Thursday, May 11, 2006

Maximizing Local Media Market Opportunities:Avoiding Commoditized Content

Many industry sages have been commonly quoted that content is king. This is true for the time being. No device in the market, or those to come in the near future, offers much value without quality content that can be listened to, viewed or communicated. These truly are great days for content providers as all of these new platforms offer increased consumption opportunities for what they produce.

But, what happens to the content provider in local markets? Is the market for what is produced there subject to greater consumption opportunities offered by digital media? Local television and radio stations are being separated into two buckets based on their place on the local content food chain: those who produce their own unique content and those who do not. From our viewpoint, those represented in the former group will find themselves in a much more lucrative position as the digital transition continues ever forward. This translates potentially not just into revenue growth and diversification, but also to higher multiples and valuations for building wealth in these media properties by showing a growth plan.

It has been a few months since Bonneville announced a partnership with The Washington Post in the Washington, DC market. This partnership included moving the market's leading news/talk station to the FM dial and the creation of Washington Post Radio, WTWP on the former AM frequency, along with one of its suburban repeaters, to give Washingtonians a new reason to stick with broadcast radio. The new WTWP complements WTOP by giving listeners the opportunity to hear more in-depth coverage of important local news stories in the eternally news crazed Washington DC market. The new Post outlet's slogan is "there's more to the news" and this new partnership approach provides a solid alternative to the strongly competitive news/talk NPR offering.

WTWP is also the new radio home of the Washington Nationals. And, just recently, WTWP announced that it had reached an agreement with George Washington University to carry its basketball games this upcoming fall and winter, capitalizing on GWU successfully reaching the NCAA Division 1 Men's Basketball tournament this past season.

We believe there is an element of genius here in Bonneville's move that proves a larger point about the segregation of content and building a formidable offensive and defensive wall against the competition. By making a deal with The Washington Post, Bonneville has reached out to the one of the largest and most influential content providers in the DC market. The scope of the Washington Post extends nationwide as its website is usually among the top viewed sites here in our area, as well as across the United States. That website is an outstanding cross promotional platform for the new radio station as is the print version of the Post. Moreover, who can compete with the Post for content in Washington DC? The content produced by the Post, locally, nationally and internationally, is quality content that is difficult, if not impossible, to be replicated here in Washington. Bonneville has therefore cut off any real competition to its locally focused market position by working with the Washington Post. Add in the Nationals and an NCAA Basketball tournament team, and youve got a potential local juggernaut. The Post win in this partnership is an electronic extension to their existing platforms as its reporters now have three different platforms from which their work can be displayed and promoted.

The Post's format also complements what has and is being done by WTOP, Bonneville's highly successful incumbent news/talk station. These Bonneville outlets, WTOP and WTWP, have become a one stop location for anyone interested in hearing a quality summation of the day's news plus unique in-depth commentary. Bonneville also serves the large government workforce through its additional outlet, Federal News Radio, and hired the Washington Post's former reporter for matters impacting Federal employees. All these moves have given the Bonneville cluster here in Washington a combination of unique and important local content.

In the Venture Capital world, much is made about "barriers to entry" for potential portfolio companies. Were the Bonneville properties in the VC market, we think it would be an easy investment decision based on that metric. There simply is no effective way for anyone to duplicate what Bonneville has done. The time involved and the investment required are too much for contemplation and enactment.

In an additional move to strategically gain traction in the Washington DC market, Bonneville eliminated Z104, a younger skewing format, to the market's only Classical outlet, WGMS. Someone at Bonneville recognized that a format that appealed to the lean forward generation was not as valuable today as it once might have been given that listeners of the music played by Z104 are not as willing as its predecessor generations to take content as it's offered but are interested in the "anywhere, anytime and on any device" theory. Music content is available practically anywhere from any place whether downloaded to a computer or i-Pod, or offered on an Internet or Satellite radio outlet. This "commoditized" content leads us to wonder if there's any real long-term value to it given that nearly anyone can reproduce it. However, not abandoning a music format in the DC market, Bonneville chose to formidably position a format that appeals to listeners more traditionally loyal to radio, once again striving to create unique local market value.

Bonneville hopes to use its partnership with The Washington Post to lure back the younger listeners. While this generation may need radio as much for music anymore, they are hungry for more information, and in-depth, accessible, local news may bring them back to radio.

In the radio/television world, what value does a station hold if all of its content can be found from other media accessible locally? While you might have Seinfeld in syndication, that same content is now available on cable and DVD. Isn't it logical to assume that it will soon be available on broadband and/or on mobile phones? This is already starting to happen at the network level. If that's the case, it certainly can have the impact of reducing the value of a local franchise currently using it There has been a recent storm of controversy as ABC affiliates are coming to grips with the fact that their own network is repurposing the best primetime shows it has and only under duress has taken some baby steps to outline how to include them in the process. These affiliates have been used to their exclusive market arrangements where they were the only ones to have the content that the network produced. It appears that "exclusive" arrangement is at its end as it is with anyone who relies entirely on outside forces for content and produces nothing unique to its local viewer/listener.

While it will be awhile until we know how successful the new Bonneville arrangement will be in generating ratings and revenues, it appears to us that this bold move to dominate the local content market will shield Bonneville from the remainder of its radio competitors in the Washington DC market and will make it a much more valuable contributor to the portfolio of its owner. This is a strategy that needs to be contemplated by every owner and investor in traditional media today.