Next Thursday is the 25th anniversary of the law that empowered broadcasters to negotiate for retrans rights. If you are not celebrating the day, you should. Retrans has shifted nearly $40 billion from cable to broadcasting over the past 11 years. But it can’t save local TV forever. While the NAB continues to stave off cable retrans “reform” efforts, broadcasters must find ways to revitalize the spot business.
JESSELL AT LARGE
Retrans Saved Local TV, Now What?
All day yesterday, the sun shone brightly in Manhattan, turning the Chelsea Piers riverfront venue of TVB’s annual Forward Conference into a metaphor for the way broadcasters are feeling about their business as it rounds the final turn of 2017 and heads into 2018.
The source of the optimism, as it is in every even-numbered year, is the anticipation of billions of dollars in political advertising. Kantar/CMAG pegged the number at $2.4 billion.
Based on a survey of major station groups and industry analysts, we forecast this week that the political spending would drive the growth of spot revenue by nearly 13% next year.
But, as the hundreds of broadcasters at the conference all well know, the numbers, by themselves, are misleading. Yes, they may book $2.4 billion in political and revenue may grow 13%, but the money and the growth will come off a year (2017) that will be almost as bad as 2018 will be good.
Because of the biennial nature of political advertising, its second largest ad category after auto, broadcasting’s spot business is trapped in a never-ending two-year cycle. Up one year, down the next.
The truth of spot is that it is not growing much at all, maybe 2% or 3%, and that’s mostly because of just a single category, political. The $2.4 billion next year will be 14% greater than the $2.1 billion collected in 2014, the last comparable election year. Core, all non-political advertising, will fall 1.4% this year, our survey says.
BRAND CONNECTIONS
I know TVB and its annual conference are all about spot, but it seemed odd to talk about the broadcasting for a full day with hardly any discussion of retransmission consent. Only Wells Fargo analyst Marci Ryvicker in her bullish assessment of broadcasting brought it up.
After all, it’s not spot that is driving the industry these days; it’s retrans — the payments stations receive in exchange for allowing cable and satellite operators to carry their signals.
Next Thursday is the 25th anniversary of the law that empowered broadcasters to negotiate for those rights. If you are not celebrating the day, you should.
According to S&P Global, retrans has shifted nearly $40 billion from cable to broadcasting over the past 11 years.
The $40 billion has enabled broadcasters to stay in the TV game as major players, despite the onslaught of competition from cable, satellite and, now, OTT streaming services.
Gary Chapman was CEO of LIN Television and joint board chairman of the NAB in 1992 when the trade association won retrans right as part of the Cable Act of 1992.
Accepting an award from the Library of American Broadcasting at a New York luncheon on Wednesday, he told part of the story of how the retrans came to be and finished by saying that retrans now accounts for 40% to 50% of the asset value of the industry. “It saved the television industry,” he said, and, by that, he meant the local television industry.
That is no exaggeration.
With the $40 billion, network-affiliated TV stations have been able to maintain strong local news operations and support their networks in the acquisition of high-quality primetime programming and TV rights for the NFL, Olympics and other big-event television.
Yes, Gary, you got it exactly right. Retrans saved local television.
Had broadcasters not been allowed to demand a share of cable and satellite subscriber revenue, they would have been dependent on the slow-growth spot business and the trickle of revenue they get from digital.
It would have been on the same path as newspapers and, forgive me, radio.
The Cable Act, a measure primarily aimed at punishing cable for what lawmakers felt was lousy service and excessive subscriber fees, went into effect in 1993.
Broadcasters had a choice. They could choose either must-carry, forcing the MVPDs to carry their signals, or retrans, requiring the MVPDs to get permission from broadcasters to carry their signals.
Must carry was for independents and religious stations that simply wanted carriage. Retrans was for the network affiliates that wanted compensation – ample compensation — for their signals.
Many broadcasters thought that they would immediately start collecting checks from cable operators. It didn’t work out the way.
For more than a decade, there was little cash. Cable operators led by the formidable cable consolidator John Malone flatly refused to cut broadcasters in on their cable revenue, even though their signals were the most-watched channels on their systems.
