Pair of Analyst Reports Show Networks' Growth to Continue

Two Wall Street analyst reports Thursday gave more evidence that it's an excellent time to be a TV programmer over the short term (with an upper hand in this summer's upfront) and looking ahead (content puts them in a pole position).  

Despite suggestions that rising prices for oil and other commodities could impact earnings and trickle down to curtail upfront investment, Miller Tabak + Co.'s David Joyce is predicting remarkable gains for the Big Four networks -- with average prime-time prices set to rise 11.3% above 2010 levels. The total haul for broadcasters would soar about 14.7% to $10.3 billion.

Through the end of March, by at least one measure, all of the Big Four were suffering from ratings declines. No matter, Joyce projects pricing at NBC to rise 10%; ABC to be up 11%; Fox 11.5%; and CBS to come in at plus 12.5%. What recession?

Meanwhile, Nomura's Michael Nathanson suggests networks with coveted content have played it smart vis-à-vis Netflix. The programmers are primed to collect a bounty from Netflix for even library content, while preserving the traditional pay-TV ecosystem that allows them to collect hefty fees from cable/satellite/telco TV operators. Netflix is simply becoming another syndication outlet for networks to sell "older, fully exploited" content and not a cord-cutting propeller, Nathanson writes.



If Time Warner Cable CEO Glenn Britt is to be believed, without exclusive content to stream online, Netflix risks becoming a middle man; in theory, a cable operator could replicate it. A network such as CBS must feel fortunate that if profits are looking a bit limp, it can just release more content to Netflix and pick up, oh, a couple of hundred million dollars.

Namura's Nathanson also said networks needn't fear cord-cutting for now, which could lead to lower payments from operators. If people were dropping video services because they are content with simply a broadband connection - to live on Netflix, Hulu, ESPN3, etc.- that would, Nathanson writes, yield an "outsized growth in higher-speed broadband connections versus video." But cable and telco operators have used bundling packages wisely and market activity "does not support assertions" that "households are cutting their video service, yet keeping broadband."

Back on Miller Tabak's upfront projections, Joyce writes that broadcasters may try to take advantage of advertisers' fears that the scatter market will only heat up, prompting them to invest more at the higher prices. He indicates the networks may sell a bit more inventory than the post-recession market a year ago, perhaps 79% for prime time.

Outside of the kids' market, he suggested cable networks should sell about 62.5% of inventory at price jumps in the 8% to 12% range, which would vary of course by ratings performance - something broadcasters seemingly are less affected by. Overall market volume increase should approximate broadcast's Big Four, up 11.5% to $9 billion.

On broadcast, Joyce writes CBS should bring in $3 million, up nearly 15%; ABC should collect commitments worth $2.75 billion for a similar 15% jump. Even with seven hours of programming less a week, Fox is projected to bring in $2.28 billion, also up about 15%, while NBC won't be able to monetize those added hours to overtake it, with an estimated haul of $1.83 million, a 14% increase.

If broadcast was moribund a few years ago, the opposite is now the case.

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