Washington Post 2009 Annual Report Download - page 30

Revenue from broadcasting operations is derived primarily from the sale of advertising time to local, regional and national
advertisers. In 2009, advertising revenue accounted for 90% of the total for PNS’s operations. Advertising revenue is
sensitive to a number of factors, some specific to a particular station or market and others more general in nature. Some
examples include a station’s audience share and market ranking; seasonal fluctuations in demand for air time; annual or
biannual events, such as sporting events and political elections; and broader economic trends. The recent economic crisis
put downward pressure on advertising revenue as businesses cut their advertising budgets. Most notably, the automobile
industry, historically a large buyer of television advertising, contracted dramatically in recent years and reduced overall
advertising spending accordingly. PNS’s revenue in 2009 reflects the effects of this contraction.
Regulation of Broadcasting and Related Matters
PNS’s television broadcasting operations are subject to the jurisdiction of the FCC under the Communications Act. The
FCC, among other things, assigns frequency bands for broadcast and other uses; manages broadcast licensing; regulates
equipment used by stations; and adopts and implements regulations and policies that directly or indirectly affect the
ownership, operations and profitability of broadcasting stations.
Each PNS television station holds an FCC license that is renewable upon application for an eight-year period.
Digital Television (“DTV”) and Spectrum Issues. During 2009, in conjunction with the nationwide digital television
transition, each PNS station discontinued analog broadcasts and currently broadcasts only in digital format. The digital
broadcast format used by television stations allows transmission of high-definition television (“HDTV”) programming,
multiple channels of standard-definition television programming (“multicasting”), and subscription video and data services
known as “ancillary and supplementary” services. PNS, along with other broadcasting companies, has been actively
pursuing the use of digital spectrum to provide mobile video service to consumers, in partnership with consumer
electronics manufacturers and other partners.
Television stations may receive interference from a variety of sources, including interference from other broadcast stations
that is below a threshold established by the FCC. That interference could limit viewers’ ability to receive television stations’
signals. The amount of interference to stations may increase in the future because of the FCC’s decision to allow
electronic devices known as “white space” devices to operate in the television frequency band on an unlicensed basis.
That decision is on appeal.
As a part of an effort to develop a national broadband plan, the FCC and Congress have begun to consider reallocation
of spectrum for use by wireless broadband providers. Although no specific proposals have been announced, any
reallocation that involves television spectrum could materially affect PNS’s operations.
Carriage of Local Broadcast Signals. The Communications Act and the FCC rules allow a commercial television
broadcast station, under certain circumstances, to insist on mandatory carriage of its signal on cable systems serving the
station’s market area (“must carry”). For stations that elect must carry, only a single stream of video (that is, a single
channel of programming), rather than a television broadcast station’s entire signal, is eligible for mandatory carriage by a
cable system operator. Thus, a television station currently can obtain carriage of one or more digital multicast streams only
through retransmission consent agreements.
Alternatively, stations may elect, at three-year intervals, to forego must-carry rights and allow their signals to be carried
only pursuant to a “retransmission consent” agreement. Stations that elect retransmission consent may negotiate for
compensation from cable systems in exchange for the right to carry their signals in the form of such things as mandatory
advertising purchases by the system operator, station promotional announcements on the system and cash payments to the
station. Each of PNS’s television stations is being carried on all of the major cable systems in each station’s respective
local market pursuant to retransmission consent agreements.
Commercial television stations also may elect either mandatory carriage or retransmission consent with respect to the
carriage of their signals on direct broadcast satellite (“DBS”) systems that choose to provide “local-into-local” service (i.e.,
to distribute the signals of local television stations to viewers in the local market area). In 2008, the FCC ruled that if a
DBS operator carries the signal of any television station in a market in HDTV, it will be required to carry all other local
stations in HDTV (rather than in a lower-resolution format). Recognizing the capacity and technological constraints faced
by DBS operators, the FCC established a four-year phase-in period, starting in 2009, during which DBS systems must
progressively transition their local-into-local markets into compliance with this “HD carry-one, carry-all” requirement.
As with cable, stations make DBS carriage elections at three-year intervals. The signal of each of the Company’s
television stations is being carried by EchoStar and DirecTV (the two nationwide DBS operators in the United States,
operating the Dish Network and DirecTV systems, respectively) on a local-into-local basis pursuant to retransmission
consent agreements.
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