Editor’s Corner—The 4 big trends affecting the media industry today

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The retransmission revenue train just keeps on chugging along.
Ben Munson
The third-quarter earnings season of 2017 has wound down for media companies and broadcasters, and FierceBroadcasting is rounding up the big trends that came up during the earnings season.

1. Presidential election hangover

Advertising revenue comparisons can often be a drag on earnings, but nothing stings quite like a quarter that has to stack up with a presidential election, particularly one as contentious as the 2016 race.

Gray Television was hit by the dropoff as its political advertising fell 82% to $4 million, but the company said its total political ad revenues still “significantly exceeded” the high end of its guidance. Overall, its national advertising revenue rose 22% to $31 million, while local ad revenue jumped 8% to $110 million, accounting for more than half of Gray’s total revenues. Gray’s combined local and national advertising revenue increased by approximately $13.5 million, or 11%.

Meredith also felt the burn. While nonpolitical advertising was up for Meredith, political advertising revenues came in at $1 million, well below the $16 million reported in the year-ago quarter. Still, Meredith’s quarterly revenues were $154 million, which the company claimed was a record for a nonpolitical quarter.

Nexstar, however, seemingly evaded the fallout through a number of diversification and M&A moves. The company’s political ad revenues totaled approximately $8.4 million during the quarter, down year-over-year but up 229% over the same quarter in 2015. Still, Nexstar’s net revenue rose 122% during the quarter, which CEO Perry Sook attributed to revenue diversification.

“In line with Nexstar’s unwavering commitment to localism, innovation and growth, we continued to successfully transition our traditional television broadcasting operating model into a diversified platform with multiple high margin revenue streams,” said Sook in a release, adding that Nexstar’s combined third-quarter digital media and retransmission fee revenue of $313.7 million was up 147.2% year-over-year and accounted for 51.3% of net revenue.

2. Mobile future

It might be hard for programmers to continue to grow their affiliate revenue. But Viacom CEO Bob Bakish sees mobile content as a potential growth driver in the future.

During Viacom’s earnings call this week, Bakish said his company still sees affiliate and distribution revenue growth opportunities in both run rates and SVOD even though the company doesn’t have any significant renewals until well into 2019.

Mobile will be a big factor in that growth, he said.

“When you think about mobile, you have, at least in the case of the U.S., hundreds of millions of subscribers, and billions worldwide. We’ve been piloting video distribution on mobile outside the U.S. and we’re beginning to see some of that activity in the U.S. By the time we get into 2019, we believe that will be a factor and that will be a strong positive,” Bakish said.

Viacom also put its programming (along with a strategic investment) in Philo, a new $16/month streaming bundle that features cable networks and no sports. Viacom is not only pushing a product with a clear mobile use case, but it’s also working more outside the traditional pay TV ecosystem.

However, Barclays analyst Kannan Venkateshwar saw some downside in Viacom shifting the focus away from renewals as revenue growth drivers.

“While media companies historically used to point to upcoming renewals as a source of upside, it is quite interesting to see Viacom management pointing to lack of renewals until 2019 as a source of downside protection. This speaks to the degree of challenges faced by the company,” wrote Venkateshwar in a research note.

But for Viacom, it could also signal some more bold moves into mobile.

3. Retransmission express

The retransmission revenue train just keeps on chugging along.

Nexstar said its $257.5 million in retransmission fee revenue reached the highest ever quarterly level in the company’s history, for example.

And CBS’ quarterly retrans revenue jumped 27%.

“We have now made nearly as much in retrans and reverse comp for the first 9 months of this year as we did all of last year, and we still have a quarter to go,” said CBS CFO Joe Ianiello, according to a Seeking Alpha transcript. He reiterated CBS’ guidance of $2.5 billion in retrans revenue by 2020.

At NBC, retransmission consent fees, rose more than 70% to $360 million. At E.W. Scripps, retransmission revenue increased 19.9% to $10.6 million. Gray Television’s retransmission revenues rose 37% during the quarter to reach $70.2 million. Tegna’s subscription revenue (which accounts for retransmission) rose 24% during the quarter. Quarterly revenues for 21st Century Fox’s TV segment rose 3% due to higher retransmission consent revenue.

S&P Global firm Kagan predicts total retrans revenue will amount to $9.3 billion this year, up 18% from $7.9 billion in 2016. The firm predicts the total will be nearly $12.8 billion by 2023. With all the glowing reports from broadcasters about their individual retrans growth successes, Kagan’s predictions seem like a lock.

4. ATSC 3.0: All systems go

Should the retrans express ever go off the rails, broadcasters will have a number of new revenue opportunities now that ATSC 3.0 is officially off the ground.

The FCC voted to authorize the new TV standardwhich is promising features like improved video and audio quality, mobile viewing and interactivity. Sinclair, one of ATSC 3.0’s most vocal proponents (and maybe one of its largest benefactors), wasted no time in announcing a nationwide rollout and issuing a triumphant statement.

"As we have pressed for 20 years, broadcasters and consumers alike deserve the best innovations available. We finally have that ability and are ready to lead an industry in deployment, service offerings, enhancements and business development. We are ‘off the plateau’ and ready to climb the next mountain along with our broadcast brethren, manufacturers, programmers and new business partners, looking down on wondrous new opportunities. There should only be upside for all concerned—including most importantly, the Public!” said Sinclair Executive Chairman David Smith.

He likely has good reason to be excited because ATSC 3.0 presents a number of new tantalizing revenue opportunities for broadcasters. Since viewership data will be collected via the IP-based standard, broadcasters can now begin to sell targeted advertising and compete with juggernauts like Facebook and Google. In addition, new features and improved experience for over-the-air broadcasts could increase viewership, which would also drive up ad revenues.

Broadcasters will also have the opportunity to engage in bit pooling and leasing. After the switch to ATSC 3.0, broadcasters will have about 25 Mbps of leftover bandwidth that can be leased out to companies that need it. Jerry Fritz, executive vice president of strategic and legal affairs at Sinclair, said bit leasing could be a huge revenue opportunity for broadcasters.

Sook seemed equally enthusiastic about that opportunity.

“Spectrum revenue could equal retrans revenue over time,” Sook said.

Retrans is still rolling, but broadcasters could soon have a lot more revenue coming in from new sources. — Ben@fiercebrdcstng