Retransmission Fees Are on the Rise, But How Long Will It Last?

Retransmission fees
rob wilson for Variety

With the uncertainty surrounding how strong advertising dollars will be coming out of the upfront marketplace, it’s important not to forget the other big revenue contributor for most TV companies. Retransmission-consent and affiliate fees have been a consistent source of growth over the last few years, expected to exceed a combined $50 billion this year, according to MoffettNathanson Research. But there are signs that future growth is not guaranteed.

Retrans fees have been a boon to station owners like Meredith, EW Scripps, TEGNA, and Nexstar. The fees have risen from less than 10% of revenue three or four years ago to more than 30% in Q1 2016.

Jumps in retrans revenue tend to come at the start of the calendar year, as renegotiated rates kick in, so are generally first seen in Q1 results. But this year’s first quarter saw a more modest jump than last year’s, and there are signs that the growth is slowing as companies have worked through many of their contracts and set new rates.

In theory, retrans fees are free money and should have driven a significant increase in margins over that period. But in practice, much of that revenue is passed on to network owners who have renegotiated their cut. As a result, margins haven’t really budged for these companies; in fact, most of the station owners have seen margins decline over the past few years.

The cable networks, meanwhile, have also seen continued growth in subscription and affiliate fees, but at a much slower rate. Most of them are losing two or three million subscribers per year at this point, but because almost all of them still reported price increases during the first quarter, declines have been offset. Regardless, affiliate revenue growth has fallen to low single digits.

The big unknown is when we’ll reach the tipping point that sees subscriber declines offset rate increases and drive overall revenue declines. Viacom saw a year-on-year decline in Q1 (largely due to AT&T moving its U-verse customers onto the same rates DirecTV pays), and Turner and Starz have seen quarterly revenue declines as well.

If there is a longer-term slowdown in ad revenue, you could end up with a perfect storm of declines across these two major categories, leading to overall revenue declines across the sector.

Jan Dawson is the founder and chief analyst at Jackdaw Research, an advisory firm for the consumer technology market.

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  1. Joel Stauffer says:

    This retransmission fee is a kick in the teeth to the American tax payer. My fee just went up 100% and that is disgusting. The sick greed of corporate America is going to bring this country to it’s knees…..especially if you are not part of the 1%. When I think about the fact that I am paying a fee for a putrid propaganda channel like FOX it makes me sick, This kind of greed and total lack of consideration for the paying public is like a cancer.

  2. jhs39 says:

    Retransmission fees never should have been legal in the first place. Consumers are being forced to pay for TV channels that were free with an antenna and should still be free with cable or satellite. These fees are one of the major drivers in unsustainable cable TV rates and are the most common cause of station blackouts on various cable systems. The airwaves that CBS, NBC, ABC and FOX use are owned by the taxpayers, not by the networks. Any money these networks have received in retransmission fees should be returned to tax payers and these networks should abandon broadcast television and become full-time cable channels if they want to receive fees for their broadcasts as well as commercial revenue. The deal that was made when these networks were allowed to use the public airwaves is that they would provide free programming subsidized by commercials and that they would provide at least some useful public service broadcasting. The networks have renigged on both counts. The idea of CBS charging for an app to watch what is supposed to be free programming is just another example of the obscene greed that drives these companies. They don’t own the airwaves they use and those airwaves make their programming more valuable and widely seen than regular basic cable channels. They should not be allowed to shaft the American public any longer with their anti-consumer practices. Let’s see how much money CBS would actually make if they abandoned over the air broadcasting and just had to make due as a free or premium cable channel.

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