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Broadcast Networks Seek Dual Revenue Stream

News Corp. and CBS Corp. are staking their claim to additional retransmission dollars to help bolster the financial profiles of their respective broadcast networks, which are growing in ratings.

While the discussion is not a new one, comments on earnings calls for the companies last week indicated that the tone of the debate has grown more serious, as corporate media owners look for new revenue streams to help broadcast divisions more closely resemble their cable businesses. In addition to pushing for cash retrans fees for their O&Os, the big media companies also are now looking to extract a portion of retrans cash garnered by their affiliates.

A take of affiliates' retrans cash is a shift the station groups will no doubt resist. Look for sparks when Nexstar Broadcasting reports on Nov. 11. Nexstar chief Perry Sook has been outspoken in disagreeing with the rationale that networks should share in affiliates' hard-fought retrans cash. Nexstar has affiliations with each of the Big Four broadcast networks.

CBS CEO Leslie Moonves sketched out a plan during the company's Nov. 5 earnings call that would have CBS Corp. drawing retrans dollars from its O&Os and affiliates. CBS said it will double its share of retrans money in 2010, and over the next three years could see it reaching hundreds of millions of dollars. "As each new affiliate agreement comes up, there will be a sharing of retransmission fees," Moonves said. "There's a realization that if they're getting paid retransmission fees, they're getting it because of the network providing NFL, 60 Minutes and Letterman."

During Belo's earnings call last week, President/CEO Dunia Shive said Disney's ABC is likewise going after a cut of affiliates' retrans cash in their negotiations. Analysts are expected to grill Walt Disney Co. during its third-quarter call on Nov. 12.

Speaking to analysts about News Corp.'s fiscal first quarter 2010, CEO Rupert Murdoch said Fox is also on a hunt for more retrans value: "When you look at what ESPN gets and what its audience is, and how many hours of viewing it gets at the average cable company and compare that with Fox, I'm not suggesting we get $4, but we have to have some sense of relativity in values."

News Corp. COO Chase Carey emphasized that retrans isn't the only way News Corp. plans to redo network economics. He said that the conglomerate is exploring any number of new ways to monetize its content, including online exploitation and improving the value of repeats.

Elsewhere among earnings reports last week, there were further signs of improvement in the advertising market. In the broadcast market, CBS was bullish as ever, with scatter pricings up 25% against upfront levels. At CBS, third quarter TV segment ad revenue was off 5% versus the same quarter last year, though the company is seeing more money from the pharmaceutical and auto categories.

In a note on Nov. 6, Morgan Stanley analyst Ben Swinburne suggested that CBS' local ad platforms would see growth in 2010, thanks to a recovery in the automotive sector and greater political spending. "TV advertising revenue improved sequentially and beat our estimates, with the network up slightly in the quarter and local stations down 13.6% versus an expected 21%," he said. "Beyond the cycle, we see a further shift in the broadcast TV business toward a more significant claim on recurring revenue through retransmission payments."

In the cable market, Discovery Communications reported a 5% boost in domestic ad sales. Time Warner's Networks segment took a percentage-point nosedive in global advertising revenue, in part on foreign-currency exchange rates and also because of comparisons to last year's big political year for CNN. Its entertainment networks did better, however.

Viacom ad sales were down 4% while at Scripps Networks Interactive, fresh off a deal to buy Cox's Travel Channel, ad revenue was up 4.3%. Comcast's ad sales were down 10% excluding political dollars, a better performance than the 25% plunge in second-quarter ad revenue.

While comparisons to last year, excluding ad political dollars, all look slightly better-for the most part, that means smaller declines-Murdoch thoughtfully reminded reporters on the earnings call to look at comparisons to 2007 for a real view of how the economy is faring.