AT&T is gearing up for what could be a lengthy battle with about seven small television station groups that went dark to its video customers at the end of May, hoping to send a message to other programmers across the country that it is serious about reining in high content costs.
The seven station groups — Deerfield Media, MPS Media, GoCom Media of Illinois, Howard Stirk Holdings, Roberts Media, Second Generation of Iowa and Waitt Broadcasting, with 17 stations in 14 cities — came off DirecTV, DirecTV Now and U-verse TV on May 31. The stations, affiliates of all four major broadcast networks, The CW and MyNetwork TV, had granted AT&T several extensions after their deals expired in March. Another extension offer was on the table when they came off the telco’s platforms.
In a blog post on Broadcasting & Cable’s website, Stirk Holdings owner Armstrong Williams likened AT&T to a “19th century monopolist” using gatekeeper power to limit consumer choice.
“Compounding that sin, in the case of WEYI-TV [Saginaw, Michigan], an NBC affiliate, AT&T-DirecTV is also impacting diversity by truncating market access by one of fewer than 18 African-American owned TV stations in the nation,” Williams said. “As that African-American owner, I’m frustrated and mad.”
Ties to Tough-Negotiating Sinclair
Many of the affected stations are managed by Sinclair Broadcast Group, through agreements forged when Sinclair sold the properties in 2012 and 2013. Most of the stations are being represented by MAX Retrans, a consulting firm headed by former Nexstar Media Group executive Duane Lammers, a notoriously aggressive negotiator, sources said.
AT&T cited cost increases for the impasses and said it wants to pare back channels that have a high cost but are watched sparsely by its subscribers.
AT&T said it asked each of the station owners to “allow our customers to watch while we work this matter out privately. We need their permission to bring their stations back. Yet some have also disconnected their most loyal viewers before.”
Much of the programming is available for free over the air — though that’s not always true in rural markets — or via broadcast network websites or apps, AT&T said.
“Customers have sent a clear message,” AT&T continued. “They don’t want to keep paying more for channels they don’t care as much about anymore.”
At the Credit Suisse Communications Conference in New York, AT&T Communications CEO John Donovan, who oversees the company’s wireless, wireline and video distribution businesses, said the days of offering programming at a loss just to gain market share are over.
“[Y]ou have to know what the customer is willing to pay 100 bucks for,” Donovan said. “Trying to give them 100 bucks of value for $40 or $50 or $60, that’s not going to be a fit that is going to work for the customer or the organization in the long run.”
AT&T has followed that path in its talks with other content providers. In its most recent carriage deal with Viacom’s cable networks, the distributor negotiated lower rates, Viacom CEO Bob Bakish told The Wall Street Journal.
Retransmission-fee increases slowed in 2018, to 8.5% on average compared with 17.4% in 2017, according to the National Association of Broadcasters. They are increasingly vital to TV stations, though, as broadcasters face more competition for local ads from online platforms. Pressure to accelerate their growth is expected as financial players expand their presence in the industry, such as Apollo Asset Management, Blackstone Group and Providence Equity Partners.
Kagan, a unit of S&P Global Market Intelligence, predicts retransmission consent fees will rise to about $10.8 billion in 2019, up 6% from 2018, and then will tick up 4% in 2020 to $11.2 billion.
Fox Has Lots of Renewals Ahead
Also on the horizon: Fox Corp., the broadcast and cable entity that emerged from 21st Century Fox’s asset sales to the Walt Disney Co. this year, is entering a cycle of retransmission-contract renewals.
MoffettNathanson media analyst Michael Nathanson wrote in a report last week that he expects Fox to nearly double its retrans haul to $2.7 billion by 2023 from about $1.38 billion in 2018.
Fox has 28 owned and operated stations as well as cable networks Fox News Channel, Fox Business Network, FS1, FS2 and Big Ten Network. At an investor day on May 9, Fox said that about 50% of its TV affiliate deals (mostly retransmission pacts) are up for renewal in 2019, with another 30% coming due in 2021.
“Given these relative contract maturity profiles, along with our increasing investment in broadcast television programming, we anticipate TV-affiliate revenue growth to meaningfully outpace cable- affiliate revenue growth in the short to medium term,” Fox chief financial officer Steve Tomsic said.