Stations Score Retrans Fees

But Analysts Say Payments Could Level Off Soon

By Mike Farrell -- Multichannel News, 3/22/2010 12:32:46 PM

Station groups continued to haul in big retransmission- consent dollars in 2009, with tiny Gray Television reporting a five-fold increase in fees paid by distributors last week. But the train may be slowing going forward, as contracts enter their second cycles, according to some analysts.
Atlanta-based Gray, which has 36 stations in 30 smaller markets in the South and Midwest, released preliminary fourth-quarter earnings on March 15, reporting $15.6 million in retransmission-consent revenue in 2009, up 414% over the $3 million it received in 2008.
Gray has been late to the retrans game — it only started breaking out such revenue in 2007 and became more aggressive this year, as it attempted to leverage its ratings weight in many of its markets.
Most other broadcasters had more manageable increases, ranging between 29% and 68% for the year, compared to 25% to 95% increases in 2008.

LEVELING OFF
Benchmark Co. media analyst Edward Atorino believes those increases will continue to level off . “I think the big boom in retrans is probably over going forward,” he said. “I don’t think you are going to see any gigantic ramp-ups from the current levels.”
While no other station group came close to Gray’s percentage gain for the year, retransmission revenue continued to be an important — and still-growing — segment for the publicly traded station groups.
All of the larger groups reported gains, even retrans pioneer Sinclair Broadcast Group, which settled a potential battle with Mediacom Communications in Iowa in January.
In an effort to avoid a lengthy battle, the two agreed on a one-year deal for an undisclosed amount that will expire at the end of 2010.
Sinclair, one of the first broadcast station groups to seek cash for retransmission consent, no longer separates retransmissionconsent revenue from its overall results. On a conference call with analysts in February, Sinclair CEO David Smith said breaking out the number no longer serves a purpose for the broadcaster.
“I think for the last couple of years, we felt that it was important for not only our shareholders to understand what we were accomplishing, but it was probably equally, if not more, important for the entire industry to understand that Sinclair was effectively the leader in getting retransmission dollars from these multichannel fellows,” Smith said on the February call. “And I think it’s fair to say without tooting our horn one iota, that the industry is where it is today in terms of what it gets because of our efforts.
“Now that everybody is essentially feeding at the trough, it’s no longer necessary for us to stand out in front of it all and say, ‘Look how much we get versus everybody else.’ That doesn’t necessarily serve our purpose.”
Although Sinclair declines to break out retrans numbers, Wells Fargo broadcasting and cable analyst Marci Ryvicker estimated the haul for 2009 was about $100.7 million for the company, a 36.3% increase from the previous year.
Atorino said that Sinclair’s decision to downplay its retransmission- consent increases could have other motives.
“They don’t want to antagonize the cable companies,” Atorino said. “Plus, knowing Dave Smith, he doesn’t want Wall Street to focus on the wrong thing.”
For example, Atorino said that while Wall Street is focusing on retrans and possible spectrum auctions, ad revenue is beginning to crawl back at many station groups after years of 20% to 25% declines.
Other station groups continued to report double-digit retrans increases, including Nexstar Broadcasting, which reported retrans revenue of $24.3 million, a 68.5% increase over the previous year. Belo Corp., which owns 20 stations in 16 markets, increased its retrans take by 29% to $42.6 million in 2009 and LIN TV, owner of 27 stations in 17 markets, reported a 48% increase in retrans revenue to $43 million for the year.

NEXSTAR RISING
While Atorino doesn’t expect overall retrans increases to hit the stratosphere, Nexstar, which with Sinclair was one of the pioneers in attracting cash for retransmission consent, said its retrans revenue growth is showing no signs of slowing.
On a conference call with analysts earlier this month, Nexstar CEO Perry Sook said the station group completed several retrans renewal deals in 2009 with robust built-in escalators. He added that the broadcaster has about a dozen deals to complete in 2010, most near the end of the year, which also should bring healthy increases.
“Our retransmission revenues will be up a substantial doubledigit percentage amount again in 2010 as we have escalators in all of our contracts on their anniversary date and by and large those anniversary dates are on a calendar year basis,” Sook said on the conference call. “And looking forward, we will have the full year benefit of all of our new agreements, their escalators and the new per sub rates for 2011 so this will be a growing revenue stream for us continuing into 2011.”