Policy

Retrans Costs On The Rise

10/10/2009 2:00 AM Eastern

Cable operators and other multichannel distributors are expected to report third-quarter results next month, and while the recession may have put some downward pressure on subscriber growth, one line item is sure to be on the rise — retransmission-consent costs.

But at least one analyst believes that the pain won’t be quite so severe, mainly because many retrans deals were struck at the end of last year.

Retransmission-consent revenue rose again for the 17 major broadcast-station groups in the second quarter to more than $150 million from more than $100 million in the first quarter. It was the second consecutive three-month period that retrans revenue topped $100 million. But save for one new entry — Univision Communications’ retrans take rose 300% in the period, to $60.5 million from $15.1 million in 2008, according to SNL Kagan — the increases were relatively stable on a quarter-to-quarter basis. Aside from Nexstar Broadcasting Group — which reported a 71% increase in retrans revenue to $7.9 million in the quarter, compared to Q1 — sequential retrans increases were in the teens and low double digits.

Perennial retrans leader Sinclair Broadcasting had another strong quarter — retrans revenue increased 12% to $23.6 million from $21.1 million in the first quarter. CBS was flat at $20.4 million, according to SNL Kagan and Gannett reported a 2% increase to $14.3 million from $14 million. Rounding out the top station groups was LIN TV with a 14.7% increase to $7.8 million from $6.8 million and Belo, up 17% to $11.4 million from $9.7 million.

Miller Tabak media analyst David Joyce said that he doesn’t expect big changes in the third quarter — most retrans deals were struck by the end of last year — estimating that retrans revenue could rise in the low single digits compared to the second quarter.

While cable operators have long been at loggerheads with station groups over retrans, in the past few months they have begun to accept the payments as an inevitable cost of doing business. But just as disputes begin to fade into the past, a new adversary — the broadcast network — may be rearing its head. Broadcasters like NBC and now Fox have been making overtures, according to SNL Kagan, to extract a portion of their affiliate stations’ retrans fees. That, according to several station group executives, will not happen without a fight.

On Gray Television’s second-quarter conference call in August, CEO Hilton Howell said that NBC Universal tried to extract some retransmission fees in its renewal negotiations in 2008 but backed down after the station group vehemently opposed it. Gray owns about 10 NBC stations across the country. He added that News Corp. is attempting to do the same with its Fox Broadcasting affiliated stations.

“We are going to just say no, as Nancy Reagan used to say,” Howell said on the conference call. “I think they are going to try, and we are going to say no, and I hope we can get our industry to really all realize that this retrans is hard fought money for us, and we need to keep all of it.”

Joyce fears that an effort by broadcast networks to get in on the retrans game could be bad news for cable operators.

In a worst-case scenario Joyce believes the stations could enlist the broadcast networks’ help to squeeze more revenue out of MSOs in retrans negotiations as deals roll off in the next few years.

“That could lead to more ugliness, signal drops, and regulatory interference in the form of the creation of retrans regulations, which may result in some compromise that leaves neither multichannel video providers, TV stations, or networks happy,” Joyce said. “It is in the best interest of the entire TV ecosystem to learn to work together to mitigate programming cost increases before the free market is sent to the principal’s office and detention.”

 

RETRANS RISING
Retransmission-consent revenue figures for the larger TV-station groups:

  Q2 2009 Q1 2009 % Change
$ in millions
SOURCE: SNL Kagan
Univision $60.5 n/a n/a
Sinclair $23.6 $21.1 11.8%
CBS 20.4 $20.4 0%
Gannett $14.3 $14 2.1%
Hearst-Argyle $13.3 $12.4 7.3%
Belo $11.4 $9.7 17.5%
Nexstar $7.9 $4.6 71.7%
LIN TV $7.8 $6.8 14.7%
October
November