• by Wayne Friedman , October 27, 2017

Cash flow should be the key measure of TV station groups' performance -- not core advertising revenue results, says a report from Moody’s Investors Service.

Moody’s says EBITDA -- earnings before interest taxes and depreciation and amortization, also known as cash flow -- is a more accurate measure, as it counts all revenue results, including retransmission fees from pay TV providers.

“As retransmission fees have grown substantially, the revenue model has grown balanced, stable and predictable,” says the report.

Moody’s says this is necessary because “core advertising growth is flat, but retransmission fees are growing at a mid-teen percentage basis.” Near-term growth of TV stations' cash flow -- EBITDA -- looks to climb by nearly 6%.

TV stations' revenue models have shifted more share to retransmission fees from just advertising sales. Industry-wide, Moody’s expects retransmission revenues to “generate 30% to 40% of total revenue in the next 12 to 18 months, on average.”  

Looking at the pure-play big TV station groups, Sinclair Broadcast Group will have the highest weighted EBITBA industry share at the end of 2018 -- 30.3%, which includes the pending Tribune Media acquisition. Univision is next at 23.5%, followed by Nexstar Media Group with 16.2%; Tegna Inc. at 15.6%; Gray Television with 6.1%; and E.W. Scripps at 4.2%.

Moody’s says focusing on EBITDA removes the ups and downs of analyzing the TV-station performance of its advertising sales.

“Core [ad] revenues are highly sensitive to election cycles and major sporting events, most notably the Olympics,” it notes. “Behind the noise and volatility from these events, and the challenge in estimating normal run-rate advertising revenue, each company has different cyclical exposure, given their affiliate mix, reach and geographic coverage.”