The second-quarter earnings season of 2017 has wound down for media companies and broadcasters, and FierceBroadcasting is rounding up the trends that highlighted the reports.
1. Streaming services gain traction, but strategies continue to evolve
CBS and Disney dominated this quarter with comparably huge streaming announcements.
CBS has already made a lot of headway in the SVOD space among its broadcast competitors, and now the company said it will have 4 million total subscribers for All Access and Showtime OTT by the end of the year, halfway to its goal of 8 million total by 2020. In addition, CBS announced international expansion plans for All Access (starting in Canada next year) and a live sports streaming service.
Not to be outdone, Disney also announced expanded plans for its previously announced ESPN direct-to-consumer offering, as well as a Disney-branded streaming service featuring Disney and Pixar films along with exclusive originals. Disney hasn’t yet decided whether its Marvel and Star Wars films will be part of the service. Barclays analyst Kannan Venkateshwar said Disney should consider adding those films in order to lower consumption friction and drive adoption.
“… In our opinion, the company’s marginal utility is likely to be maximized with an aggregated offering rather than separate monetization paths for each brand, although this is likely to come at the cost of short term trade-off with licensing revenues. Overall, almost every media company has now announced its own OTT offering in some form, setting the stage in our opinion for further changes in consumption patterns,” wrote Venkateshwar in a research note.
In a less direct manner, SVOD and OTT services helped boost revenues for NBCUniversal, Time Warner and Viacom, which all saw their distribution, subscription and affiliate revenues grow thanks in part to licensing deals.
2. Subscriber losses continue to haunt programmers
Perhaps as an inverse reaction to SVOD growth, traditional pay-TV subscriber numbers among cable, satellite and IPTV providers continued trending downward and put pressure on media companies.
Although Fox said it has maintained its aggregate subscriber totals across its networks despite the 2% overall losses for pay TV, other programmers and broadcasters weren’t as lucky.
Disney again felt the brunt of that with ESPN, its high-priced sports network for which the rate of subscriber declines has risen from around 2% to about 3.5%.
Discovery’s U.S. networks' higher ad rates managed to somewhat offset subscriber declines.
Turner’s growth in its international segment helped to fight off a decline in domestic subscribers.
Viacom’s domestic affiliate revenues rose 4% to $1.01 billion thanks to higher revenues from SVOD and other OTT agreements, along with rate increases, which helped to fight off a decline in subscribers.
Venkateshwar notes that while pay-TV subscriber losses weren’t as bad as expected, Viacom still reported subscriber losses and placed estimates for annual distribution growth at around 4%, lower than it has historically. He also mentions in a research note that Viacom’s networks have been already re-tiered by Comcast and Charter, and the company's guidance indicates that the recently concluded deal with Altice USA is not even benefiting from rate step ups typically seen in year one of these deals.
“While the tailwind from this factor hasn't been seen yet in programming cost growth trends at large distributors like CMCSA and CHTR, this could add another layer to the operating leverage story in cable over time once the renewal cycle is lapped,” Venkateshwar wrote.
3. Retransmission revenues explode
Retransmission growth continued to be a huge source of revenue for broadcasters in the second quarter.
Meredith’s other revenues and operating expenses rose thanks to higher retransmission revenues from cable and satellite television operators.
Tegna’s media segment revenue grew 5% primarily driven by new initiatives and a “substantial increase in subscription revenue,” the company’s new name for retransmission revenue, which it adopted in order to “better reflect the future changes in that revenue stream, including the distribution of TEGNA stations on OTT streaming services.”
E.W. Scripps’ retransmission revenue rose 24% to $66 million, and, looking out to the full year, the company expects retransmission revenue will increase 20% and account for about 35% of television division revenue.
Meanwhile, some of the larger station groups saw astronomical retrans growth. Nexstar Media’s retrans revenues rose an astounding 157.9%. NBC’s distribution and other revenues rose 36.1% thanks to retrans. And CBS’s subscription revenue rose thanks to a 25% increase in retransmission revenues and fees.
The results all feed into a recent report from Kagan that stated the total amount of retransmission fees collected by U.S. broadcasters from traditional and virtual MVPDs is expected to reach $12.8 billion by 2023.
Retransmission’s growth plays an important role for broadcasters’ need to diversify revenue streams as advertising fluctuates. But as ATSC 3.0 emerges and the possibility of bit pooling gets closer to reality for TV broadcasters, retrans may get a run for its money in terms of driving growth.
Nexstar Media CEO Perry Sook said it could be as long as 5 years before those revenues start to materialize; once they do, however, he said it could be a massive opportunity for the broadcast industry.
“Spectrum revenue could equal retrans revenue over time,” Sook said.
4. Advertising revenues continue to come under pressure
As has been the case in recent quarters, advertising revenue continued to struggle for growth.
Sinclair is anticipating core advertising in the third quarter to be flattish partly due to an absence of $11 million in Olympics advertising revenues. As such, the company expects its media revenues next quarter will come in at around $623.2 million to $629.8 million, down 0.9% to 1.9% year-over-year.
Univision’s media networks advertising revenue fell 18.1% to $404.3 million, due in part to tougher comps for the year-ago quarter that were lifted by the Copa America Centenario soccer tournament, as well as declines in network advertising due to weak scatter volume and softness in the local television business, the company said.
However, some broadcasters managed big growth. Nexstar, in its first full quarter since acquiring Media General, saw its core television ad revenue rise 146.5%.
Meanwhile, NBCUniversal’s advertising revenue fell 1.2%, due to audience ratings declines; Fox’s television segment had to contend with lower ad revenues; Disney’s cable network was plagued by lower advertising revenue due to a decrease in average viewership and lower units delivered; and CBS’s Local Media saw advertising revenues for the second quarter fall 2%.
“Ad supported TV networks continue to be negatively impacted by audience issues, with nets looking to clean up make goods ahead of the new upfront pricing. Auto continues to be a factor and the category's weak showing in the upfront suggests the narrative won't change for the foreseeable future. Combined with pharma, sports ad dollars could be under pressure, particularly as ratings weaken this fall,” wrote Janedis in a research note.
“It was another tough quarter from a stock perspective, as several of the media companies posting disappointing results/or outlooks. From that perspective, we reduced our 3Q cable network ad growth estimates to +0.5% from 3.0%, ~140bps better sequentially,” added Janedis in a separate note.