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Digging Deeper for Retransmission Fees

Kagan Report: New Cost Line Will Hit $6.1 Billion By 2018 11/11/2012 7:00 PM Eastern

Cable, satellite and telco video distributors are expected to dig deep to pay retransmission-consent fees over the next five years, with charges from broadcasters expected to top $6 billion by 2018, according to a report by SNL Kagan.

According to Kagan, retransmission fees will reach nearly $6.1 billion by 2018, up from the $2.4 billion estimated for 2012.

Over the past five years, retrans fees have climbed more than eightfold, from $214.6 million in 2006 to $1.8 billion in 2011, according to Kagan

Cable operators will again be digging the deepest: According to Kagan, MSOs will pay $1.4 billion in retransmission-consent charges in 2012, more than half the $2.4 billion total. By 2018, cable’s retransmission bills will more than double to $3.1 billion, nearly half the $6.1 billion total.

UPWARD REVISION

Kagan revised its figures from a November 2011 report, when the forecast was for multichannel video distributors to pay about $4.7 billion in retransmission cash by 2017. That number has climbed skyward — Kagan thinks the 2017 cost will now total $5.5 billion — mainly because of what Kagan claims is the success of a wider range of TVstation owners in securing higher retransmission fees in the past year.

Pivotal Research Group media analyst Brian Wieser said broadcasters appear to have been successful in squeezing more cash from distributors in recent deals, even if the bulk of the increases come in later years of the agreements.

There also appears to be a recent trend of bundling retransmission rights with overall carriage deals, including affiliate fees for cable networks and streaming rights for content on mobile and online platforms, as well as fees for owned-and-operated TV stations.

“I think there’s only been more and more data to support any assertions in recent periods, so more current revisions should certainly be viewed more credibly,” Wieser said.

While distributors and content providers do not disclose their retransmission pricing, Kagan believes that by 2015, distributors will pay an average of 74 cents per subscriber per month in retransmission fees for a typical broadcast network.

That adds up to $3.49 per customer per month for the five major broadcasters, according to Kagan.

10% SHARE OF COSTS

Total retransmission fees of $4.3 billion in 2015 will represent about 10% of multichannel video providers’ total content costs of about $43 billion, according to Kagan.

By 2018, that average fee will approach $1 per customer per month, with the aggregate retrans fee reaching $4.86 per subscriber per month.

Wieser took the increases in stride, adding that barring any regulatory changes, increases in retransmission fees are inevitable.

“The issue right now is that many broadcasters need to wait for their next rounds of negotiations to get paid by the MVPDs, so it just takes time for everyone to cycle through,” Wieser said.

TAKEAWAY

Cable operators will have to pony up nearly $3.1 billion in retrans fees in 2018 per SNL Kagan — almost half the $6.1 billion total.

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