Higher Retrans Dollars, Weak Ad Money: Where Is The Tipping Point?

TV network executives are worried about the long-term weakening of advertising revenues.

The near-term question is whether they can make up for this problem -- not just with digital revenue, but, more importantly, in retransmission fees from pay TV providers, as well as reverse compensation money from their TV station affiliates.

MoffettNathanson Research believes this will be a close call over the next few years. Just national broadcast advertising is expected to be around $14 billion for the four big English language networks in 2016, with retrans/reverse comp around $3.2 billion.

So that still looks like a good financial picture. But looking five years out, things may drastically change.

While retrans will climb to around $6 billion by 2020, according to estimates, advertising will be slightly declining to $13.5 million in that year, from $14 billion in 2016. Expenses will rise -- a bit -- to around $16 billion in 2020.



Of course there are other nontraditional revenue factors to consider: How fast can major players gain from growing new digital TV advertising dollars?

Additionally, there is concern over traditional pay TV subscriber declines. The latter could have a major effect on the health of the traditional media ecosystem -- especially when it comes to steady trending gains from retransmission fees.

Digital TV revenues might be just blue-sky stuff to some. So, near-term traditional advertising and retrans/reverse compensation equations are thrust into the limelight.

Right now retransmission revenue ($3.2 billion per year) is helping keep traditional TV broadcast network profits on a decent growth curve when looking at the less-than-appealing financial gap of advertising ($14 billion) versus expenses ($15 billion).

If advertising revenue takes more of a back seat, that means one fewer arrow in these companies’ respective quivers.

1 comment about "Higher Retrans Dollars, Weak Ad Money: Where Is The Tipping Point?".
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  1. Ed Papazian from Media Dynamics Inc, October 23, 2015 at 3:55 p.m.

    I wouldn't worry too much about the financial picture of the broadcast TV networks, who are averaging something like a 7-10% gross profit these days, compared to only 6-7% in their heyday in the 1960s. How can this be? Despite fragmenting ratings, the networks have upped their commercial loads in primetime dramatically, making up for a large part of their audience losses. Also, they command slowly rising, not declining CPMs. Last but not least, they earn non-ad revenues from their profit sharing deals with TV producers as well as their retransmission fees. On the ad front, not only do the networks sell digital episode sponsorships but their Owned and Operated TV outlets make a mint---thanks mainly to their carriage of network fare. And let's not forget that the networks are, at last moving, into the SVOD arena, which may result in additional incomes----if done right.

    This does not mean that the TV networks, operating purely as programming networks, are sitting pretty. Not so, as their ratings will continue to fragment---unless the cable unbundling people have their way and the number of competing channels drops dramatically---in which case, network ratings will rebound. I suspect that a sort of mini-tipping point will soon be reached, whereby advertisers begin to balk at ever higher CPMs for reaching mostly over-50 viewers in primetime. This will cause the networks to reduce the number of costly dramas and sitcoms they offer and turn even more than now to cheaper and probably less attractive reality shows plus game and variety formats. They may also move more in the cable direction by increasing their use of reruns. All of which will further erode the networks' primetime ratings. But so what, as long as they make money?

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