News

NBCU Vows Better Shows, Higher Fees

9/17/2012 9:53 AM Eastern

NBCUniversal CEO Steve Burke vowed to close the $1 billion profitability gap between his NBC network and the other top broadcasters, hinting that higher retransmissionconsent fees could help it get there.

NBCU’s broadcast network, station and syndication revenue lag the other three major broadcasters — ABC, CBS and Fox — in annual cash-flow generation by as much as $1.5 billion, Burke said at the Bank of America Merrill Lynch Media, Communications & Entertainment conference in Beverly Hills, Calif., last week.

“There’s no reason for that other than we need to make better shows,” Burke said. “We need to rebuild NBC brick by brick, which is the process that we’re going through right now.”

Burke said NBC stations generate “essentially no money on retransmission consent,” which he would like to rectify. While he offered no details, he noted there is “no structural reason” why NBC can’t make the same amount of money on retrans that CBS does. CBS has said it expects more than $250 million in retrans revenue in 2012, rising to more than $1 billion by 2016 (see Finance).

The NBCUniversal CEO also sees a disparity in its cable networks’ performance relative to its peers. Although eight of its 20 cable channels generate $200 million in cash flow or more a year, Burke said he did not believe NBCU was fully monetizing its networks.

For example, Burke said USA Network is the top-rated cable network, but “its affiliate fees are substantially lower than other general-entertainment cable channels like TBS or TNT. If you’re looking at advertising, our CPMs for our big cable channels, we think, in some instances are 25% or 30% below others.”

According to SNL Kagan, USA attracts about 62 cents per subscriber per month in affiliate fees while TNT receives around $1.18 and TBS gets about 56 cents. About 25% of NBCU’s cable carriage contracts are up for renewal this year, Burke said, presenting an opportunity for higher fees. All of NBCU’s carriage deals expire by 2016, he added.

While Burke was anticipating higher carriage fees for its broadcast and cable networks, The Walt Disney Co. chief financial officer Jay Rasulo tried to convince the audience at the conference that its top cable channel, ESPN, still has a lot of runway for future rate increases.

ESPN is traditionally the highest-priced cable network: according to SNL Kagan estimates, it receives an average monthly affiliate fee of $5.13 per subscriber. While operators have railed against high sports programming costs, Rasulo said there is ample room for growth.

“It’s just a powerhouse,” Rasulo said of ESPN. “When we walk into a negotiation, there are literally 70 services on the line, one of which is the affiliate fees of ESPN. We are very confident we can continue to grow ESPN as a business, continue to grow its top line and its bottom line.”

September