Analyst Sees Station Mergers Affecting Reverse Compensation

The wave of TV station consolidation that is driven in part to extract larger retransmission payments from cable and satellite operators, might also help broadcasters push back against network demands for reverse retrans payments.

In a new report, analyst Michael Nathanson of MoffettNathanson Research says that retrans payments to the Big Four broadcasters has increased seven-fold to more than $1.5 billion over the past five years.

The network’s owned and operated stations command much bigger retrans payments than other affiliate owners. Nathanson estimates that Fox stations got retrans payments of $1.01 per home in 2013. CBS' stations got 90 cents, NBC’s got 87 cents and Disney’s generated 83 cents, he figures.

Non-O&O station groups earned retrans payments ranging from almost $1 for Nexstar to 25 cents for Tribune. Getting fees closer to what the O&Os get is one factor driving station mergers.

But the networks are looking to grab a piece of their affiliates growing retrans fees.

“By most accounts, the expected rate of reverse retrans payments for a Big Four station in one of the Top 100 markets is between $0.50-$0.75 per subscriber, which would mean that station owners would be forking over a majority of their own current retransmission payments,” Nathanson says in the report.

Nathanson says that 2013 was the first year in which reverse retrans became a real contributor to revenue. “As affiliate deals start to expire and get renewed at higher rates, we forecast meaningful growth in reverse retrans revenues in 2014 (+76%), and 2015 (+50%),” he says, pegging the total of reverse retrans payments to the Big Four broadcasters at $691 million in 2014 and $1.036 billion in 2015. That puts reverse retrans payments at between 17 cents and 49 cents monthly per sub.

“Depending on the size of the affiliate market, we believe most reverse retrans deals are moving to set fee payments to the network and away from the percentage splits that were initially used,” Nathanson says in the report. “The networks are watching the affiliate groups successfully negotiate higher retrans fees from the MVPDs and this should lead to higher direct payments from the affiliates.”