Perry Sook, CEO of Nexstar Broadcasting negotiated one of the earliest retrans deals with an MVPD in 2005 Since Sook took his stand, retrans has grown into a powerful second revenue stream, contributing $40 billion to the top line of the industry. It has kept broadcasting in the TV game. Here, Sook talks about how this vital second revenue stream came to be and its prospects for the immediate future.
It was 25 years ago today that the Senate overrode a veto of then-President George H.W. Bush, enacting a law containing a provision that empowered TV stations to get compensation from cable operators for the carriage of their signals just as cable networks did.
However, it wasn’t until 2005 that a handful of broadcasters began demanding money for carriage from cable and, by that time, satellite.
They were led by Perry Sook, CEO of Nexstar Broadcasting (now Nexstar Media Group). In 2005, he firmly established the principle and then the reality of MPVDs’ paying for carriage.
He did so by withholding his stations in 18 markets from systems owned by Cox Communications and Cable One. After standoffs that lasted most of the year, the operators finally came around and agreed to pay.
It was a huge win, not only for Nexstar, but for the entire broadcasting industry as other broadcasters with Big Four network affiliates quickly followed suit.
Since Sook took his stand, retrans has grown into a powerful second revenue stream, contributing $40 billion to the top line of the industry. It has kept broadcasting in the TV game.
For this silver anniversary of retrans gold, Sook talked to TVNewsCheck Editor Harry A. Jessell about how it all came about and prospects for retrans in the immediate future.
An edited transcript:
Do you get the credit for being the first to get significant retrans dollars?
I don’t know if we were absolutely the first, but we were among the first. Sinclair was beginning to negotiate at that time, but they didn’t have a lot of Big Four affiliates with huge news operations as their core holdings at that time.
I remember Jim Keeler who was running Cosmos [Broadcasting] at the time saying that from the local cable operator in Columbia, S.C., where he had a station with like a 70 share, that they may have been getting some money. But certainly no one was doing it companywide in 2005 for every station that they owned and with every MVPD that they did business with.
So how did it come about?
Obviously, you go back to the ’92 act, which gave us the right to negotiate for the terms of our carriage. But for many years, from ’92 to 2005, we only got bill stuffers and generic promotional spots in their local inventory, but that was about it.
Things changed when satellite and local-into-local came into our medium-size markets in roughly 2002 or 2003. [Editor’s note: Local-into-local refers to the bundle of local broadcast signals that satellite operators began offering after being given permission to do so by Congress in 1999.]
We at Nexstar viewed that as a viable alternative and a credible threat in negotiating with the traditional wireline MVPDs.
I think our first market to go local-into-local was Little Rock, Ark. They said, “You know, we have this satellite and we will put you up on the satellite for no additional charge and just think of all the additional distribution.”
We said: “No. You are the last guy in and without us you have an inferior consumer offering and so you have to pay us.” They did. You just had to get through a couple of conversations to get there.
Satellite also gave you leverage with the cable operators. You could say to them, well, we have satellite now. If you don’t deal with us, we will drive your subscribers to satellite.
That is correct. In 2002, we did some short-term agreements with cable operators in particularly high penetrated DBS markets that were due to expire at the end of ’05.
By that time, local-into-local was an offering in the medium-size markets and so we basically negotiated with the cable companies and said: “if you don’t pay us, you will not be afforded the opportunity to carry us” and so that’s kind of how the discussion started.
How did the negotiations go?
At one point we had a meeting in our conference room with Cox in our old offices here in Irving, Texas. I held up a penny and I said if you agree to pay me a penny, not a penny a day, but a penny, then I will agree to extend the carriage and then, obviously, we can work on that amount over time.
So, it was the fundamental concept of paying us that we were trying to establish.
How much did you get in those first deals?
I don’t know what we got in our first agreements, maybe 15 or 20 cents or something like that, but we established the concept that we would be paid universally for their ability to rebroadcast or redistribute our signal or we wouldn’t be carried.
