Retrans Boom Bodes Well For Stations’ Future
The Earth shifted earlier this month. For the first in television history, a major station group reported advertising as a secondary revenue stream.
Yes, it was first quarter in a non-political, non-Olympic year, and yes, the rest of the year will put advertising back on top, but the fact remains Nexstar reported more total revenue from retransmission fees in the first quarter of 2019 than from spot sales.
It is appropriate that Nexstar should report such a quarter, since Perry Sook was also first to take his stations off cable for refusal to pay back in 2005, opening a floodgate for the entire industry.
Floodgate is the right word. Scripps, for example, reported retransmission revenue growing 21%. Tribune, soon to be folded into Nexstar, reported a 12% increase. Meredith reported a 16% increase, and so it goes.
When discussing retransmission, one must also point out that the majority of money goes back to the networks in the form of program payments. Network agreements are highly confidential, but for the sake of argument, let’s arbitrarily assume 60% of this money goes to the networks. That leaves a 40% margin. Even 65% leaves a 35% margin, not bad in today’s world.
Networks certainly want as high a percentage as possible, but they are also aware that without the local news strong affiliates bring to the table, retrains fees would be much lower.
One must also observe that the same station executives who were encouraging consumers to put up antennas just a few years ago, are now deathly afraid of cord cutting. The positive side is that most consumers value and want the products cable and satellite offer, they just want the best deal.
Rather than worrying about cord cutting, we would be better advised to consider what the growth of retransmission fees signals for the future.
Television currently has two revenue streams: Advertising and indirect consumer payments. Indirect payments are a three-way partnership in which cable companies, stations and networks all profit. What other partnerships might be available? I don’t know the answer, but I do know it will involve local news and information. Smart people will figure it out.
There is a third form of station revenue, as yet untapped: direct consumer payments. Today’s consumer is willing to trade cash for three kinds of products that television is well positioned to offer. Products that provide unique value, products that save time and products that simplify life. The conspicuous target is younger consumers.
There is every reason to believe advertising will continue to be the lifeblood of television, but the continuing growth of retransmission consent should remind us that future opportunities are unlimited.
Our internal culture undervalues our local news product. We think the only way to make money is to sell spots, when in fact our ability to produce local information is a barely tapped gold mine. Let’s look forward to the day when advertising is just one of many revenue streams.
This is one in a series of occasional columns from Hank Price, a media consultant, author and speaker. He spent 30 years managing TV stations for Hearst, CBS and Gannett, including WBBM Chicago and KARE Minneapolis. He also served as senior director of Northwestern University’s Media Management Center and is currently director of leadership development for the School of Journalism and New Media at Ole Miss. His latest book is Leading Local Television.