CEO David Smith says he expects the company will see $48 million in retrans revenue this year, up 90% from $25.4 million in 2006. Sinclair reports a record $32 million in political ad revenue in 2006.
Sinclair Broadcast Group Inc. today reported that its fourth quarter 2006 net broadcast revenues from continuing operations were $171.8 million for the three months ended December 31, 2006, an increase of 8.8% versus the prior year period result of $157.9 million.
Commenting on the quarter, David Smith, president and CEO of Sinclair, stated, “We are pleased at the performance of our television group, which recorded a record $32.0 million of political advertising revenues in a non-presidential election year and reduced operating expenses for the second consecutive year.
“In the first quarter of 2007, we have made significant strides on the retransmission front, securing retransmission consent agreements with multi-channel video programming distributors (MVPD), such as Time Warner Cable and Mediacom Communications. Currently, we have approximately 25% of the MVPD subscribers in our markets for which we need to secure retransmission agreements. We now expect revenues generated in 2007 from our retransmission consent agreements to approach $48.0 million, an almost 90% increase from the $25.4 million we generated in 2006.”
During a conference call with analysts, Smith said he saw no reason that retranmission revenue to the TV industry as a whole couldn’t double by 2010, as long as “the industry moves in the right direction.
“It would be very helpful for the industry to recognize that now is a very significant time in our history,” Smith said. “We as a company have been able to get what we think is the beginning of fair value for our content. It’s now incumbent upon the rest of the industry to recognize what we’ve accomplished and step up and ask for what is their due.”
The next big driver in the retransmission category will be CBS, Smith predicted, noting that company chairman Les Moonves has said he’d like to get 50 cents per subscriber in fees from multichannel TV providers. “That’s a very doable number,” he said. “There’s no confusion on the part of the consumer as to what they watch and what they value,” Smith said. “When you look at what the cable guys pay for content that, frankly, nobody watches, and you ascribe those prices to us, you wouldn’t believe the numbers. They’re gigantic.”
The company has yet to forge new retrans deals with Cox, Comcast, Charter “and a bunch of little guys,” Smith said.
Smith wouldn’t disclose how much of Sinclair’s retransmission agreement with Time Warner Cable involves cash payment and advertising sales. He said that the Time Warner Cable agreement did not reduce the prices Sinclair pays for syndicated programming, noting that film costs have gone down in recent years because the quality of off-network sitcoms has gone down, allowing the company to pay lower license fees.
Net broadcast revenues from continuing operations were $635.8 million for the 12 months ended Dec. 31, 2006, an increase of 3.5% versus the prior year period result of $614.4 million. Operating income was $159.2 million in the 12-month period, a decrease of 6.1% versus the prior year period result of $169.5 million, which includes a $15.6 million non-cash, impairment of intangible assets charge related to one station.
Company executives expect political revenues “to explode” in fourth quarter 07, thanks to early 2008 presidential primaries taking place in Sinclair markets. They also predicted an uptick in domestic automotive spending, which is lagging so far this year, by March. Smith added that the telecom category continues to look extremely bright for local TV stations and noted that next year, once phone companies begin offering mobile TV services via phones, PDAs and in cars, this category will will spend even more on advertising. “Broadcasters will be the ultimate beneficiaries of this, and it will amplify the whole category for everyone.”
The entry of private equity firms into TV station ownership is an acceptable trend, Smith said, noting that he expects many of the properties being acquired by these investors will be back on the market again soon. “It may make sense for us to discuss partnering with them to do deals,” he said. “They tend to be more disciplined about the business. They’re there for the money and not the politics.”
Otherwise, Smith anticipates that Sinclair will continue to use dividend increases to return value to shareholders, rather than seek acquisitions. “We continue to look at opportunities to diversify our portfolio,” he said. “We haven’t found anything yet” in terms of properties to acquire.
Operating statistics and income statement highlights:
- Political revenues were $21.6 million in the quarter versus $1.4 million in the fourth quarter last year. For the year, political revenues were $32.0 million, which is equal to the amount we booked in the 2004 presidential election year.
- Local advertising revenues increased 2.2% in the quarter versus the fourth quarter 2005, while national advertising revenues increased 18.1%. Excluding political revenues, local advertising revenues were down 4.0%, while national advertising revenues were down 8.7% due to the strength of political spending that displaced traditional advertisers. Local revenues, excluding political revenues, represented 65% of advertising revenues.
- Time sales on its Fox stations were up 10.0% in the quarter, while its ABC stations were up 25.0%. Stations affiliated with My Network TV were down 9.4%, while stations affiliated with The CW were down 1.1%. Its CBS and NBC stations were up a combined 42.8%.
- With all but one market reported, market share survey results reflect that our stations’ share of the television advertising market in the fourth quarter 2006 held relatively flat at an 18.0% share, on an excluding political basis, versus the same period last year.
- The company entered into a news share arrangement in which its CBS affiliate, WGME-TV in Portland, ME will produce a 10:00 p.m. newscast for Portland’s Fox affiliate, WPFO-TV, beginning February 2007.
- The company’s Fox affiliate, WDKY-TV in Lexington, KY entered into a news share arrangement with WKYT-TV, the CBS affiliate in that market, to add a one hour morning newscast beginning at 7:00am, effective March 2007.
- In December 2006, the company entered into an agreement with McLeod USA for the carriage of KGAN-TV’s broadcast signal in Cedar Rapids, IA.
- In January 2007, the company entered into a retransmission agreement with Time Warner Cable for the carriage of the analog and digital signals of 35 stations in 22 markets, representing almost 6 million of Time Warner’s cable subscribers.
- In January 2007, the company entered into a retransmission agreement with Mediacom Communications for the carriage of the analog and digital signals of 24 stations in 16 markets, representing 700,000 subscribers.
- In February 2007, the company granted a retransmission consent extension to Comcast until February 28, 2007 while the parties continue to negotiate the contract renewal.