Scrap The 'Plumbing,' Share Master Control

Absolutely, because a lot of other industries have done the same thing. Infrastructure, the plumbing, is not a competitive differentiator for a lot of broadcasters anymore. Someone else who can put a lot of capital infrastructure together can manage that effectively and get the content to my consumers.

But wouldn't broadcasters be wary of turning over the sales and other proprietary information in the trafficking to a third party?

There are some folks that would advocate that even traffic could be something that's hubbed, but there is this fine line between where a broadcaster's core business ends and where an outsource or a hub begins. The groups that have been very aggressive on hubbing have centralized traffic to a point.

If you look at the Comcast Media Center, which is a huge hub for cable programming in Denver, you'll find some channels that basically rent space and traffic capacity from Comcast. Cable networks and satellite providers have been much more accepting of the hubbing model than the television station groups.

Broadcasters feel that the more that their stations are regionally concentrated, the easier it is to hub. Yet, we have customers today that are breaking down those geographic barriers, that now have stations from the Northeast being hubbed from the Midwest because technology affords the capability to do that.

So, you think hubbing within station groups is where we are now and that hubbing among competing stations and station groups is where we are going?

Absolutely. Another change from five or 10 years ago is the number of private equity groups or financial investors in broadcasting that are not emotionally connected to the old work flows. That has significantly changed.

When the large private equity groups started to come into the space, they looked at the broadcast balance sheets with ideas they had from other industries. They said, I have an inefficiency in this system that technology can solve, which means I can increase my profitability.

Now, you make your money by selling master control and trafficking systems. How is it better for you to have one master control per market rather than five? You just knocked your potential market down from 1,200 units to 210.

That's the reality of the industry. The industry is seeing such a contraction whether it's because stations are being bought by other groups or because they're making a single purchasing decision. It would be naive of me as a business leader to not recognize the way that the industry needs to move so that we can actually avoid the fate of newspapers.

What we have done is we've created Verity. Verity is a truly integrated system that absolutely allows that first step towards hubbing. It also allows the groups that don't believe in the hubbing, or the outsource model, to still utilize technology effectively, remove heads, increase revenue and decrease costs. I call that the baby steps for our broadcasters.

But Verity is not the product if you do want to outsource master control, but want to retain traffic, because Verity is an integrated product combining traffic and master control.

No. Verity absolutely could be the product because it is not based on having all of the users or all of the servers in one location. It can be geographically distributed. In fact, I think it would be quite seamless for a station group that wants to use Verity on the traffic side to know with full confidence that their business rules are driving some of the decisions at the outsourced hub or that master control facility. So it absolutely plays in that model.

What most groups are doing is taking the first step, which is, how do I transform my existing operation today because I'm not prepared to shut down and move everybody to a single facility. There is going to be a staged approach that allows the broadcast work flows to quickly migrate into more efficient uses with technology and software systems. Verity is one of those things along that schedule. It's how do you get from point A to point B.

Then point C would be to outsource master control?

That's where the industry is going. It makes sense. If we look at what other industries have done, we see that they have outsourced the plumbing, the infrastructure, because that is not a competitive differentiator. What are differentiators are how is the news produced, how are those connections with local advertisers, how is that brand marketed within the community. Those are core. How the content gets to the consumer should be outsourced.