Wells Fargo: Net Retrans To Hit $13.5B By ’21

The media analysts at Wells Fargo on Monday offered predictions and analysis on the state of net retransmission consent (retrans minus reverse comp) over the next five years.

Some of the trends they see:

• Industry retransmission consent revenue will be $13.5 billion by ’21. This represents cumulative growth of 95% from ’16, and a 2016-2021 CAGR of 14%. Of this amount, $4.3 billion, or 32%, should be generated by the network O&Os, while $9.2 billion, or 68%, should be generated by the affiliates.

• Many affiliates are getting higher retrans rates than the network O&Os.

• “We forecast industry reverse compensation (expense) of $5.5 billion by ’21. This represents cumulative growth of 138% as of 2016 and a 2016-21 CAGR of 19%. Recall that reverse comp is what the stations pay to the networks — so it’s an expense line item for affils and a revenue line item for nets.

• “We expect affiliate net retrans to reach $3.7 billion by 2021. Again, this represents a margin of 40% but significant growth of 8% annually. We are also looking at net retrans comprising 54% of EBITDA come 2021 (vs. 46% in ’17).

• “Nexstar should have the highest average retrans rate at $1.99 in 2017. We attribute this to a combination of a step-up in Media General’s rates post-close, and existing Media General subs that were very recently marked-to-market.

• “Sinclair Broadcast Group should have the highest net retrans margin at 59% in 2017. We expect Sinclair to continue to hold on to the highest margins in the industry. Nexstar and Gray follow, at 52% and 50%, respectively.

• “Scripps has the best net retrans growth at 27% in 2017. This is purely due to timing as 25% of its retrans subs essentially renew in ’17 (in-line with the industry), but 0% of reverse comp subs come up (vs. the industry average of 22%).

• “Meredith has the greatest percentage of retrans subs up for renewal, at 45%, in ’17. This compares to the sector average of 25%. The largest driver is Time Warner Cable in 2Q ’17.

• “Meredith also has the greatest percentage of reverse renewing (at 53%) come ’17. This compares to the sector average of 22% and covers Meredith’s CBS stations.

• “Of the diversifieds, CBS has the best trends of the group — with a monthly retrans rate of $3.24/sub and a monthly reverse comp rate of $1.94 by 2021 (total revemue of $2.7 billion). We believe this is because CBS only focuses on broadcast, while the others sort of lead with cable. For reference, retrans/reverse and total trends for NBC, Fox and ABC are $3.24/$1.91 ($2.5 billion), $2.83/$1.85 ($2.5 billion) and $2.77/$1.59 ($2.1 billion), respectively.”