Analyst: NFL Renewals Will 'Raise the Cost of Doing Business' Across the TV Industry

7:45 AM PST 12/20/2011 by Georg Szalai
AEG via Getty Images

Last week's rights extensions by broadcasters will have ripple effects for pay TV operators and cable networks, says Morgan Stanley's Benjamin Swinburne.

NEW YORK - When CBS, NBC and Fox last week extended their NFL rights deals through 2022, they also affected the broader TV industry in a major way, according to Morgan Stanley analyst Benjamin Swinburne.

In a report on Tuesday, he said that the new deals will have "powerful implications that extend well beyond the networks directly involved."

The renewals will turn out to be a good business decision for the involved broadcasters despite the higher rights fees they must pay, he expects.

"We see the broadcasters' decision to renew their NFL rights as an acknowledgement of the economic benefit the NFL is having on their business," Swinburne wrote. "The earnings impact is modest and long-term cost certainty a positive."

He added that the extension of the NFL rights are a sign of "the benefits these rights have already accrued to the economics of these networks - namely, rapidly rising re-transmission fees."

The deals were signed with the view that advertising sales can cover the rights cost to break even - in the case of NBC - or be profitable - in the case of the others, he said.

Swinburne said that a major ad recession or a major shift in ad share away from TV could challenge those expectations. "Even if these two events do not happen, the pressure to garner increased carriage fees by ESPN [which extended its rights deal earlier this year], CBS, NBC and Fox and limit cost escalation elsewhere will be significant," he said.

However, Swinburne also argued that the renewals "raise the cost of doing business for the broader industry."

Over time, he expects investment levels to rise "across the dial, pressuring cable network margins."

Networks will attempt to pass the rising costs on to cable and satellite TV distributors, he predicted. Pay TV firms, meanwhile, will in turn "face difficult choices over which networks to carry and pay up for versus others."

In this context, the emergence of more and more online video offerings will put pressure on those networks without "exclusive, compelling programming," Swinburne said.

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