Fitch recognizes that the growth in high-margin retransmission revenues will be somewhat offset by increases in reverse compensation fees to the networks, driven by the leverage that broadcast networks retain over the local affiliates. However, broadcasters should continue to see a positive net impact. M&A activity within the television broadcast industry has been undertaken in part to support retransmission revenues growth. Consolidation provides TV broadcasters with increased scale that will benefit them during retransmission negotiations with multichannel video programming distributors (MVPDs).
Local broadcast affiliates also depend on networks for prime time programming. Today's decision removes the near-term risk of broadcast networks converting to cable networks. The potential loss of retransmission fees and increased program costs would have weakened credit profiles. Fitch notes TV broadcast companies will continue to face long-term risk associated with technological changes/innovation within the industry.
The economic over-the-air broadcast television model could have been significantly altered by an Aereo victory. Pay TV providers (cable companies, satellite companies, and telephone companies) currently pay the broadcasters retransmission consent fees to include local broadcast content in their respective video services.
A ruling against Aereo is positive for broadcasters as the need to protect their high-margin retransmission consent revenues is a key factor in their operations. These particular revenues are more stable than cyclical advertising revenues, and we expect they will continue to grow for broadcasters.
Retransmission consent and reverse compensation revenues are among CBS's fastest growing revenue streams. CBS aims to close the pricing gap between its current retransmission rate charged to MVPDs and the rates charged by other leading cable networks as CBS believes the current retransmission rates do not accurately reflect the relative value of the content broadcast by the network. To that end CBS expects its retransmission consent/reverse compensation revenue to grow to
Reaching these revenue objectives in large part depends on CBS's ability to maintain strong network ratings and retain its valuable sports programming rights portfolio, including rights to the
Media companies had sought an injunction to prevent Aereo from operating while litigation was pending, which was previously denied. But now that a decision has been made, Aereo has lost a material piece in its content line-up and is likely to come under significant pressure as without retransmission rights, the company has no materially compelling content.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
Rolando Larrondo, +1 212-908-9189
Kellie Geressy-Nilsen, +1 212-908-9123
Source: Fitch Ratings
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