Rising retransmission fees are masking 'sinister advertising trends' for TV broadcasters, analyst says

The quickening growth of retransmission fees from pay-TV operators is all that is shielding TV broadcasters from advertising and ratings trends that are deteriorating at an even faster rate, said MoffettNathanson analyst Michael Nathanson in a note to investors today.

"Thanks to the rapid rise of retransmission fees over the past five years, the broadcast business is in a much improved state compared to its prior single-revenue stream model," Nathanson said. "However, retrans, which has allowed a traditionally breakeven business to become profitable, has obfuscated more sinister advertising trends."

The analyst said that as retransmission fees represent a greater share of the broadcast business' overall revenue over time, they still might not be able to offset declines in the TV advertising business.

Nathanson pointed to yet another slow fall-season start for the major networks as evidence. While Fox has seen its prime-time C3 ratings for adults 18-49 rise 11 percent, NBC (down 2 percent), CBS (minus 3 percent) and ABC (minus 9 percent) each saw year-over-year audience declines in the first two weeks of the fall season. 

The declines are in "the context of a largely forgettable five-year trend for broadcast viewership," Nathanson said. "As C3 consumption has fallen, the networks are also experiencing increase in the median age of their viewers relative to the U.S. population. With the exception of Fox, the remaining big three networks all have average viewers outside the coveted 18-49 demographic."

Speaking at the WSJD conference in Laguna Beach, Calif. Wednesday, CBS Corp. CEO Les Moonves even conceded that his network is mostly watched by older viewers who are more challenging to monetize with advertisers. "In terms of teenagers, we never had a whole lot of them," he said. 

Meanwhile, Nathanson's argument seems to assume that broadcast retransmission fees will keep growing over the next five years, unaffected by current activity at the FCC, which seems focused on changing how the business is regulated. 

"Any changes would have to come from Congress on retrans, and there is no evidence that is on the dockets," Nathanson said to FierceCable in an email. 

For more:
- read this MoffettNathanson report (sub. req.)

Related articles:
ACA fires back at NAB, says it has no problem with privately negotiated exclusivity arrangements
SNL Kagan: Retrans fees up 40% per sub, as NCTA looks to kick broadcasters out of basic tier
FCC Media Bureau chief Bill Lake: Time to end 'outdated' exclusivity rules

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