Moody's: TV Station Groups Face Financial Threat from Networks
Reverse compensation to cover the cost of creating content will put profits and credit quality of local broadcasters under more pressure, the credit ratings agency warns.
NEW YORK - Major TV networks' increasing demand for reverse compensation from station groups to cover the cost of creating content will put financials and credit quality of local broadcasters under more pressure in the coming years, according to a new report by Moody's Investors Service.
Pure-play broadcasters will generate higher revenue in 2012 from retransmission fees and political advertising, "but by 2013, the stress of reverse compensation fees will be more obvious," the credit ratings agency said.
"As the four major U.S. networks renew their multi-year contracts with broadcasters, the networks have increased their demands for 'reverse compensation,' which will pose a risk to broadcasters' cash flow in the near term," said Carl Salas, a Moody's vp and senior analyst. "The broadcasters can only offset this pressure if they can negotiate significant increases in retransmission fees from cable and satellite television providers."
Moody's said that broadcasters will also have to strengthen their focus on growing advertising revenue and expanding digital strategies.
Retransmission fees are broadcasters' second-largest source of revenue after advertising, Moody's highlighted. And they have been the fastest-growing source of revenue from 2006-2010 among the pure-play U.S. TV broadcasters, rising by a compounded 54 percent annually, Moody's said.
Local broadcasters include Belo Corp., Gray Television, Lin Media,
NexStar Broadcasting and Sinclair Broadcast.