Top Of Mind At S&P: M&A, Retrans, Spot

S&P Global's 34th annual Radio and TV Summit last week addressed a range of topics, including the lack of consolidation following the FCC's spectrum auction; the state of retransmission consent and reverse comp; and an overview of the good and bad news coming from the spot TV ad market.

Last Thursday, S&P Global hosted its 34th annual Radio and TV Summit in Manhattan and, as always, attracted scores of investors trying to divine where broadcasting and its stocks prices are heading.

The summit comprised panels that addressed TV broadcasting’s two principal revenue streams — spot TV (63% of total revenue in 2017) and retransmission consent fees (30%) — but virtually ignored its third — digital (7%).

Below are a few of the highlights from the summit.

(For more from the summit, see my Friday column on Fox’s bypass of affiliates via Hulu and Gray Television Kevin Latek’s call for “rational” ownership limits.)

What Happened To That Wave of Consolidation?

In the wake of the incentive auction, there was supposed to be steady stream of TV station sales and swaps. But other than Sinclair’s acquisition of Tribune and Bonten, there hasn’t been much action.


Marci Ryvicker, the Wells Fargo analyst who tracks TV station group stocks, said it’s not for the lack of buyers.

“No one is a seller right now,” she told the summit attendees. And part of the reason is that “people have an emotional attachment to the business…. It’s tough for them to give it up.”

But eventually the smaller players will have to give it up because the traditional business is getting too tough. “I am watching core advertising decelerate,” she said. “You were GDP-plus, then you were GDP and now you are GDP-minus, and I don’t see that trend reversing.”

Bob Prather, president of Heartland Media, which has been assembling a group of small-market stations, agreed that emotions are a drag on this effort to buy small, family-run stations. “There’s a huge amount of ego,” he said. “It’s a big deal in a small town to own a TV station. You’re one of the big movers and shakers in town.”

But opportunities to buy arise when the men and women who built and ran the stations die, he said. “The kids say: ‘How soon can I get the money?’ “

Retrans Strong, Net Retrans Less So

According to S&P Global and others, affiliates are hanging on to about half the money they get in retransmission consent fees. The other half is going to the networks in the form of programming fees or what many still call reverse comp.

However, the consensus of the summit’s retransmission consent panel was that the 50-50 split on retrans will not hold, that the networks will continue to increase their demands and that the affiliates share will drift downward to, perhaps, as low as 40%.

That’s not as bad it sounds. The other consensus was retrans dollars are increasing so much that broadcasters should still enjoy growth in net retrans (retrans minus the network programming fees) for the next several years.

Steve Foerster of Griffin Communications, owner of CBS affiliates in Oklahoma City and Tulsa, said net retrans should grow “close to double digits” for the foreseeable future. “I don’t see it much less than that.”

According to S&P Global, retrans fees are approaching $2 per sub per month with Nexstar ($1.82) and Tegna ($1.80) leading the way.

Those fees can go much higher, said Foerster. At least for Griffin, which has dominant stations in its markets, they can climb as high as $6. Since his stations get 20% of the viewing in their markets, he said, it only stands to reason they should get 20% of the programming fees that cable and satellite pay to their programmers.

Michael Nathanson, a securities analyst at MoffettNathanson, cautioned that it is hard to predict how much of the retrans money the affiliates will be able to keep long term until the networks renew their NFL rights deals.

The current Big Three deals, which expires in 2022, are “massively sweetheart deal[s],” given that ESPN paid $1.9 billion for the Monday night package for just 17 games, Nathanson said. To reup, the Big Three will have to pay much more and they will be looking to the affiliates to help foot the bill.

“The NFL is the most important thing to everyone in this panel and everyone in the room,” he said. Fifty-nine percent of Fox ratings points in the fourth quarter came from the NFL, he said. So, despite trouble with viewership early in the 2016-17 season, he said. “I don’t think football is going anywhere.”

Spot’s Future: Booze, Drugs, Politics

TVB President Steve Lanzano gave a quick and mixed overview of the spot TV revenue during his panel session.

The good news is auto, which started out slow but has picked up as the year has gone on. Advertising is keyed to auto sales and the current sales forecast for 2017 is for 17.1 million or 17.2 million cars and light trucks, he said. In addition, local auto dealers are in a “share fight” and are getting big incentives from the manufacturers to meet sales quotas.

The bad news are quick service restaurants (“our problem child”), where advertising is shifting to national cable; telecommunications; and colleges and universities (“Blame Donald Trump for that one).”

Looking ahead, Lanzano said he believes political will be unusually strong next year as the Democrats try to take back at least one of the houses of Congress and some of the 36 state houses that will be up for grabs.

In 2014, the comparable election season, candidates and their supporters spent $2 billion, he said. “Next year will be better than that.”

According to Lanzano, the best indicator of how heated next year’s electioneering may be is what’s happening now in suburban Atlanta’s 6th congressional district. Democrat Jon Ossoff is battling Republican Karen Handel for the seat vacated by Tom Price, when he joined the Trump cabinet as secretary of Health and Human Services.

Lanzano said more money has been spent on the race than any other congressional race in history. He didn’t say how much, but the Atlanta Journal-Constitution pegs it at $42 million.  Whatever the number, it’s not going to get much bigger. The vote is tomorrow.

Asked about potential new spot money, Lanzano he said TV is working diligently to tap two “big money” categories — distilled spirits and pharmaceuticals.

“It just makes no sense [that] we don’t get more business from pharma,” he said. “When you look at conditions, they actually are geographical. When you look at audiences, our audience for news is a perfect fit.”

Prather’s Retrans Argument #12

Heartland’s Prather has been a regular at the S&P summit since his days as COO of Gray Television and he always is among the most quotable panelists. This year, he did not disappoint.

While discussing the trouble small broadcasters like Heartland have in dealing with big MVPDs, Prather shared one of his negotiating points.

“What I tell them is to get rid of some of this junk [basic cable networks] you have on. Quit paying some of these crappy networks and pay us…. Our typical local news got more ratings than all their networks combined. Yet, they keep buying all this junk from Viacom and these other places. “

Prather didn’t say whether the argument is a winner.

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