Once we did the Cox deal in October, I think we did another 100 agreements with MVPDs between then and the end of the year — all for cash.
In 2006, it was $5 million dollars of revenue to the company.
How long were you off the cable systems?
We were off the air on Cox for nine-and-a-half months and Cable One for 11-and-a-half months.
Did you feel that?
Oh sure. We lost advertising revenue, maybe 15% of our advertising revenue, because, again, there were other cable providers and there were certainly the satellite guys.
But the advertisers came back when we went back on cable. But if subscribers left Cox or Cable One and went to Dish or DirecTV — it was primarily Dish in those marketplaces — they didn’t go back necessarily to cable.
We saw the DBS numbers climb in those marketplaces. It was a forced migration to satellite and we know that Cable One in Joplin, Mo., lost half of their subscribers in 11-and-a-half months and we saw DBS numbers go up by about that same amount.
At one point, Dish Network had a truck in our parking lot in Abilene, Texas. We were selling satellite dishes out of the parking lot and doing live remotes on our five o’clock news every day to add flavor to the negotiations.
Were you able to offset the losses in ad revenue with the retrans payments you got in those first deals?
Our first-year retransmission revenue was maybe $5 million. Did that fully cover the lost advertising revenue in the first year? Maybe not, but our retransmission revenue this year as a company will be over $1 billion. I guarantee you that that covered any lost revenue.
What reaction did you get from the rest of the industry when you took your retrans stand?
Well, the networks were all very supportive — I think for obvious reasons. They did not bring in stations over the top. They stood behind us because we were literally the only racer on the track.
And, certainly, we wouldn’t have been able to do it if our board wasn’t supportive because we were a much smaller company dealing with The Washington Post [Cable One] and with Cox who were much bigger companies than we were in totality.
I remember on one earnings call being called reckless by a certain investor, who in subsequent years said retransmission saved the industry.
So, we were very popular. Most of our other broadcasting brethren were more than happy to fight to the last drop of our blood, but no one was necessarily prepared to step out in the way that we did universally.
I guess the networks took all the fun out of retrans around 2009 when they started making their demands for a cut of the action through reverse comp?
I believe the first reverse comp deal was done by Granite in San Francisco when NBC stripped [Young Broadcasting’s] KRON of the affiliation and Granite’s KNTV agreed to pay NBC. If I remember correctly, that happened at some point in the late ’90s.
The fact that KNTV and Granite agreed to pay NBC gave all the networks the idea that, hey, if I can get it from A station, I ought to be able to get it from all the stations.
But most people were locked up in existing [affiliate] agreements that didn’t expire until 2008 and so the ability to negotiate to share or not share with the networks didn’t present itself until the end of the first decade of the century or, in some cases until post 2010 just because the existing deals were not open for renegotiation.
What was your first reverse comp deal?
It was our single station CBS affiliate in Altoona, Pa. I was in probably the least leveraged position I could have been in because [CBS’s] KDKA from Pittsburgh was already on all the cable systems and significantly viewed.
So, it wasn’t as if viewers couldn’t get all of the CBS programming through another source. They couldn’t get my local news, but that was all they couldn’t get. I literally flew out to Los Angeles and had a meeting with Les Moonves and we cut our first deal directly.
What was the deal?
I think it was a five-year deal that started at 10 cents and ended at 15 cents. I remember flying back from Los Angeles to Pennsylvania at the time and feeling like I had made the worst business deal of my career.
What’s the outlook for retrans growth?
So, it has obviously transformed the industry, some say saved the industry. I remember Jeff Zucker, when he was running NBC saying, you know, cable is just a better business because it is a two-revenue stream business.
I said to whoever was sitting next to me at the time, it doesn’t have to be because we were a dual revenue stream company, too.
By whatever measure, we are vastly underpriced versus the value we bring to the [MVPD] bundle versus the value we receive from the bundle.
So, I think retransmission revenue for local television stations will continue to grow at a robust rate for as far as I can see, but, you know, I can generally only see out about five years at a time.