Revenue from retransmission is growing faster than expected, according to a new report.
Todd Juenger, senior analyst at Bernstein Research, notes that CBS has signaled that retrans revenues will approach $1 billion in 2016. The company has previously said retrans will reach that level in 2017.
To get $1 billion in revenue in retrains, CBS would be getting about $1.22 a month per sub from operators and 61 cents a month per sub in reverse compensation payments from affiliates.
Juenger says that retrans growth for Fox and ABC are moving in line with CBS, while NBC's is growing more slowly.
Longer term, Juenger says he expects retrans to reach $2 per month per sub by 2025, reflecting an annual growth rate of 7% between 2016 and 2025.
Faster growth in retrans would put huge cost pressures on distributors and encourage companies like Aereo, which are looking to provide broadcast signals while avoiding retrans payments.
"Whether Aereo specifically works or not, it's more important significance, we believe, is that entrepreneurs will continue storming the castle and someday may succeed in capturing that free signal in a way that consumers can easily integrate with their cable/satellite channels and DVR," Juenger says. "At the same time, we believe there is some reasonable price the MVPDs will pay in order to maintain the convenience and elegance of today's fully bundled video service (including the broadcast networks)."
At $2 a sub per month, the growth in retrans payments would a $10 a share to CBS stock, $3 a share to News Corp. and $5 a share to Walt Disney Co.
Juenger says Bernstein favors U.S. media companies that are poised to benefit the most from increases in affiliate fees and international growth (both in TV and Theatrical). "As a result of our work valuing the long-term value of retrans at CBS and News Corp., we are increasing our target prices by $3 and $2, respectively," he says. "These adjustments are primarily driven by out years, but in the case of CBS, we modified our EPS estimates slightly, increasing 2012 by $0.03 and reducing 2013 by $0.01."