For several years now we’ve been hearing some investors and analysts (not any who actually deal directly with broadcasting) ask executives of companies which own television networks why they don’t just convert to cable delivery and get rid of their O&O stations and affiliates. One analyst who does understand the business is pushing back.
“The broadcast nets will eventually put the affiliates out of business” is a comment that Wells Fargo Securities analyst Marci Ryvicker says she heard from investors at some of the recent media conferences. So, she explained in a note to clients why that is not going to happen.
“Fox and CBS have been very vocal with regard to their desire to ‘get paid’ for their programming by both the MSOs (retrans) and the affiliate groups (reverse comp/retrans or ‘license fees’). We do not argue with the fact that the nets will be3 able to extract significant value for their programming, [but] do believe that i) unless the nets want to become de facto cable channels and give up significant ad revenue they have every incentive to keep the affiliate business financially healthy; ii) the networks have no other viable distribution options 9i.e. there are MANY reasons why digital channels are not the solution); and iii) so much more value would be created (we estimate $2.5-8 billion, or 6-18% of incremental industry revenue) should the networks work WITH the affiliates in garnering retrans,” Ryvicker wrote.
RBR-TVBR observation: One needs only to look at the weekly ratings chart for all of television – broadcast and cable combined – compiled by the TVB to see why neither Comcast nor any of the other broadcast network owners wants to kill the affiliate model. USA may be the most profitable network at Comcast’s newly acquired NBCUniversal, but it placed two shows in the top 100 for the key 18-49 demo. Meanwhile, NBC, struggling as the #4 broadcast network, had 15.
We noticed that none of the analysts have recently suggested to Rupert Murdoch at News Corporation that he sell the Fox O&O group, now that local ad sales are again growing and the O&O stations are again a major profit center.
Returning to Comcast, CEO Brian Roberts conceded that the company attributed very little value to NBC in evaluating the NBCU acquisition, but with business improving and the potential for better ratings (the advantage of being in last place is that you can only move up) he’s now hailing the broadcast network as the company’s biggest opportunity for growth. Comcast was a pioneer in selling local advertising on its cable systems, so NBC Local Media fits right in as a place to grow ad sales on-air and online.