Ryvicker: Stations Losing $10.4B In Retrans

“Broadcast captures 35% of the audience, gets 7% of programming fees,” Wells Fargo analyst Marci Ryvicker told the TVB Forward conference today. Growing retrans consent revenue (it's expected to total $2.6 billion this year) is one factor driving investor interest in broadcasting, she added, with broadcast TV stocks currently up 74% over what it was at this time last year.

Broadcasters would get $13 billion a year in retransmission consent revenue if they got their fair share of programming fees — a far cry from the $2.6 billion they are expected to get this year.

“Broadcast captures 35% of the audience, gets 7% of programming fees,” Wells Fargo analyst Marci Ryvicker said Wednesday morning.

Speaking at the annual TVB Forward conference in New York, Ryvicker said she does expect that figure to go up, climbing to about $6.2 billion by 2018.

Affiliates will likely wind up returning about 49% of that money to the Big Four networks in reverse compensation, she said. Yet there could be benefits to both local broadcasters and networks having vested interest in retrans agreements, Ryvicker said.

“Networks really, really need the affiliates at this point,” she said. “The big positive in all this reverse compensation is that it really strengthens the partnerships between networks and affiliates.”

Growing retrans consent revenue is one factor driving investor interest in broadcasting. Broadcast TV stock is currently up 74% over what it was at this time last year, she said. That compares to the S&P, which is up 18%.


“That is awesome,” she says.

Increases in free cash flow, potential income from monetizing spectrum — a potential $220 billion for broadcasters — consolidations and stable ad revenues are also fueling investors’ increased interest, she said.

Company mergers — the latest round of which have involved $10 billion in deals — are of particular interest, and not expected to end anytime soon, according to Ryvicker.

The first phase of the current wave of mergers — ones in which one company acquired the “low hanging fruit,” meaning broadcasters in bankruptcy and the like – has come and gone, she says.

But we’re like to see more mergers between two small but equal groups, like the one between Media General and Young Broadcasting, as well as large groups, like Gannett and Belo.

Ryvicker says she also expects the next phase of consolidation — one based on station swaps — to kick in, as duopolies and regional concentration becomes of increasing interest.

Nonetheless, investors do still have points of concern about the industry, with the potential of the UHF discount being among them. Technically, no broadcast group would be able to reach more than 39% of American households if the UHF discount is revoked.

However, Ryvicker says she thinks concerns are overblown, considering those groups that do have that kind of penetration — and there aren’t many of them — could still be eligible for exemptions and waivers.

She also thinks the probability of the discount be eliminated is low. “The UHF discount is most likely not going away,” she said.

There could be some good news for broadcasters on the horizon from on from two particular advertising segments — telecom and health care.

Ryvicker discussed that prospect with a representative of each of those industries — Jonathan Schildkraut, a telecom industry analyst and Ralph Giacobbe, who analyses health care — both of who foresee an increase in advertising the latter part of this year through 2014.

Schildkraut says he foresees an increase in both national and local telecom advertising as wireless carriers try to differentiate themselves and LTE rolls out in particular markets. “I expect spending to be up 5% to 10% next year, there are so many competitive forces coming together. I also think that spending will accelerate as we go through 2014.”

Giacobbe says he sees an “ad blitz,” particularly in Texas, California and Florida, which have high numbers of uninsured residents, later this year when insurance companies and healthcare providers start vying for people who will get coverage for the first time under Obamacare.

“Millions and millions of people are going into a brand new exchange that today they know nothing about,” he says, referring to the new online health care marketplace.

Advertising will play a “huge role” in educating individuals about the new healthcare provisions — and will likely continue to grow into 2017, with the government, healthcare providers and insurance companies expected to get in on the action, he says. “If we think political propaganda is bad during an election, I think we haven’t seen anything yet.”

Comments (6)

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Don Thompson says:

September 18, 2013 at 4:24 pm

Wall Street Bull (at its finest). “Broadcast captures 35% of the audience, gets 7% of programming fees” — this statement contradicts every ratings story ever written because we all know that viewers are not valued equally by advertisers.

    Brad Dann says:

    September 18, 2013 at 4:45 pm

    Excuse me? how does this “contradict every ratings story ever written”? Please think before you post. MVPD’s pay broadcasters 7% of the fees they pay for Programming and Broadcasters have 35% of all viewing, how does that “Contradict’?

Michael Lam says:

September 18, 2013 at 7:09 pm

When most cable networks launched, it was required to give at least one major MSO substantial percentages of ownership to achieve carriage. MSO’s traded carriage fees with one another and these funds made many niche channels motivating people to buy cable. These steadily eroded broadcast audiences and destabilized the over the air network model till Congress stepped in to let broadcasters negotiate for carriage – legislation had cable pay nothing to broadcasters till then, as the industry would’ve been financially crushed since over-the-air networks wanted to keep their dominant ratings. Cable may not have been built, like wide areas of the world. Over the air networks wouldn’t agree to giving MSO’s large percentages of ownership of the networks they launched, so those networks mainly got killed. Small TV station owners and small MSO’s have been the ones caught by the crossfire of recent years and more consolidation on both sides is inevitable. The audience ratings of over-the-air networks will remain disproportionately high in terms of carriage fees. Its a historical balance getting worked out over time.

Don Thompson says:

September 19, 2013 at 12:28 pm

As ratings continue to slide, an I to assume MVPDs will get retrans refunds? Next joke.
To say that because cashcasters get 35% of the ratings, ergo they are entitled to 35% of all programming fees is pure Wall Street bull. Everyone knows that the market places different economic values on viewers based on age and income. TV stations should be paying cable for carriage because TV signals reach about 75% of viewer w with a good quality picture. Cashcasters should thank cable and DBS because they ensure TV signals are actually seen by viewers. Now that I think about, why don’t broadcasters refund taxpayers the $2 billion spent to subsidize DTV converters back in 2009?

    Wagner Pereira says:

    September 19, 2013 at 3:39 pm

    Incorrect. To an MVPD, a customer is a customer. They pay a retransmission fee based on their subscribers, regardless of age. If 35% of the viewing to a MVPD is to OTA stations, then they should receive 35% of the carriage fees paid to basic cable packages. You also forget that DBS did not take off in subs until they were able to transmit local channels. It’s very simple, no matter how you try to incorrectly spin it – and shown in the recent CBS/TWC fight, MVPD loses subs when the subs do not get ABC/CBS/FOX and NBC. As also noted, TWC is DESPERATE to regain some of those subs now running commercials in NYC offering TV/INTERNET/PHONE for $79 a month as well as a free $300 Visa Rewards Card. That amount $79 is only $10 more than High Speed Internet alone. MVPD should be thanking they have the big four to drive demand.

    Debra winans says:

    September 19, 2013 at 11:27 pm

    ChamadaFinal, where in the world are you getting your info?

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