Higher Retrans Dollars, Weak Ad Money: Where Is The Tipping Point?

TV network executives are worried about the long-term weakening of advertising revenues.

The near-term question is whether they can make up for this problem — not just with digital revenue, but, more importantly, in retransmission fees from pay TV providers, as well as reverse compensation money from their TV station affiliates.

MoffettNathanson Research believes this will be a close call over the next few years. Just national broadcast advertising is expected to be around $14 billion for the four big English language networks in 2016, with retrans/reverse comp around $3.2 billion.

So that still looks like a good financial picture. But looking five years out, things may drastically change.

While retrans will climb to around $6 billion by 2020, according to estimates, advertising will be slightly declining to $13.5 million in that year, from $14 billion in 2016. Expenses will rise — a bit — to around $16 billion in 2020.

Of course there are other nontraditional revenue factors to consider: How fast can major players gain from growing new digital TV advertising dollars?

Additionally, there is concern over traditional pay TV subscriber declines. The latter could have a major effect on the health of the traditional media ecosystem — especially when it comes to steady trending gains from retransmission fees.

Digital TV revenues might be just blue-sky stuff to some. So, near-term traditional advertising and retrans/reverse compensation equations are thrust into the limelight.

Right now retransmission revenue ($3.2 billion per year) is helping keep traditional TV broadcast network profits on a decent growth curve when looking at the less-than-appealing financial gap of advertising ($14 billion) versus expenses ($15 billion).

If advertising revenue takes more of a back seat, that means one fewer arrow in these companies’ respective quivers.

A media critique by Wayne Friedman
Wayne Friedman is West Coast Editor of MediaPost.
Courtesy of mediapost