However, some big broadcasters swapped retrans for carriage and fees for cable networks that they had an interest in. CapCities/ABC and Hearst leveraged retrans for the sake of ESPN2, Fox for FX, NBC for America’s Talking (now MSNBC) and Scripps for HGTV.
These were great deals for the broadcasters who made them. The cable networks turned into multi-billion assets. But they did nothing for the broadcasters who didn’t or the medium of broadcasting itself.
It’s a classic example of the law of unintended consequences. Lawmakers intended retrans to strengthen broadcasting and the local service it provided. Yet, its immediate effect was to spawn or grow cable networks that chipped away at broadcasting audiences and revenue.
During the 1990s and into the 2000s, broadcasters without ties to national or local cable networks managed to derive some retrans value by negotiating for promotional consideration or advertising contracts. Some may even have got a little straight cash.
But it wasn’t until Perry Sook of Nexstar came along in 2005 that retrans-for-cable really took hold. He took a stand, denying cable operators his signals until they started forking over some money. And, lo and behold, he got it.
His timing was right. When satellite won the right to carry local signals in 1999, they readily paid broadcasters for carriage, recognizing that they simply could not live without them.
The satellite operators not only set the precedent for retrans cash, but their growing presence in the marketplace gave broadcasters tremendous leverage in negotiating with cable operators who feared they would lose subs to satellite if they couldn’t deliver those same broadcast packages.
I can’t say for sure that Sook was the first to get significant retrans dollars, but he was certainly among the first and, following his stand, retrans revenue, according to S&P Global, began to grow rapidly and steadily from $200 million in 2006 to an expected $9.3 billion this year. Roll all those years up and you get your $40 billion.
Broadcasters shouldn’t get too comfortable. The cable and satellite operators are weary of broadcasters’ incessant demands for ever more retrans money, even though they are still not adequately compensated given the audiences they attract and the happy subscribers they make.
The operators continue to apply pressure in Washington to limit broadcasters retrans leverage in some fashion. Who knows? At some point, those efforts might gain traction and the operators might succeed in hobbling broadcasters at the negotiating table.
But even if those legal or regulatory efforts fail, there is a marketplace limit to retrans. S&P Global shows retrans growth starting to slow. Between 2017 and 2023, it says, figure on a compound annual growth rate of 7%. That’s nice, but nothing like the fat double-digits percentages of the last decade.
Retrans saved TV broadcasting, but it cannot save it forever.
While the NAB continues to stave off cable retrans “reform” efforts, broadcasters are going to have to find ways to revitalize the spot business.
At the Forward Conference yesterday, there was talk of programmatic or automated selling, improved audience measurement and using Big Data to sell spot at a premium.
Let’s hope that it was more than talk.
P.S. Next week, to mark the anniversary of retrans, TVNewsCheck will published more from Gary Chapman and an interview with Nexstar’s Perry Sook on how he turned his retrans rights into a billion-dollar-a-year revenue stream.
Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or here. You can read earlier columns here.
Comments (23)
Gregg Palermo says:
September 29, 2017 at 4:01 pm
A national video service provided by local stations made sense 50 years ago because it was the ONLY viable solution. SInce then, direct satellite and wired networks have provided more popular solutions, depending on who gets to define popularity. I’ve attained a reputation for saying “broadcasting is so 20th century” but maybe it’s true. Few great ideas last forever. I worked in broadcasting in the heyday and I miss the way things were. ATC 3.0 may not arrive quickly enough.
Peter Grewar says:
September 29, 2017 at 7:45 pm
Wrong, as usual. In case you haven’t noticed, cable/satellite penetration peaked seven years ago, and has been slowly dropping since then. In the past year or two, the rate of that drop has increased, which suggests that cable/satellite has yet to bottom out. While almost all of the people who are dropping cable or satellite are going online for TV, a largish percentage are also hooking antennas up to their TVs to receive local broadcasts. So, yes, cable and satellite are still the dominant delivery means for television programming, but they’re becoming less dominant, and off-air reception is once again increasing in popularity.
You may want to wait a few years and see how those trends play out before declaring broadcast TV to be dead.
