OK, Networks, No More Excuses
Once a sector in so-called “secular and cyclical decline,” broadcast networks are suddenly as welcome on Wall Street as the first crocuses of spring. The mainstream TV business is no longer subject to endless downbeat stories about ratings declines and ad revenue shifting to cable. There are new revenue streams to talk about: from a network’s own affiliates, from cable distributors, from Apple and soon from Hulu. And the backdrop is an ad market looking stronger by the day, and Wall Street seems to be buying in.
So, the question is simple: now what? Network margins will be greatly improved in 2010, thanks to restructuring and the legions of staff no longer on payroll. With costs reined in and revenues seemingly on the rise, there are no more arguments for not being able to run these businesses effectively. It remains to be seen if big media is up to the task, and can truly position these businesses for the evolving media landscape.
Far and away the biggest news is the multi-billion-dollar annual jackpot from pay-TV distributors. Then there’s the strong likelihood of a subscription tier this year on Hulu. And don’t forget Nielsen’s willingness to let the networks count online viewing on an equivalent basis with TV viewing; this should help stem the decline of ratings points.
Optimists might also point to a host of subscription revenue sources on the horizon, among them Apple iTunes. Networks, including Spanish-language net Univision, are talking to Apple about variable pricing for shows on iTunes. If there is an agreement on pricing and the iPad launch on April 3 is a success, network shows sold via Apple could grow much faster than they have on current Apple devices.
The ad market is also back, thanks to an upswing in autos, an influx of political dollars and the Olympics. It adds up to a big, fat momentum for the networks.
As for stations, Needham & Co media analyst Laura Martin says; “Retrans is good [for stations]. Adding a new revenue stream gives them a cyclical bounce, and it’s making the station economics more powerful.”
While affiliates may have to hand back half of the new cash to their network backers, it’s still a powerful story for Wall Street. “It makes stations and the parent more valuable,” Martin says. Nexstar Broadcasting’s stock hit a 52-week high on Thursday, reaching $4.92 before falling back to close at $4.79.
Studios will also have an eye peeled for moving fees back in the upward direction. The organizers of the Olympic Games were smart in postponing their 2014 rights sale to a time when things might look better for the media economy. Other rightsholders, including the Emmy Awards, can perhaps make a better argument for bigger dollars in the light of the retrans wars.
A stronger upfront-even if that doesn’t translate into bigger annual ad revenues-will also play into the positive themes for broadcast networks.
But not everyone’s buying it. Jason Helfstein, a senior analyst at Oppenheimer & Co., says, “Long-term audiences will migrate to targeted channels. At the end of the day, retrans money will go straight to the bottom line, but over time that money will get absorbed. It’s a one-time boost to profitability.”
So, it’s up to the CEOs to make sure that’s not the case.