The mid-term outlook for the broadcast industry in the U.S. is stable, although it faces “serious headwinds,” according to Moody’s Investors Service.
"We expect US broadcast television companies' EBITDA growth to come in at around only 1.8% over the next year or so," said Jason Cuomo, Moody's VP-Senior Credit Officer. "Broadcasters' earnings are heavily influenced by the health of the advertising market, given their revenue mix is still weighted toward ad revenues, but today this ad-supported business model is under attack."
Moody’s estimates that advertising accounts for 50% to 60% of broadcasters’ advertising mix. But on a national basis broadcasters are looking market share at an accelerating pace to Google and Facebook, Moody’s said. Those digital companies have global scale and advanced programmatic ad systems that target consumers more effectively, raising returns for marketers.
On the other hand, retransmission fees, which produce high-margin revenue, are up higher than forecast.
Moody’s estimates a 23% increase in 2017.
"Retransmission fees are becoming a significant portion of the revenue mix, providing support and stability to the sector despite underlying weakness in the subscriber base," said Cuomo.
Moody's also estimates that recent tax reforms will save the sector around $400 million in cash taxes annually, or nearly 9% of projected 2018 EBITDA.