Brian Bussey says:
September 29, 2017 at 4:04 pm
I read somewhere that CBS will be asking for 3/4’s of all its affiliates retrains money while it rolls out a CBS OTT product that bypasses local CBS affiliates all together ? Talk about eating your young. Are the local stations really investing their retrains money in local news and local promotion or just rolling it back into the pool of money that finances stock buy backs ? Are station employees seeing any of this retrains money? For retrains dollars to have saved local broadcasters, those same broadcasters would have to spend some of that money in their local markets promoting their stations. Is anyone seeing greater local promotion in their markets. Are TV stations allowed to even say “rabbit ears” in a promo spot ?
Amneris Vargas says:
September 29, 2017 at 5:50 pm
I get your point. Kinda cherry-picked Marci’s bullish report, suggesting it was mostly based on ’18 political. She was not doing a 2018 projection, but rather suggesting target pricing based on (political being important every two years, net subscriber decline softening by vMVPD, even 3.0). If distributors want to reduce programming costs, it should start with ESPN (and offer sans sports bundles or pick n’ pay).
Dan Levitt says:
September 29, 2017 at 5:53 pm
If Retrans is “Saving” Local TV, local tv is in a heap of trouble. Retrans is Not forever. People are cutting the cord in record numbers. Look on ROKU etc. and see all the free content available directly to target audience. Political advertising will drop to $850 Million next year, not $2.4 Billion as far as I’m concerned. The NY Daily News selling for $1 is the writing on the wall for the News Biz in General. TV and TV News is going to be a disaster next year. You all talk like Newspaper Execs. 10 years ago – convincing themselves everything is okay. This years 3rd qtr. is going to be atrocious, if not the 4th or 1stQ 2018, Super Bowl LIII is going to be a shocker and Spots will stabilize then drop in 2019. Based on the obvious observations…
Catherine Garcia says:
September 29, 2017 at 6:00 pm
In addition to Gary, every TV broadcaster owes a big “Thank You” to the NAB’s Eddie Fritts, Jim May, Jeff Baumann and Jack Goodman (and Marty Franks of CBS) for working so hard to pass Retrans. If you run into Eddie, as him to tell you his stories about securing planes to fly Senators back to D.C. for the vote to override President Bush’s veto.
Michael Peschio says:
October 3, 2017 at 5:01 pm
Preston is correct here about the history, but leaves out the fact he and INTV also played a major role in upholding must-carry, as well as passing the Satellite Home Viewer Act in 1988. History also will tell you that the veto overturn was the only one in the entire Bush presidency – I was pleased to have Republican leader Rep. Bill McCollum also help override the veto in the House.
Dan Levitt says:
September 29, 2017 at 6:02 pm
Not “you all” commenting here. “You all” being the media industry cheerleaders.
Fred E Walker says:
September 29, 2017 at 6:43 pm
On the contrary, much like dependence on oil money hurts oil-rich countries, re-trans hurt the local broadcasting industry. Dependence on re-trans revenue has given the industry at large an excuse to delay being innovative or creating new, vibrant sustainable revenue streams that could have been paying dividends via increased market share, long-term revenue streams, and increased awareness by now. Broadcasters taking a piece of cable nets hurt perhaps more. You don’t go for the kill if you own a big chunk and are dependent on that competitor. To this day, 90% of viewers under the age of 35 have no idea that free over the air TV (without cable distribution) even exists because almost zero effort has been made to educate these “cord cutters’ and “cord nevers”. It’s mind-boggling until you take into account the fact that so many broadcasters have such a huge a stake in cable’s success. To Mr. HopeUMakeIt’s point, I’ve visited dozens of stations in dozens of markets over the years and witnessed very little added investment in local television. Most have to do more with less with GMs taking on sales roles and everyone asked to take on more and more responsibilities until no one can do their job properly anymore. Speaking in broad generalities with some very notable exceptions of course, what I saw in the industry overall was a decrease in the quality of sales talent, an increased reliance on paid programming and a derivative, non-creative approach to the programming pipeline. Again, with a few notable exceptions, re-trans revenue went straight to the bottom line to help fund consolidation and fatten investors’ wallets. This consolidation further inhibited innovation and while it benefitted a few, it did not benefit most employees, the local community and certainly not the local broadcasting industry at large.
