Policy

Kagan: Retrans Revenue to Double by 2017

5/31/2011 8:01 AM Eastern

Despite a continued decline in multichannel video
subscribers, retransmission-consent revenue is expected
to more than double to $3.6 billion by 2017, with
cable operators footing the bulk of the bill, according to research
firm SNL Kagan.

In a report released Wednesday, Kagan estimated that total
retrans fees will rise from $1.14 billion in 2010 to $3.61
billion by 2017. The retrans bill is expected to increase about
28% in 2011, to $1.46 billion, from
$1.14 billion in 2010.

Cable operators, who have
traditionally paid the bulk of
retransmission-consent costs,
are expected to continue that
trend. According to SNL Kagan’s
analysis, cable operators will pay
an estimated $824 million in retransmission-
consent fees this
year, compared to $484.2 million
for satellite-TV service providers
and $147.1 million for telco-TV
operators.

STATIONS SEEK CASH

Despite declining subscriber
rolls and the increasing threat
from over-the-top providers,
Kagan said the driving force
in retransmission-fee increases
is their rising importance
for broadcast-station owners. Kagan estimated that
retransmission-consent fees for publicly traded station
owners rose from $631 million in 2009 to $766 million in
2010. In addition, for the pure-play station owners, Kagan
estimated that retrans accounts for 52% of their cash flow
and, in some cases, as much as 76%.

“Overall for the industry, there is no turning back from
the push for higher retrans fees, given the continued strong
differential between the fees paid for certain cable networks
versus what broadcast network O&O stations with significantly
more viewers receive,” Kagan said in a statement.

To illustrate that point, Kagan noted that cable-sports
network ESPN is expected to receive affiliate fees of $4.76
per subscriber per month in 2011, versus about 75 cents per
subscriber per month for broadcasters with substantially
higher viewership.

“The disparity between viewership and retrans fees is going
to keep up the pressure from broadcast networks and
their owned-and-operated stations for higher fees,” Kagan
wrote. “O&O station execs very much see the growth of retrans
fees as a work in progress and expect to get what they
feel to be appropriate value for their stations over time.”

Broadcasters are equally optimistic about the potential
for continued growth on the retrans front as well as for socalled
reverse compensation from their affiliate stations.
At last week’s Barclays Global Communications, Media &
Technology Conference in New York, CBS chief financial
officer Joe Ianiello predicted that combined retrans and
reverse compensation revenue would double for the network
in three to five years.

Ianiello said that based on a monthly per-subscriber fee
of 50 cents, CBS could reap $250 million annually from retransmission
consent and $225 million from reverse compensation
by 2012. Double that fee to $1 — which Ianiello
said is reasonable — and the total take rises to $1 billion.

MATTER OF TIME

“Whether that happens in three years or five years, we can
debate about the time frame, but nobody is debating that
it’s there,” Ianiello said. “We know every contract when it
expires and what we need to get in those negotiations.
The track has been laid. The good
news is that, from where we sit today, there is
signifi cant upside that is significantly accretive
to our margin.”

The increased fees come as the cable industry
continues to lose customers. The industry
in general has shed about 7 million customers
since 2001, but recently those losses were
beginning to slow. Comcast, for example, lost
39,000 basic video customers in the first quarter,
less than half the 82,000 the MSO lost in the
same period last year.

Retransmission-consent increases have
begun to moderate as the agreements have
matured. For example, according to Kagan,
retrans revenue more than doubled from
$118.7 million in 2007 to $325.6 million in
2008. Fees rose another 94% to $631 million
in 2009 and 21.4% to $766.1 million in
2010. In the fi rst quarter of this year, retrans
fees for 10 top broadcast-station groups rose
about 20%, to $104.5 million.

Miller Tabak media analyst David Joyce said that any
moderation in rates is likely because not all broadcast stations
are receiving cash for retrans yet. For example, Joyce
said that about 50% of Fox owned-and-operated stations
receive retransmission-consent revenue, increasing to
80% by June 2012, and two-thirds of its affiliates are paying
reverse compensation.

“Things are still getting cycled in,” Joyce said.

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