Sinclair Counts Retrans Rewards

Sinclair Broadcast Group hit the retransmission-consent jackpot in 2007, reporting $59 million in revenue from cable, satellite and telco TV operators, a 23% increase over previous estimates.

Sinclair, one of the more aggressive broadcast station groups pursuing cash for permission to retransmit TV stations, had previously estimated that it would haul in $48 million in retrans revenue in 2007. On a conference call with analysts earlier this month, Sinclair CEO David Smith said that he expects revenue from retransmission consent to climb to $67.3 million in 2008, a 14.2% increase over the previous year.

Sinclair owns or operates about 58 television stations in 35 markets across the country, affiliates of the Fox broadcast network, NBC, ABC, CBS, The CW and MyNetwork TV.

Net broadcast revenue for the period for the Washington, D.C.-based broadcaster was down 2.1% to $165.7 million, but operating income rose 23.2% to $47 million from $38.2 million in the prior year. In a research note, JP Morgan broadcast analyst John Blackledge noted that the broadcast revenue results exceeded his projections — he predicted sales of $162 million for the quarter — and come in the face of a $19 million decline in political advertising.

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 such as Mediacom Communications and Suddenlink Communications. Earlier in the year, Sinclair estimated that 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.

For the quarter, retransmission consent revenue was $16 million, a 130% increase over the prior year.

“Though most of the big contract signings are behind it, rate increases should continue to drive growth,” Blackledge wrote in his report. He estimated that retrans revenue in 2008 would be about $66 million, a 12% increase over 2007.

Sinclair’s success in increasing its retransmision revenue bodes well for other larger programming groups — LIN TV and Hearst-Argyle Television all were on track to exceed their estimates for retrans cash in 2007. Both are slated to release their fourth-quarter results at the end of the month.

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, but based on its third quarter numbers is on track to double its retrans take for the year to $14.4 million, from $7.2 million in 2006. The dispute was resolved in late January.

LIN also is in the middle of a retransmission-consent fight with Suddenlink Communications in Albuquerque, N.M. and Austin, Texas.

Suddenlink dropped the two 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.

In January, Suddenlink signed a deal with Temple, Texas, NBC affiliate KCEN-TV to take the place of the LIN TV NBC affiliate, KXAN-TV.

Nexstar Broadcasting, which was one of the pioneers in insisting on cash for retransmission consent, 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 retrans 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 adviser — before pulling the plug in August because of a weak debt market.

While that may have affected Nexstar’s pursuit of retrans cash in 2007, that is expected to change in 2008 and 2009. Nexstar CEO Perry Sook said in the broadcaster’s third-quarter conference call in November that it expects retransmission-consent revenue to increase at least 30% in those two years, mainly because many of its deals come up for renewal in that time frame.