Brian Bussey says:
October 2, 2017 at 3:50 pm
great post.
Veronica Serrano Padilla says:
October 2, 2017 at 6:50 pm
I’ll second that. Good insight into the business.
Jayson Siler says:
October 5, 2017 at 2:22 pm
Nailed it. A pyrrhic victory at best.
John Livingston says:
September 30, 2017 at 12:03 am
I know Cablevision & Lin did battle in the 90’s took until 94 a few days before Super Bowl 28 to get Wood TV back on the air as they didn’t agree in 93 I didn’t have cablevision at the time as I had Adelphia Cable. Then again in 96 for about 2 weeks which Cablevision found a loop poll to get Wood TV back on the air without an agreement for Super Bowl 30 & Summer Olympics it had to do with local weather channel was more radar with audio from weather radio which became WXSP in 1999 that was UPN.
1997 for a whole year there was no Wood TV or NBC other than rabbit ears Cablevision added Romance Classic a sucky channel which is now WETV don’t get why they couldn’t just get the South Bend NBC or Lansing NBC. It wasn’t until 2 days before Super Bowl 32 until Wood TV finally came back on Cablevision which Cablevision & Lin TV didn’t like each other. This wasn’t about retrans money.
Cheryl Thorne says:
September 30, 2017 at 8:09 am
If the affiliates think they have leverage as they had in the past with the distributors of their signals they are sadly mistaken and making a monumental blunder..Better get ready for their retrans $$ to be severely diminished if not gone..The last time around a few years ago the viewers were in their court ..Now they are not..
Cheryl Thorne says:
September 30, 2017 at 8:10 am
……..the” good ole days” are gone
kendra campbell says:
September 30, 2017 at 8:47 am
Retrans $ (and commercial glut) saved station’s 40+ margins. Local news content became a joke. Demo ratings eroded. The party is now over as viewers bail at an increasing rate. Pigs eventually get slaughtered.
Joe Jaime says:
September 30, 2017 at 9:19 am
As content continues to be distributed among an ever increasing number of platforms….. ad dollars will follow. Local TV will still continue to earn a large portion of local revenue, but national spot will most likely shrink. If local TV continues to plod along without new services to offer advertisers, you can expect they will be trading( selling ) at 3 to 4 times cash flow.
george willingmyre says:
September 30, 2017 at 10:43 am
What broadcasters should do is look to new ways of generating revenue instead of bemoaning the loss of “corporate welfare” in the form of retrans. Why can’t you compete and best the very competitors you are so fearful of. Losing network affiliations, etc., open the door to new ways of making money. The problem for FP broadcasters is that you’ve gotten fat and lazy and now you’re going to actually have to expend some gray matter to figure it all out.
Don Thompson says:
September 30, 2017 at 5:39 pm
Two things saved local TV stations that elect retransmission consent: satellite TV competition and the FCC requirement that cable subscribers must purchase the broadcast basic tier, guaranteeing that every subscriber had to pay for stations he or she never watched. There is no way that ‘CBS All Access’ is going to make the same money in the broadband game — where marketing and network management costs are steep — that it did from milking cable subscribers. The implosion of the cable bundle might have nailed Dinsey/ESPN first, but @nabtweets and the TV cashcasters are just a few quarters away from a major reset by Wall Street analysts who will realize that retransmission consent dollars are no longer a growth story. Please Follow Me On Twitter: @TedatACA or @AmericanCable
Veronica Serrano Padilla says:
October 3, 2017 at 2:07 am
With the recent court outcome that video competition is now considered universal across the nation, isn’t it possible the basic tier requirement for “broadcast” stations will go away?
Cheryl Thorne says:
October 1, 2017 at 8:35 am
Start shorting Broadcast stocks…Nexstar and Gray ….in December!!
Jayson Siler says:
October 5, 2017 at 2:27 pm
Cash flow multiples in literal free fall. Debt heavy broadcasters are facing serious devaluation of their assets, which makes re-financing even more difficult…
Dan Levitt says:
October 1, 2017 at 10:21 am
Local TV isn’t even close to being saved – this is all paid propaganda for snake oil sales people to fool Advertising clients. #FakeNews