Retransmission Content

Broadcasters: We're in the Money

9/27/2012 10:39 AM Eastern

Broadcasters reported their 10th consecutive period of double-digit retransmission-consent revenue in the second quarter, according to SNL Kagan, a streak that the research house does not expect to be broken anytime soon.

According to Kagan, retransmission-consent revenue for 15 top broadcasters and TVstation groups totaled $330.3 million in the second quarter, a 28% increase from the prior year. For the first half of the year, the retrans haul was about $642.4 million, up 26% from the prior year.

Kagan estimates that the third quarter, based on historical pacings and new carriage agreements signed in the middle of the year, should end in similar results, with revenue up between 25% and 30%.

As a percentage of overall revenue, retrans is also gaining ground. According to Kagan, it made up 15% of total broadcast-TV revenue in the quarter, up two points from last year, when it accounted for 13% of total sales.

A look at some of the broadcasters that break out retransmission-consent figures shows that the pace of growth doesn’t seem to be abating, even for those groups that have been hauling in retrans dollars for years.

Nexstar Broadcasting Group, the Irving, Texasbased owner of 55 television stations in 32 markets that is largely believed to be the first major broadcaster to extract cash for its over-the-air signal from cable and satellite operators, is a key example. According to its financial statements, Nexstar’s retransmission-consent take rose 77.7% in the second quarter, to $15.3 million. It was the largest percentage gain in retrans revenue for Nexstar since 2006.

Other retrans pioneers had similar increases. At Fisher Communications — which owns 20 stations in Northern California, Idaho, Washington and Oregon — retrans revenue rose 89%, to $6.3 million in the second quarter, its largest quarterly gain since 2010.

At Media General, which has 18 stations in eight states, retrans revenue increased by 80% in the period, to $9.6 million.

Several factors contributed to the gains, including station acquisitions — Nexstar bought 12 stations in July — the timing of retrans deals and the advent of reverse- compensation payments to broadcast networks. Most of the major broadcasters now require their affiliates to pay them a portion of their retrans earnings in exchange for their content.

ISI Group media analysts Vijay Jayant and David Joyce said that all three factors could have led to the increases at the smaller stations groups, adding that it highlights what is a growing problem for cable operators.

“The whole regime continues to get worse for the multichannel providers and for the consumers,” the ISI analysts said.

Reverse compensation is adding to the size of increases for many small station groups just to make up for the fees they have to pay their network partners, RBC Capital Markets media analyst David Bank said.

“We live in a world where $1 [per subscriber, per month retrans fees] is becoming reality, and on a clear day you can see $2,” Bank said. “I don’t know how much of that they are keeping.”

And that is just for the station groups. Bank said that broadcasters themselves are expected to haul in extraordinary amounts of cash for retrans and reverse compensation combined.

Bank pointed to CBS, which does not release quarterly retransmission- consent revenue figures but has said publicly that it expects to generate about $250 million in retrans fees for all of 2012, more than twice the $100 million it generated in 2010.

During its second quarter earnings conference call last month, CBS CEO Les Moonves said that $250 million figure is “conservative.”

“Broadcast is the new cable,” Bank said. “These growth rates are just so outstripping traditional cable network affiliate fee increases, it’s astounding.”

TAKEAWAY

Steadily increasing retransmission-consent fees are becoming a growing problem for multichannel TV providers.

September