TVN Focus On Business | Rising Retrans Tide Lifts All Broadcasters
The final quarter of 2019 saw broadcast TV ad sales decline because of the lack of a federal election — although that was eased somewhat in markets where the ’20 campaign for the Democratic presidential nomination began early. But gains were reported pretty much across the board in a revenue stream that is not cyclical: retransmission consent payments.
Tegna reported subscription revenues up 31% in the fourth quarter, which included some station acquisitions, but also rate increases. Looking beyond this year’s political ad bonanza, CFO Victoria Harker is bullish on the next non-election year, 2021. “We’re very confident in mid-to-high-20s revenue growth in ’21, compared to 2019, driven by our newly renegotiated top-of-market retrans rates, strongly accretive acquisitions and ongoing Premion growth.” Shortly thereafter, Tegna announced a deal with Gray TV to further expand its Premion OTT sales operation. Harker is even predicting that growth in retrans and AMS (advertising and marketing services) for 2021“will all but offset 2020 political revenues.”
Retrans and ABC Network comp from affiliates is a much smaller piece of the total revenue pie for The Walt Disney Co., but even there the company noted that those revenues grew in the final quarter of calendar 2019 as advertising slipped for the broadcast business. CFO Christine McCarthy noted a decline in political advertising revenues for the O&Os from a year earlier, but didn’t offer any details.
At newly reunited ViacomCBS, CFO Christina Spade told Wall Street analysts that retrans and reverse comp revenues grew 25% from a year earlier in the final quarter of 2019. Including payments for cable networks, the company is projecting that affiliate revenues will be up in the low single digits this year. And, like its station affiliates, ViacomCBS is expecting record political advertising this year.
Broadcasters have been successful in negotiating rate increases with MVPDs and virtual MVPDs for their “must-have” programming, so retrans continues to grow even as cord-cutting reduces subscriber numbers. At Nexstar, distribution fee revenues were up 56.7%, including some huge acquisitions. On a same-station basis, the company put growth for the quarter at 12.8%.
Similarly, Sinclair Broadcast Group reported that distribution revenues for its TV stations were up 13% in the quarter. Stronger growth is expected this year after the company completes renewal negotiations with cable giant Comcast.
Major station acquisitions also gave a big boost to retrans revenues at E.W. Scripps, growing 42.2% for the quarter. But a repriced deal with Comcast just kicked in at the beginning of the year and Scripps is in the midst of renegotiating 40% of its MVPD footprint in the first half of this year, so strong gains are expected as the year goes on.
Gray Television also has lots of retrans deals to be repriced this year, so it is holding off on any guidance beyond a prediction of $213 million-$215 million in the first quarter, following $195 million in the final quarter of 2019.
As they enjoyed the retrans boosts evening out some of the odd- and even-year political impact, broadcasters are embracing the prospect of record-breaking political hauls this year. That started in the fourth quarter, with many reporting record political sales for an odd year.
Gray’s Kevin Latek, chief legal and development officer, noting that self-financed billionaires Michael Bloomberg and Tom Steyer were the company’s top two political advertisers in the fourth quarter. But he noted that even excluding them, political advertising in the quarter topped guidance by more than 20%. “This tells us that their two campaigns are adding incremental money to a market that is already very robust,” he said.
Billionaire political candidates are a boon to broadcasters, but heavy spending by the likes of Bloomberg and Steyer have also been noticeable online. Analysis published last week by eMarketer projects that giants Google and Facebook will capture 77.6% of digital political revenue during the current election cycle. Kantar has projected that federal candidates and campaigns will spend $1.2 billion on digital ads, not including spending by PACs and local campaigns.
Facebook, which is taking public fire over whether it should police claims made in political ads, will capture the largest digital share, 59.4%, according to eMarketer. Total advertising for Facebook was up 25% in the fourth quarter to $20.7 billion. Russian interference in the 2016 U.S. election relied heavily on social media platforms, so Facebook has worked to eliminate fake accounts and other forms of abuse. But it will be under heavy scrutiny this year to see how well it reacts to possible foreign misinformation efforts.
Google, owned by Alphabet Inc., gets the bulk of its ad revenues from search, which was up nearly $4 billion in 4Q to $27.19 billion. But political advertising is largely on its YouTube video service, where ad growth was up about $1 billion to $4.72 billion. eMarketer projects that Google will capture 18.2% of digital political advertising this year, mostly on YouTube.
As Amazon is rapidly growing subscription revenue and competing in video content — primarily targeting Netflix — it is also quietly growing its advertising business. The company lumps ad sales into “other,” but says in a footnote that the bulk of that category is advertising. The fourth quarter saw “other” hit $4.782 billion, up 41% from a year earlier. That’s a tiny fraction of the company’s $87.4 billion in total sales for the quarter, but makes Amazon a significant player in advertising.
Netflix continues to rely on subscription revenues as others in the OTT space mix ad-supported and premium offerings. That’s still producing growth, with Netflix reporting $5.47 billion in 4Q revenues and projecting $5.73 billion in the current quarter.
Tech giant Apple finally entered the subscription video marketplace and is undercutting most OTT services on price, but also holding the line on spending on original content. At $4.99 a month, it will take a lot of subs for Apple TV Plus to impact Apple’s top-line sales, which were $91.81 billion in its most recent quarter.