Lougee: Tegna Nears Deal With Virtual MVPDs

Look for Tegna stations to soon be part of the virtual MVPDs like DirecTV Now and Sony PlayStation Vue, Tegna Media President Dave Lougee told securities analysts on a conference call this morning.

The station group is making progress in reaching carriage agreements with virtual MVPDs and they should generate fees comparable to the retransmission consent fees it get from conventional cable and satellite MVPDs, he said on the call, which followed the release of Tegna fourth-quarter earnings.

“Given the strength of our stations and the size of our markets, we are ending up with very good economics on these agreements, which will result in no lost income if a subscriber moves from a traditional MVPD to one of those new players.

“Some of these services are targeting so-called cord-nevers with skinny bundles of channels with lower overall prices and that is an opportunity for us to reach new consumers who have not yet heretofore been in the pay TV ecosystem.”

“There is no one-stop-shopping on the ways the deals are being constructed, he said.

Deals with virtual MVPDs like DirecTV Now and Dish’s Sling TV that are outgrowths of conventional MVPDs are being “integrated” with the retrans agreement with the MVPDs, Lougee said. “We are ending up with duplicate economics on those deals.”

The payment and structure of deals with “new entrants” like Sony PlayStation Vue may look different, but the net revenue per subscriber “is going to be ending up the same.”

Broadcasting is at the core of what each of these services has to have to get off the ground,” he said. “Consumers have voted loudly that they want us. That bodes very well for our near- and long-term economics in that space.”

Lougee addressed several other topics during the call, including retrans revenue, the possible easing of FCC broadcast ownership restrictions, the outlook for core and political advertising, its latest syndicated programming venture and its Premion OTT advertising service.

Lougee also confirmed that Tegna, “as expected,” did not sell any spectrum in the FCC incentive auction.

Revenue from retrans will be “stronger than projected” this year because of favorable renewal of agreements with MVPDs at the end of 2016 that covered 42% of Tegna’s MVPD homes. “The resetting of rates will result in a 24% increase for retrans revenue in 2017” — higher than the projected 17%-21%.

Tegna will need the extra cash. Lougee noted that 11 of its NBC affiliates are paying reverse comp to the network for the first time this year, creating a gap between what Tegna will owe the networks and what it is getting in retrans.

Tegna is encouraged by the elevation of Ajit Pai to FCC chairman last month, he said. With Pai in charge, Lougee said, he has a “high level of confidence” that the FCC will ease the local and national ownership limits — “a very good and overdue development for Tegna and the industry overall.”

He said one likely change will be to allow common ownership of two top-four rated stations — most often, two Big Four network affiliates — in a market, subject to antitrust review. Today, broadcasters may own only two stations in market and then only if one is among the top four rated stations and if there are eight other independently owned stations in the market.

Lougee stopped short of saying that Tegna would take advantage of a change in the rules to double up in markets or enter new markets.

Tegna CEO Gracia Matore, who was also on the call, said that Tegna will be “opportunistic” in looking to expand through acquisition or strengthen its position in a market through station swaps. “We are blessed by the fact that we have a strong balance sheet, we generate an enormous amount of free cash flow and we have the opportunity to be active across all alternatives.”

Another “good development” was the FCC’s proposal of rules last week that would authorize the voluntary use of the new ATSC 3.0 digital broadcast standard, which provides “additional business opportunities down the road.”

Core has been slow in the first quarter as other broadcasters have reported, but it has been ramping up, Lougee said. Tegna has been facing particular “headwinds,” he noted. Because the Super Bowl shifted from CBS to Fox this year, eight fewer Tegna stations (three instead of 11) aired the game and enjoyed the revenue attached to it.

Political spending finished the year at $91 million, higher than the guidance of $88 million-$90 million, Lougee said. Presidential spending was down compared to 2012, while Senate spending was nearly flat, he said. But House races were up 20% and governors’ races were up 138%.

Lougee said he was optimistic about 2018. “The current political energy and activism … will likely result in heavy fundraising and political spending by mid-term election standards.”

Announced last fall, Premion is off to a strong start, selling and placing advertising for more than 10 programmers with more than 80 channels, Lougee said. The newest clients include Turner, Viacom and Major League Baseball, he said.

“Local and regional advertisers recognize the importance of over-the-top content distribution and they are taking nicely to Premion’s positioning as a one-stop-shop in OTT advertising…. In January alone, we have 135% more campaigns than we had in December. These campaigns have spanned from one to 125 markets. In other words, we are selling way outside our footprint.”

The service leverages Tegna local sales force, running mostly 15- or 30-second ads that are fast-forward disabled as pre-rolls or mid-rolls.

Lougee said Bold, the live syndicated show that Tegna announced at NATPE in January, is getting “great response” from other broadcasters, although he did not say whether any of them has agreed to air it.

The show, which will riff on social media and try to engage with viewers, will have a unique production format. It will be in production several hours a day so that stations across all time zones can air it live and can have options on when to air it.

Tegna is partnered with MGM in the venture.

Lougee noted that Tegna has two additional shows for possible syndication beyond Tegna in development.