.

Janice Wise, of the FCC’s Media Bureau, says the agency does not keep statistics on how many stations nationwide are part of SSAs, “but they are not unusual and are becoming more common.”

Kato, himself a former Honolulu Advertiser and KGMB and KITV reporter, says there are variations of SSAs across the U.S., but the one involving Raycom and MCG is probably one of the more “egregious.” “These kinds of combinations are basically duopolies – one company owning two stations. In this case, it’s a triopoly.”

Chris Conybeare, president of the media council, says the FCC is collecting information on the impact of the SSA and the financial relationship among its parties, and is moving toward a decision.

     Hawaii News Now general manager Rick Blangiardi, who was
     instrumental in creating HNN in 2009, says he’s excited about
     TV’s future despite the many challenges ahead.
     Photo: Olivier Koning

Improving coverage

Robert Picard, a leading media economist and the director of research at the Reuters Institute for the Study of Journalism at Oxford University, says the emergence of SSAs has been driven by economics. However, the agreements are generally not made to reduce expenses, but “to improve coverage after the bottom-line decisions have already been made and it becomes evident that coverage and quality (from the individual stations) are becoming thin,” Picard explains.

Blangiardi has reiterated, time and again, that the SSA was not about cost-cutting or greed. “It was about consolidating and creating something better as opposed to what we were left with independent of each other.”

In 2002, Blangiardi headed both KHON2 and KGMB, which had the same owner then and separate newsrooms. He says HNN spends more money now to sustain its combined operation than he spent back then to run KHON2 and KGMB separately.

“Are we saving money? It all depends on how you look at it,” he says. “We’ve put a tremendous investment in the new technology required to broadcast in high-definition, we’ve got a really nice fleet of trucks downstairs, new cameras, sound equipment. In some cases, there was some redundancy (when we consolidated), so in that sense it provided a cost savings, but not much.”

When asked how the SSA has impacted the bottom line, Blangiardi would only say that 2010 was a solid year and that HNN achieved its numbers. “This was by every definition an exceptional success, qualitatively and quantitatively,” he says.

Among traditional media, local TV had the best year financially in 2010, according to the State of the News Media 2011, a national report by the Pew Research Center. Nationally, revenue rose about 17 percent, thanks in part to a 77 percent increase in auto advertising and a record $2.2 billion in political advertising.

If you look back 10 years, the only revenue for local TV was broadcast advertising. Today, new revenue streams include online and mobile, though broadcast advertising remains the dominant source, averaging $60 million a year in local TV advertising. KITV, HNN and KHON2 each reported increases in their core ad sales for 2010 and, before the March 11 tsunami, each had projected low, single-digit growth for this year.

The big challenge for TV is how many people are watching – or not watching – the ads that pay for it all. That people use the bathroom, talk, get a snack or mute the sound during commercials is nothing new, but the use of time-shifted watching is up. According to Nielsen, time-shifting and DVR playback account for 23 percent of all TV viewing in America, and that number has been growing for years.

Steve Sternberg, a national consultant on TV audience and programming, says the bulk of time-shifted viewing via DVRs includes fast-forwarding through commercials. Sternberg says Nielsen’s claim that 40 percent of viewers still watch commercials during playback is ridiculous, and suspects the actual figure is much less.

Another hurdle for advertisers, Sternberg says, is TV’s aging viewers. The median age is 51 for viewers of the four major networks – ABC (KITV), FOX (KHON), CBS (KGMB) and NBC (KHNL). Sternberg says that’s the oldest since he began analyzing median age more than a decade ago. It’s also the first time the networks’ median age was outside most advertisers’ targeted 18- to 49-year-old demographics, causing many of the advertisers to rethink their strategies.

 

Hawaii Business magazine invites you to comment on our articles and the issues they raise. Comments are moderated for offensive language, commercial messages and off-topic posts and may be deleted. Some comments may be chosen for inclusion in the magazine on the Feedback page.

May 31, 2011 10:02 pm
 Posted by  Palolo Joe

HNN is doing a great job even with the emphasis on Barbie & Ken newscasters.

KHON is the perfect model of low budget, low def local news. Last night they aired a story that said "Pissed Off" in it... is anyone home?

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