When it comes to the Wall Street investment community, knowledge of retransmission consent agreements runs high. After all, quarterly earnings calls from publicly traded broadcast television companies often highlight how strong retrans revenue is, perhaps presenting a total revenue number higher than core advertising.
This may explain why SVB MoffettNathanson senior analysts Robert Fishman and Michael Nathanson have analyzed the “stormy relationship” between network affiliates owned by local broadcast TV station groups and vMVPDs. “Network programmers and their TV station affiliate partners have longstanding relationships that, over time, have been mostly peaceful and mutually beneficial,” they share. “However, during periods of negotiations, we are usually not surprised to see more noise around which party has the leverage and how that impacts the terms of new reverse compensation deals.”
But, Fishman and Nathanson share, the latest disputes surrounding major broadcast TV companies such as Nexstar Media Group and Sinclair Broadcast Group and their network partners feel a little different.
For Nexstar, its CBS affiliated television stations are being blocked from FUBO TV subscribers due to a carriage dispute between the vMVPD and Paramount Global. Because the network is handling negotiations for vMVPD coverage on behalf of its affiliates, Nexstar is at a loss.
Then, there is Sinclair, which stands at an impasse with Hulu over Hulu Plus Live distribution of its ABC affiliated properties.
While Sinclair and Nexstar find themselves in different negotiation states, the attention being paid to vMVPD retransmission compensation has been amplified in recent days.
For Fishman and Nathanson, a “unique angle” has risen with respect to what could be seen by some as just another retransmission consent dispute. That unique angle is that it involves a vMVPD, and not a traditional cable TV services provider.
“Since the start of vMVPDs, the networks typically reached broader agreements with these digital distributors that included the retrans rates for their affiliate boards,” the SVB MoffettNathanson analysts explain. “While that has worked fairly well over the past 5+ years, it seems as though times are starting to change, and quickly.”
The first cloud formed at the end of January, they say. At that time, most CBS affiliates opted out of the CBS-negotiated renewal with FUBO TV. “The CBS affiliate board decided not to endorse the offer Paramount presented as part of its broader negotiations with FuboTV for the company’s owned and operated CBS TV stations and portfolio of legacy Viacom cable networks,” they explain. “In turn, Paramount reached a new deal to provide FuboTV subscribers a national network content feed with access to its sports (including NFL) and general entertainment programming in local markets.”
This, Fishman and Nathanson, will put pressure on CBS affiliate owners such as Nexstar and Sinclair, among others, to negotiate their own deals with FuboTV going forward.
But, if that were to transpire, would potential “blackouts” increase? That’s a concern now prescient thanks to Sinclair’s new dispute with Hulu over its ABC affiliates, and not all of its stations. It is believed that The Walt Disney Co. has a master agreement that its affiliates can opt into, but also allows the TV station affiliates to negotiate independently directly with the vMVPDs. That’s what Sinclair chose.
While all vMVPDs represent just 10% of Nexstar’s total retransmission revenue, the fear SVB MoffettNathanson has is that vMVPDs could gain subscribers in the coming years as cord-cutting from traditional MVPDs continues. And, if that happens, it gives added leverage to the vMVPD to act in ways Dish and DirecTV and some of the bigger MVPDs have when it comes to being sticklers on paying broadcast TV companies what they believe is fair compensation.
“One interesting angle that we hope to learn more about is how beneficial these new deals are for the big broadcast networks and media parent company owners overall,” Fishman and Nathanson state. “If national network feeds have the ability to fulfill the NFL local game requirements, it would seem as though the broadcast networks should be able to obtain improved economics from its new vMVPD deals.”
Of course, they conclude, “it is still possible TV station affiliates reach new deals with vMVPDs after any short or even prolonged blackout. But for the moment, it seems that without any change to government regulation over vMVPDs, there will be more storms ahead surrounding future negotiations.”
