Payments for retransmission consent, a hot-button issue last year as several smaller cable operators battled with TV-station groups, is expected to heat up even further in the next two years. And if 2007 is any indication, cable operators, satellite-TV providers and telephone companies will have to pay through the nose to retain access to broadcast programming.
Based on the first nine months of the year, three of the largest independent television-station groups — Sinclair Broadcast Group, LIN TV and Hearst-Argyle Television — are on track to blow through their retransmission revenue predictions for the year.
And in the case of Sinclair, one of the most aggressive proponents of cash for retransmission consent, the station group could exceed its earlier 2007 predictions by as much as 25%.
Sinclair has been far and away the most successful broadcaster in extracting cash for retransmission consent and has had very public battles with midsized cable operators like Mediacom Communications and Suddenlink Communications.
Earlier, Sinclair had estimated it would generate about $48 million in retransmission-consent revenue in 2007, an 89% increase over the $25.4 million in retrans revenue the company tallied in 2006.
But based on Sinclair’s retrans take for the first nine months of the year — $42.8 million — and what it generated in the third quarter ($17.3 million), the Washington, D.C.-based broadcaster is in line to haul in as much as $60 million in retransmission revenue for the year. That’s more than double the 2006 figure.
Sinclair is not alone. Hearst-Argyle, which estimated it would generate between $18 million and $20 million in retrans revenue in 2007, is on pace to bring in about $22 million in retrans cash for the year.
LIN TV, which recently got into a brouhaha with Cable One in New Mexico, didn’t give guidance for 2007. Based on its third quarter, though, it’s on track to double its retrans take for the year to $14.4 million, from $7.2 million in 2006.
LIN also is in the middle of another retransmission fight — with Suddenlink Communications in Albuquerque, N.M., and Austin, Texas.
Suddenlink dropped the two LIN stations — an NBC and CBS affiliate — on Dec. 31, after their retrans agreements expired. LIN said it wants a cut of the cash that Suddenlink charges its customers to receive its stations.
Nexstar Broadcasting, a pioneer in insisting on cash for retransmission, is the only large publicly traded station group that doesn’t appear to be slated for a big increase in 2007. According to Nexstar’s third-quarter financial reports, the Irving, Texas-based station group generated $8.7 million of retransmission revenue for the first nine months of the year. Of that total, about $4.5 million was generated in the third quarter. At that pace, Nexstar is on track to take in about $13.2 million in retrans revenue for the year, slightly behind the $13.7 million generated in 2006.
Nexstar spent part of the year winding through a sales process — it put itself on the block in May, hiring Goldman Sachs as financial advisers — before pulling the plug in August because of a weak debt market.
Nexstar CEO Perry Sook says the broadcaster expects retransmission-consent revenue to increase at least 30% in 2008 and 2009, mainly because many of its deals come up for renewal in that time frame.
“We projected approximately a 30% increase on the nine-month numbers over the prior year,” Sook said during Nexstar’s November third-quarter conference call with analysts. “… I think you can look for a similar percentage increase in ’08, compared to ’07.”
Whether broadcasters exceed 2007 retrans estimates hinges on the assumption that they generate as much retrans revenue in the fourth quarter as they did in the third quarter. The actual results — which should be released in February or March — could be higher or lower, depending on fourth-quarter performance.
GET READY, CABLE
But while there are still questions to be answered, one thing is certain: cable operators should brace themselves.
Sanford Bernstein cable and satellite analyst Craig Moffett said that DVRs and the shift to online advertising have made broadcasters hell-bent on extracting every penny possible from retrans consent.
“I think it means that the battles are going to be even more pitched in 2008 than they were in 2007,” Moffett said. He added that two trends are clear from 2007: retrans consent generates cash and smaller operators, with less leverage than larger cable companies, will bear the brunt of the pain.
“You’re going to see both of those trends in evidence in 2008,” Moffett said.
Hearst-Argyle CEO David Barrett said on that company’s third-quarter conference call in November that it has some major deals brewing in fourth-quarter 2008 that should have an impact on 2009 and beyond.
CBS, whose chief, Les Moonves, has said for months that it will seek cash for retrans, has its first major deal — with Cablevision Systems — up for renewal in 2009. CBS deals with Comcast and Time Warner Cable aren’t expected to expire until 2011 and 2012, respectively.
“It’s still a ways off until the big battles are fought,” Moffett said.
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