Next Thursday is the 25th anniversary of the law that empowered broadcasters to negotiate for retrans rights. If you are not celebrating the day, you should. Retrans has shifted nearly $40 billion from cable to broadcasting over the past 11 years. But it can’t save local TV forever. While the NAB continues to stave off cable retrans “reform” efforts, broadcasters must find ways to revitalize the spot business.
All day yesterday, the sun shone brightly in Manhattan, turning the Chelsea Piers riverfront venue of TVB’s annual Forward Conference into a metaphor for the way broadcasters are feeling about their business as it rounds the final turn of 2017 and heads into 2018.
The source of the optimism, as it is in every even-numbered year, is the anticipation of billions of dollars in political advertising. Kantar/CMAG pegged the number at $2.4 billion.
Based on a survey of major station groups and industry analysts, we forecast this week that the political spending would drive the growth of spot revenue by nearly 13% next year.
But, as the hundreds of broadcasters at the conference all well know, the numbers, by themselves, are misleading. Yes, they may book $2.4 billion in political and revenue may grow 13%, but the money and the growth will come off a year (2017) that will be almost as bad as 2018 will be good.
Because of the biennial nature of political advertising, its second largest ad category after auto, broadcasting’s spot business is trapped in a never-ending two-year cycle. Up one year, down the next.
The truth of spot is that it is not growing much at all, maybe 2% or 3%, and that’s mostly because of just a single category, political. The $2.4 billion next year will be 14% greater than the $2.1 billion collected in 2014, the last comparable election year. Core, all non-political advertising, will fall 1.4% this year, our survey says.
I know TVB and its annual conference are all about spot, but it seemed odd to talk about the broadcasting for a full day with hardly any discussion of retransmission consent. Only Wells Fargo analyst Marci Ryvicker in her bullish assessment of broadcasting brought it up.
After all, it’s not spot that is driving the industry these days; it’s retrans — the payments stations receive in exchange for allowing cable and satellite operators to carry their signals.
Next Thursday is the 25th anniversary of the law that empowered broadcasters to negotiate for those rights. If you are not celebrating the day, you should.
According to S&P Global, retrans has shifted nearly $40 billion from cable to broadcasting over the past 11 years.
The $40 billion has enabled broadcasters to stay in the TV game as major players, despite the onslaught of competition from cable, satellite and, now, OTT streaming services.
Gary Chapman was CEO of LIN Television and joint board chairman of the NAB in 1992 when the trade association won retrans right as part of the Cable Act of 1992.
Accepting an award from the Library of American Broadcasting at a New York luncheon on Wednesday, he told part of the story of how the retrans came to be and finished by saying that retrans now accounts for 40% to 50% of the asset value of the industry. “It saved the television industry,” he said, and, by that, he meant the local television industry.
That is no exaggeration.
With the $40 billion, network-affiliated TV stations have been able to maintain strong local news operations and support their networks in the acquisition of high-quality primetime programming and TV rights for the NFL, Olympics and other big-event television.
Yes, Gary, you got it exactly right. Retrans saved local television.
Had broadcasters not been allowed to demand a share of cable and satellite subscriber revenue, they would have been dependent on the slow-growth spot business and the trickle of revenue they get from digital.
It would have been on the same path as newspapers and, forgive me, radio.
The Cable Act, a measure primarily aimed at punishing cable for what lawmakers felt was lousy service and excessive subscriber fees, went into effect in 1993.
Broadcasters had a choice. They could choose either must-carry, forcing the MVPDs to carry their signals, or retrans, requiring the MVPDs to get permission from broadcasters to carry their signals.
Must carry was for independents and religious stations that simply wanted carriage. Retrans was for the network affiliates that wanted compensation – ample compensation — for their signals.
Many broadcasters thought that they would immediately start collecting checks from cable operators. It didn’t work out the way.
For more than a decade, there was little cash. Cable operators led by the formidable cable consolidator John Malone flatly refused to cut broadcasters in on their cable revenue, even though their signals were the most-watched channels on their systems.
However, some big broadcasters swapped retrans for carriage and fees for cable networks that they had an interest in. CapCities/ABC and Hearst leveraged retrans for the sake of ESPN2, Fox for FX, NBC for America’s Talking (now MSNBC) and Scripps for HGTV.
These were great deals for the broadcasters who made them. The cable networks turned into multi-billion assets. But they did nothing for the broadcasters who didn’t or the medium of broadcasting itself.
It’s a classic example of the law of unintended consequences. Lawmakers intended retrans to strengthen broadcasting and the local service it provided. Yet, its immediate effect was to spawn or grow cable networks that chipped away at broadcasting audiences and revenue.
During the 1990s and into the 2000s, broadcasters without ties to national or local cable networks managed to derive some retrans value by negotiating for promotional consideration or advertising contracts. Some may even have got a little straight cash.
But it wasn’t until Perry Sook of Nexstar came along in 2005 that retrans-for-cable really took hold. He took a stand, denying cable operators his signals until they started forking over some money. And, lo and behold, he got it.
His timing was right. When satellite won the right to carry local signals in 1999, they readily paid broadcasters for carriage, recognizing that they simply could not live without them.
The satellite operators not only set the precedent for retrans cash, but their growing presence in the marketplace gave broadcasters tremendous leverage in negotiating with cable operators who feared they would lose subs to satellite if they couldn’t deliver those same broadcast packages.
I can’t say for sure that Sook was the first to get significant retrans dollars, but he was certainly among the first and, following his stand, retrans revenue, according to S&P Global, began to grow rapidly and steadily from $200 million in 2006 to an expected $9.3 billion this year. Roll all those years up and you get your $40 billion.
Broadcasters shouldn’t get too comfortable. The cable and satellite operators are weary of broadcasters’ incessant demands for ever more retrans money, even though they are still not adequately compensated given the audiences they attract and the happy subscribers they make.
The operators continue to apply pressure in Washington to limit broadcasters retrans leverage in some fashion. Who knows? At some point, those efforts might gain traction and the operators might succeed in hobbling broadcasters at the negotiating table.
But even if those legal or regulatory efforts fail, there is a marketplace limit to retrans. S&P Global shows retrans growth starting to slow. Between 2017 and 2023, it says, figure on a compound annual growth rate of 7%. That’s nice, but nothing like the fat double-digits percentages of the last decade.
Retrans saved TV broadcasting, but it cannot save it forever.
While the NAB continues to stave off cable retrans “reform” efforts, broadcasters are going to have to find ways to revitalize the spot business.
At the Forward Conference yesterday, there was talk of programmatic or automated selling, improved audience measurement and using Big Data to sell spot at a premium.
Let’s hope that it was more than talk.
P.S. Next week, to mark the anniversary of retrans, TVNewsCheck will published more from Gary Chapman and an interview with Nexstar’s Perry Sook on how he turned his retrans rights into a billion-dollar-a-year revenue stream.