The fourth-quarter and full-year earnings season for 2017 has wound down for media companies and broadcasters, and FierceVideo is combing through the reports to see what trends are emerging.
Networks
The big four broadcast networks wrapped up the fourth-quarter reporting season recently with an interesting wrinkle hanging over the proceedings: ABC/Disney is buying a significant chunk of 21st Century Fox. And though Comcast/NBC’s competing bid for European operator Sky came in after reporting, the networks still had lots to discuss in terms of M&A during 2018.
The Fox deal won’t help ABC/Disney grow its broadcast TV business but it will significantly enhance Disney’s already stout production capabilities, both in terms of films and television. In discussing the revenue opportunities, Disney CEO Bob Iger said, “We will, as a company, when combined, have far more production and obviously production capability to flow into our traditional distribution businesses, that being TV channels and the motion picture exhibition business, as well as the capability to create product for our direct-to-consumer businesses,” according to a Seeking Alpha transcript.
But now Disney may have to rethink its Fox deal now that Comcast is going after Sky, which Iger called one of the “crown jewels” among 21st Century Fox’s assets, as BTIG analyst Rich Greenfield noted in a research note.
“We think Sky is an outstanding company,” said Comcast CEO Brian Roberts in a statement. “It has 23 million customers and leading positions in the U.K., Italy and Germany. Sky has been a consistent innovator in its use of technology to deliver a fantastic viewing experience and has a proud record of investment in news and programming. It has great people and a very strong and capable management team.”
While CBS is not involved in the current Comcast-Disney-Fox M&A triangle drama, it has its own potential remerger with Viacom to consider. CBS specifically declined to discuss that deal during its recent earnings call. Instead, the network stuck to its guns concerning its pillars for growth in 2018: advertising, direct-to-consumer, retrans revenue and international content licensing.
It’s still early, but 2018 is already shaping up to be one of the most compelling years ever in the broadcast network M&A space.
Programmers
Pay TV providers are continuing to lose traditional subscribers and cable programmers are bracing for the erosion by bringing their OTT plans into sharper focus. During quarter earnings reporting, with an eye on 2018 and beyond, companies like Discovery and Viacom offered up ideas and plans to get a piece of the VOD pie before Netflix (which expects to attract another 6.35 million subscribers in the first quarter) eats it all.
Discovery is extremely close to finalizing its deal for Scripps Networks and becoming a lifestyle programming behemoth. After that deal goes through, Discovery CEO David Zaslav said it will be time for the combined company to look out over its vast supply of intellectual property and figure out a way to monetize it away from traditional cable.
“We will be looking hard at that both domestically and internationally,” said Zaslav. “We could create a pretty compelling offering for $6, $7 or $8 that would look a lot different than Amazon Prime and Netflix, and it could be very attractive in every language globally. So we’ll keep our eye on that.”
Viacom offered something more concrete in the form of a direct-to-consumer product—banking on Viacom’s big content library—that will roll out in 2018. CFO Wade Davis painted it as the light at the end of the tunnel following the hit Viacom took pulling back its shows from third-party distributors.
“It’s important to note that one of the reasons we’re able to do this is because we’ve chosen to curtail the amount of content that we license into third-party D2C experiences. That’s a decision that we made when [Bakish] rolled out his strategic plan last year. And although that’s had some short-term pain for us … it’s really important that we’ve built that library to be able to use for our own strategic purposes and fuel offerings like this,” said Davis.
These moves are not unexpected for programmers looking to continue subscriber growth but it will be interesting to watch this year as companies, especially Viacom, move toward D2C in a way that doesn’t step on the toes of still very lucrative relationships with pay TV providers.
Broadcast groups
In the fourth quarter, virtual MVPDs like DirecTV Now, Hulu, YouTube TV, Sling TV and PlayStation Vue that have been working to lock in local broadcast signals on a market-by-market basis, began to distinctively shape the earnings of some broadcast groups. Tegna revealed that it now has more than 600,000 virtual MVPD subscribers across its station portfolio. Jefferies analyst John Janedis said Tegna’s apparent vMVPD head start is beginning to bear fruit.
“Given TGNA's large market station portfolio, it appears to be ahead of the curve as VMVPDs have already begun contributing revenue. With roll-out of VMVPDs across all stations, TGNA has 600K subs, which drove q/q improvement in 4Q (flat overall) and nominal growth in large markets (ex. impact of U-verse),” wrote Janedis in a research note.
Janedis saw similar vMVPD opportunities for Nexstar Media.
“With VMVPDs growing, but also reported on a lag, we expect further improvement in trends heading into 2Q/3Q. We think subs could be flat to slightly up by the end of the year,” he wrote.
But Sinclair CEO Chris Ripley said that his company has yet to see much impact from its vMVPD deals.
“Most of our deals were done in the fall. We don't start counting subs until they start paying. And so, there's definitely a lag there in terms of those showing up in our accounts. So, we're going to start to see that benefit here in 2018, as we've done a significant amount of deals with the virtual MVPDs. We do expect more even through this year. But they really have not, for 2017, had any material impact yet,” said Ripley, according to a Seeking Alpha transcript.
So while vMVPD growth has had varied impact thus far for the biggest television broadcast groups, it’s clear that the revenue opportunities afforded by streaming TV services will eventually kick in for Sinclair, Nexstar, Tegna and the rest of the broadcast TV pack. According to MoffettNathanson, U.S. vMVPD subscribers grew by 2.6 million in 2017 (and by 800,000 in the fourth quarter alone) and now total roughly 4.6 million. Although the firm cautioned that it’s unclear how many of those subscribers are still in promotional periods (and therefore are not paying subscribers), the vMVPD subscriber revenue picture for broadcasters should come into better focus in 2018.—Ben | @fierce_video