As Retrans Revenue Slides, Broadcast Stations are Finding New Ways to Grow

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Broadcast station groups are in the middle of a sea change, as the spigot of cash they've received from multichannel distributors tightens and they look to new revenue streams to sustain their financial health.

The distributor payments, known as retransmission (retrans) revenue, may be nearing their peak. They are based on per-subscriber rates, and as cable and satellite operations face customer losses, it impacts broadcasters' revenues. The station groups are also squeezed by their affiliation agreements with broadcast networks, which have forced them to turn over a cut of that retrans revenue in recent years (characterized in industry parlance as reverse retrans compensation).

Many analysts believe that the growth in both retrans fees paid by multichannel video program distributors (MVPDs) to broadcasters and reverse retrans compensation paid by broadcasters to the networks will reach a mature equilibrium of about 1% over the next few years, and certainly by 2028.

That's a dramatic reduction, when compared to years past. Consider some info on the multichannel distributors from S&P Global: gross retransmission fees paid to the broadcasters grew at a compound annual growth rate (CAGR) of 40% between 2009 and 2016.

The stock market rewarded broadcasting companies for their retrans revenue during that same period. An index of the stocks of TEGNA Inc., Gray Television, Nexstar Media Group, and Sinclair Broadcast Group tracked by Bond & Pecaro increased at a nearly 27% CAGR from 2009-2016, compared to a CAGR of a little more than 10% for the S&P over the same period.

In the following years, a downward trend began. In 2016-2021 the S&P averaged a nearly 15% returns versus approximately 8% for the broadcast index.

While indications were that trouble was brewing, the stations became more dependent on MVPD revenue to fuel their growth. Data from the Security and Exchange Commission (SEC), based on year-end 10-K filings, helps explain this. In 2015, retransmission revenues represented between 25% and 32% of total broadcast revenues for three of the largest TV station groups: TEGNA Inc., Gray Television and Nexstar Media Group Inc.

Sinclair did not begin separately identifying distribution revenues in its annual 10-K filings until 2018. And by 2021, the four broadcasters were reporting that retrans revenue made up between 43% and 54% of total broadcast revenue. This reflects, to a degree, the impact of retransmission revenues from virtual MVPDs (vMVPDs) -- streaming platforms like YouTube TV, Hulu and Sling that gained momentum as consumers cut the cord with traditional cable and satellite services in recent years.

According to S&P Global, revenues from vMVPDs grew at a CAGR of 77% between 2017 and 2021, albeit from a relatively low starting point of $163 million.

Total gross retrans revenue growth is now in the low single digits due to two factors. First, the aggressive rate increases that local broadcasters were able to demand from MVPDs and vMVPDs began to slow at the end of the last decade. Secondly, the eight largest pay television platforms in the United States lost over 1.5 million subscribers in the first quarter of 2022, representing a 31% plunge when compared with the same period in 2021. That's according to a May 2022 Next article, citing Championship Research data that included both vMVPD and traditional MVPD information.

Making matters even less rosy for the stations, the Big 4 television networks -- ABC, CBS, FOX and NBC -- have been increasing the percentage of reverse retrans they require from their affiliated stations. S&P Global estimates that, beginning in 2020, approximately 50% of retrans revenues revert back to the networks.

For local television stations that aren't owned and operated by the Big 4, the percent of fees paid to the networks can be even higher, approaching 60% to 70% of gross retrans. For smaller local broadcast companies, or those without a significant number of stations with a specific network, the total network affiliation fees can be even more burdensome. In rare instances, they exceed the total retrans revenues received by a station from the MVPDs and vMVPDs.

Some networks have moved to charging a fixed fee as opposed to a percentage of retrans revenues. That can have other dire consequences. The network affiliation agreements tend to be for three-year terms, so if local MVPD subscribers decline rapidly during that period, the local broadcaster can be stuck paying out more than they receive.

There are, however, signs that the leverage that the networks have over station groups is shifting. The news that NBC may cut its 10 PM prime-time program, and that could eliminate one component of value from the network-affiliate transaction. Similarly, the networks are moving some of their stronger programs from broadcast to streaming programs. (For example, Fox moved Arrested Development to Netflix, ABC moved Dancing With the Stars to Disney+, and NBC is offering next-day streaming for many of its programs on Peacock.) This qualitative change could also shift leverage to the affiliates.

Moreover, against this challenging backdrop, the local broadcasting industry has developed new ways to monetize its broadcasting assets. Growth in political advertising has been rising over each election cycle, consistently proving to be nearly recession-proof. And stations in markets with highly contested races have seen windfalls in election years with some more than doubling the prior year's revenue.

Even stations in states that have historically been stalwart Democrat or Republican areas (and thus ignored by many candidates) have seen political revenue related to highly charged referendum issues on the ballots, resulting in millions in additional advertising expenditures from political action committees (PACs) and outside interest groups.

At the same time, broadcast companies have been diversifying their revenue streams. For example, there's Gray's Circle Media joint venture and acquisition of Third Rail Studios and the Assembly Yards studio complex. This opens a range of rental income from studio and streaming production companies like Apple and Netflix. It is also a real estate play as part of the property is being developed for mixed-use.

Sinclair has made forays into sports programming with acquisitions of the Tennis Channel and FOX Regional Sports Networks, and it also signed a sports-betting deal with Bally. These moves show that diversification does not come without risk; Sinclair assumed billions in debt in connection with the sports network acquisition just before the devastating impact of the COVID pandemic and is now reportedly seeking to restructure its ownership and debt.

Meanwhile, Nexstar recently acquired interests in The Food Network, The Hill, and The CW Network. Additionally, despite a flurry of deals with streaming companies, traditional broadcasters are still the dominant holders of NFL rights, which anchor them to both audiences and the MVPDs.

As a result, television stocks have generally held up better in 2022 than the S&P index, which is down approximately 22% through the end of September 2022 while Nexstar and TEGNA are actually up about 11% for the year.

The next revenue boom for local broadcasters may already be on the horizon with the roll-out of ATSC 3.0, often referred to as NextGen TV, which is only in the early stages of the life cycle. This new technology may open up an unprecedented revenue generation stream supported by powerful data distribution capabilities and real-time two-way targeted advertising.

These features provide local broadcasters with a powerful tool to compete for digital advertising dollars and may be in the nascent situation that retrans revenue was two decades ago.

This column was written by Matthew Lochte. He is a principal at Bond & Pecaro, Inc., which provides financial, strategic and valuation services to media companies. To reach him, please contact

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