TV-station owners stand to collect nearly $2 billion in 2015 from cable and satellite operators and telcos in exchange for the right to retransmit their broadcast signals. The projection, released last week by Kagan Research, delighted station operators battling a tough advertising market and increased competition for viewers.
Some stations want cash for retransmission rights, while others negotiate for advertising or carriage of sister stations. The Kagan predictions are based on an all-cash model, with every broadcaster in a five-station market receiving 40¢ per subscriber.
With that standard, Kagan projects that broadcasters could take in about $225 million in fees this year and $1 billion in 2009. That is considered a watershed year because it's when some station owners' cable deals, notably CBS', come due and they will likely seek cash payments. Currently, retransmission payments come mainly from satellite operators, and telco companies will likely pay, too. Most major cable operators have so far resisted paying cash fees, and that's where broadcasters are setting their sights.
While CBS is chasing cash—its deal with Verizon's new FiOS video service is said to pay 50¢ a subscriber—other broadcasters use the influence to help corporate cousins. NBC Universal, for one, uses retransmission leverage from its NBC owned-and-operated stations to secure carriage and license fees for its cable networks, such as MSNBC and CNBC.
Fox, ABC and station groups that, like E.W. Scripps, own cable channels pursue similar strategies. Other stations opt to take guaranteed advertising or secure carriage for a local cable channel or secondary digital outlet, such as a news or weather service.
Regardless of the model, broadcasters want consideration, particularly from the holdout cable companies. “We have good content, and we should be paid for it in some shape and fashion,” NBC Universal Television Stations President Jay Ireland said at a Kagan conference last week in New York. “This is of economic value.”
Executives from other station groups routinely echo those sentiments. Nexstar set its sights on 30¢-per-subscriber cash payments from cable and satellite operators, and, when negotiations turned ugly, the company pulled its stations off cable systems in four small markets. Nexstar has settled most of its disputes and says the majority of operators are paying cash. (Industry executives say the two biggest operators that Nexstar tussled with, CableOne and Cox, are not paying straight license fees.) Nexstar says it will receive $48 million over the life of current three- to five-year agreements.
The infusion is transforming Nexstar's business model. Within five years, retransmission fees will go from nearly zero to 15% of the company's cash flow, CEO Perry Sook says. “Our strategy may not be right for [other broadcasters],” he said at the Kagan gathering. “Our agenda was a four-letter word: cash.”
For TV stations, the potential for new revenue comes at a critical time. The networks are curtailing compensation that they have long paid to stations to carry their programming. Advertisers, including the behemoth automotive category, are shifting more money to the Internet. And the exclusive network content that has given stations an edge is now being piped to the Internet, video-on-demand and wireless devices.
To compete, stations are focusing on such platforms as their Web sites, wireless products and digital broadcast. Retransmission could be a powerful tool to fund those ventures.
Midsize-market operator Equity Broadcasting, for example, believes the leverage could push its fledgling classic-entertainment digital service, Retro Television Network, into more homes. Cable companies are currently under no obligation to carry secondary broadcast channels, but negotiating retransmission consent could open the door.
“You may not be able to get cash,” says Equity President Larry Morton, “but you may be able to get a second or third channel.”
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