Robin Flynn of S&P Global Market Intelligence offered projections Thursday on broadcasting's financial future. Her retrans outlook slide stands as a stark reminder to stations that that revenue stream can no longer be counted on to indefinitely supply the growth station groups have enjoyed. ~~ Plus, NBC's Valari Staab gives a nice plug for ATSC 3.0.
TV’s Retrans Gravy Train Losing Speed
As she has for years, Robin Flynn of S&P Global Market Intelligence opened the firm’s annual TV & Radio Finance Summit in New York yesterday with data-filled slides financially profiling broadcasting.
One of the slides stood out for me — and not in a good way.
It was a bar chart showing S&P’s history and outlook for net retrans in TV broadcasting. Net retrans is the retransmission consent fees that the network affiliates get from cable and satellite operators minus the so-called reverse comp they pay the broadcast networks for their affiliations.
Net retrans is now a major contributor to groups’ bottom lines and, I would say, the most important measure of TV broadcasting’s financial health.
With the advertising business sputtering and digital still not much of a revenue generator, it’s really been up to net retrans to fuel the growth of groups’ profitability.
According to Flynn’s slide, net retrans grew at a brisk place between 2012 and 2017, more than tripling from $1.5 billion to $4.7 billion.
But thereafter the growth slows to the low single digits until 2021. At that point, it flatlines at $5.3 billion through 2028, which is as far out as S&P purports it can see. Like some once-robust ad categories, net retrans becomes another no-growth metric for broadcasters to worry about.
The reason is not retransmission consent itself, according to S&P. The money that broadcasters collect from the cable and satellite operators will continue to grow at a steady pace for the next 10 years — to $13 billion in 2028.
No, the reason for the net retrans doldrums will be mostly due to the networks demands for an ever-increasing share of the retrans that their affiliates are collecting.
In 2018, the S&P experts say, the networks will walk away with just over half the $10.1 billion in retrans revenue. And the network share, they say, will creep up to around 55% over the next decade.
In essence, the networks will, starting in 2020 or 2021, end up taking every additional retrans dollar they or their affiliates squeeze out of the MVPDs. And that’s probably the best-case scenario for affiliates. The networks could press so hard for reverse comp as to slam net retrans into reverse.
Flynn’s slide is not all bad news for the affiliates.
Just about the same time that the net retrans flatlines, a new source of revenue appears — carriage fees from the virtual MVPDs like DirecTV Now, and PlayStation Vue. That goes to $1 billion in 2026 before it rolls off, according to S&P.
So, the groups will show some growth from the pay TV world in the next 10 years, but nothing like what they saw in those golden years between 2012 and 2017.
Flynn’s slide show was the opening act of a full day of panel sessions with broadcasters, and retrans and net retrans and were recurring topics.
The two biggest affiliate broadcasters in the room were Nexstar Media CEO Perry Sook and Sinclair Broadcast Group CEO Chris Ripley.
Neither seemed too concerned about S&Ps suggestion that net retrans was starting to peter out as a growth engine.
“Our net retrans margins will be over 50% for as far as the eye can see,” Sook said.
In 2005, he recalled, Nexstar collected $5.7 million in retrans fees and got to keep all of it. “This year we’ll do $1.1 billion in retrans revenue with a margin in the 50s. I’ll take the margin in the 50s on a billion dollars rather than 100% of $5.7 million and I think every other broadcaster would do the same.”
Sinclair’s Ripley also shrugged it off. “I don’t necessarily think that that chart is going to be the future. I think that net retrans will be a healthy contributor to the business for the foreseeable figure.”
Although Sook and Ripley said they are satisfied with the split today, they also said that may not always be true.
“You have to look at the totality of the [network] relationship,” Sook said. “If that ever ceases to be profitable, then I think you have fundamental decisions to make.”
“Are you more profitable with or without a network,” Ripley said. “That’s the question you ask yourself whenever you have a renewal.”
When S&P or any other analyst crunches the numbers for all of broadcasting, it is guessing at many and averaging them all.
Some of S&P’s retrans totals and percentages could be off significantly and, in fact, some station groups may be able to grow net retrans for years to come, even as others see them shrinking.
But overall, S&Ps number jibe with what I see and hear from other analysts and broadcasters and they draw no strong complaints from anybody. That suggests that they are close to the mark.
So, Flynn’s slide stands as a stark reminder to stations that retransmission consent can no longer be counted on to indefinitely supply the growth that securities analysts, investor and bankers like to see in every company.
It’s a reminder to get on to the next big thing — whatever it may be.
P.S. For many, ATSC 3.0 is the next big thing, the next growth engine.
For years, I’ve been waiting for high-ranking network executives to step up and voice unqualified support for 3.0. So, it was nice to hear NBC and Telemundo stations chief Valari Staab do so in the summit’s opening session — in a one-on-one interview with S&P Global’s Flynn.
Asked about 3.0, Staab said it’s “something the industry has to do, needs to do and move forward as fast as it can.”
It not only can deliver programing to phones and other mobile devices, but also allows broadcasters to offer targeted ads just like their digital competitors, she said.
Rolling out the standard will not be easy, she continued. For one thing, no one has figured out how to pass the 3.0 signals through MVPD and vMVPD systems, she said. “It’s complicated.”
The endorsement from Staab is not entirely surprising. NBC was active in developing the standard and it is involved in the big 3.0 testing in Phoenix with several other broadcast groups.
But Staab’s talking about it publicly signals that NBC is seriously considering the business potential. We need to hear the same kind of talk from Staab’s peers at ABC, CBS and Fox.