NAB Show NY: Panel Says There Is Still Room for Broadcast M&A

Broadcasters say retrans still a growth engine, talk ad prospects
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New York -- Despite the number of available stations dwindling as the industry continues to consolidate, a panel of top broadcast executives at the NAB Show New York said there was still room for more deals.

Nexstar Media, which completed its $7.2 billion purchase of Tribune Media Group in September, making it the largest station group in the country with nearly 200 stations, sees some opportunities to add scale. Chairman and CEO Perry Sook said that M&A prospects are limited by federal ownership regulations, but he added that other station groups are expected to seek additional scale.

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Sook noted that the available pool of stations is shrinking: In 2001 there were 36 companies in local TV that had a national reach of 2% or greater. Now that has dwindled to about a dozen companies.

“There are fewer companies left to buy,” Sook said. He added that “M&A is not as easy as hitting button and buying a stock. I don’t know what’s on the horizon, but I predict there will be M&A.”

Meredith Local Media Group president Patrick McCreery said that he expects that outside money, particularly from private equity groups, will continue to flow into the sector, beefing up the M&A opportunities.

“It [the broadcast business] isn’t new and it isn’t sexy,” McCreery said. “But it is profitable.”

The executives seemed to take exception with analysts that have predicted that one of the more consistent growth engines in the business -- retransmission consent revenue -- was on the decline.

At the TVB Forward conference last month Wolfe Research managing director Marci Ryvicker predicted that retrans revenue would slow to around 7% growth after 2024, flattening out in later years. Other analysts have also predicted a slowdown, especially as cable operators continue to lose video subscribers.

Sook said that he still sees double-digit percentage growth on the retrans front, with McCreery and Gray TV president and co-CEO Patrick LaPlatney in agreement.

Driving that optimism is the belief that broadcasters account for about 35% of TV viewership while capturing just 18% of the revenue. And though achieving total parity -- which Ryvicker predicted would mean a consumer’s retrans bill would rise to $28 per month -- isn’t necessarily in the cards, the panelists believe there is room to get closer.

“The numbers are rough, but we think there is some runway there,” LaPlatney said.

Sizing Up Cannabis Ad Prospects

On the advertising front, the panelists said the nascent move toward impressions-based advertising, which would make it easier for advertisers to buy a broadcaster's full audience across all platforms, would result in a 5% to 10% increase in ad revenue easily. Even before that, though, they said there is still life in traditional broadcaster ad categories.

While auto ads have declined along with car sales, execs said that other segments have picked up, including legal and professional services. McCreery said that professional services were on par with auto for the first time ever at Meredith stations in calendar Q1 and Q2. Broadcasters are expected to take a smaller bite of political ads in this cycle, though, as digital grows. Some predict broadcast’s share will drop from 66% to 57% of total political ad revenue this year. Station execs said they were taking action to try to address the decline. McCreery said at Meredith, which also has a publishing unit, direct mail ads could factor into to taking the edge off some of the political declines. 

Sook said growth in TV ad revenue is usually fueled by the emergence of a new segment, something he says he hasn’t seen yet. But McCreery said there is a potential windfall in the cannabis category. “None of us want to touch it with a ten-foot pole right now because of the legislation, but that’s a pot of money I’d like to get my hands into,” McCreery said.

There are legal hurdles, though, as McCreery acknowledged. Cannabis sales outside of medical purposes are only legal in a handful of states and are illegal at the federal level. Sook said Nexstar has been approached about running ads in the past, and has declined.

“We’ve been approached, and we’ve said we’re a federally regulated entity just like the banks and until it’s deemed OK to do business with these folks, we’ve got more at risk than that,” Sook said.

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