More industry observations from the Wells Fargo Securities analysts


We previously reported on broadcasting ad business observations from Wells Fargo Securities analysts Marci Ryvicker (equities) and Bishop Cheen (high-yield bonds) after their return from the NAB show in Las Vegas. They also offered some thoughts on the challenges facing broadcasters – both in TV and radio. 

“Retransmission consents between TV stations and broadband operators are at a very contentious stage with increasing possibility that the FCC may attempt to get involved in some sort of quasi-arbitration role,” the analysts said in their review. “As to be expected, the TV execs with whom we spoke were biased against FCC interference and for the status quo of free market negotiations. Still, FCC chairman Julius Genachowski suggested that if viewer access slips into turmoil due to stations’ pulling their signals from broadband carriers as a tactic in stalled negotiations, the FCC might consider some kind of regulatory solution.”

Cheen and Ryvicker said retrans sharing by stations with their networks is de facto becoming the standard and most operators are resigned to it because they believe the network clout will grow the retrans pie. “That said, we think the growth slope of the per home net retrans fee for stations will level off from what it has been the past three years as networks take a chunk out of the gross fee. One TV CEO with whom we spoke predicted that, despite sharing, it would take about two cycles of contracts for the average TV station’s retrans to approach $1 per home. The upside for stations that do share with their networks is supposed be a stronger network affiliate relationship, including more cross promotion between stations and affiliates, and lower special programming fees for network supplied sports and high-end programming,” the Wells Fargo analysts told clients.

“Spectrum rationing was the topic du jour at the NAB with no clear consensus of how the issue will be resolved. Granted, given the constituency attending, there was plenty of tea-party-like opposition to the FCC’s reclaiming valuable digital spectrum that was just granted a short decade ago,” the analysts said.

On the radio side, “performance royalties are still an evolving issue with music companies and their allies pushing for a new contractual royalty to be paid by domestic terrestrial radio stations,” the report noted.

“Proponents have been gathering allies in the US Congress for the past three years. Some of the radio execs with whom we spoke said that they believe a compromise will eventually be reached whereby songwriter royalties — many of which are managed by large music companies — would be adjusted downward to allow for a new performance royalty. Net net, we suspect that eventually overall music rights costs will increase for terrestrial radio operators in the United States. They may, however, be phased in over time,” Ryvicker and Cheen wrote.