Brutal negotiations predicted in retrans renewals


The cable/satellite MVPDs have gotten used to the idea that they no longer get local television stations for retransmission for free. But even so, analysts Bishop Cheen and Davis Hebert at Wells Fargo Securities see the next round of negotiations become a “food fight.” Why so?

“Over the next 2-3 years, we will be coming up on the third round of retransmission consent fee negotiations since the local broadcasters broke ground on successfully getting monthly carriage fees from the MVPDs (cable and satellite). In the words of one small cable provider, this round is going to be ‘brutal’,” the analysts said in a research report.

Here are the reasons they cite:

1) “Cable companies are concerned about rising costs. The next round is going to be a challenge, because local TV stations are under pressure to split retrans revenue with their network partners (see next two bullets). Networks are also posturing to pressure broadband operators to support their owned-and-operated TV stations. Although station retrans fees currently account for less than 10% of overall programming costs to broadband operators, the cable industry is likely to still lobby the US Congress to alleviate escalating costs over the long term. Aside from station carriage fees, broadband operators face an even more contentious cost challenge from the bevy of cable networks that want to be paid for multiple screens (TVs and iPads, for example).”

2) “Network-affiliate relationship status: ‘it’s complicated.’ Local affiliate groups have obviously had success in growing the retrans line, which has helped offset volatility in ad sales, but now networks want a piece of the pie to provide a new high-margin revenue stream and pay for programming, especially the increasingly expensive sports rights. Local affiliate groups appear to accept that networks deserve a share of the retrans revenue stream, but the bigger question is, how much? News Corp. has taken the most aggressive stance, essentially looking for fixed-rate fees with high-growth escalators from its affiliates, which for the affiliate is a) prohibitively expensive in the later years and b) puts the entire risk of MVPD retrans negotiation on the affiliate itself. NBC, meanwhile, has proposed to negotiate on behalf of its affiliate groups in exchange for a 50/50 split. CBS and ABC appear somewhere in the middle, asking for the greater of a fixed rate or a floating percentage.”

3) “So, will the station groups see a drastic near-term cut in retrans? Not necessarily. As Belo CEO Dunia Shive termed it, the current ‘problem’ is more of an ‘academic’ discussion, as network affiliation agreements expire anywhere from this year (Sinclair-Fox) to as far out as 2017. All in all, we think the network parent’s clout at the negotiating table with cable MSOs and satellite companies ultimately is a positive for the broadcasters. However, if other networks take the stance of Fox, local affiliates would have little choice but to fall back on tough negotiations with the MVPDs to continue the recent trajectory of retrans growth and be able to cover the reverse retrans payments.”

RBR-TVBR observation: We’ve noted recently the very few cases of signals actually being pulled, despite lots of public posturing over retrans negotiations. It will take some bare knuckle negotiating to keep growing the retrans pie. Unfortunately for local station owners, those negotiations are now on both sides – with their network(s) as well as the MVPDs.