News Column

Fitch: Aereo Decision Removes Risk Overhang for TV Broadcast Cos.

June 25, 2014

NEW YORK--(BUSINESS WIRE)-- A significant risk overhang for TV broadcast companies has been removed as a result of the U.S. Supreme Court's landmark decision that Aereo violated broadcaster copyrights, according to Fitch Ratings. This is especially true for broadcast affiliates whose stable, high-growth and high- margin retransmission revenues have become an important and valuable source of revenues.

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 Supreme Court Wednesday ruled 6-3 in favor of broadcast companies and against Aereo, which contended that its service constituted a private performance of copyrighted content. Media companies had claimed that Aereo's service violated copyright law by reformatting and retransmitting broadcaster TV signals without consent or compensation.

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 $1 billion by 2017 and to $2 billion by 2020.

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 NFL. Fitch believes that the combination of escalators built into existing agreements and anticipated rate increases in new deals to be executed firmly place CBS on a path to achieve its revenue goals.

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.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Rolando Larrondo, +1 212-908-9189

Senior Director

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Kellie Geressy-Nilsen, +1 212-908-9123

Senior Director

Fitch Wire

or

Media Relations, New York

Brian Bertsch, +1 212-908-0549

brian.bertsch@fitchratings.com


Source: Fitch Ratings


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