Station groups including Belo, Gray Television, LIN Media, NexStar Broadcasting, and Sinclair Broadcast face a big problem after next year’s elections when the cash from political ads evaporates: Their revenues and cash flow could plummet as they’re forced to turn as much as half of the money they collect from cable and satellite retransmission consent agreements over to ABC, CBS, Fox, and NBC, according to a report today from Moody’s Investors Service. The debt rating firm warned that the networks, by virtue of their popular prime time shows — and growing ability to distribute shows over the Web — “have the upper hand” over local station owners. And they’re using that to demand growing payments, known as “reverse compensation.” A station that refuses to pay reverse compensation “risks losing its network affiliation to a competitor within the same market,” Moody’s says. That happened this year to Fox affiliates owned by Block Communications in Boise, Idaho and NexStar in Evansville and Fort Wayne, Indiana. As a result, the firm says that most broadcasters will funnel cash to their networks, which poses “negative credit implications for the broadcasters in the near term.” Ad sales, which account for 70% of a station’s revenues, have been declining since 2007. The TV station companies that Moody’s follows would have seen their revenues fall about 8% since then if they didn’t begin to collect retrans fees from pay TV providers. The $1.2B in payments in 2010 represented 9% of TV station revenues — up from 2% in 2006 — and could grow to $3.6B in 2017, Moody’s says. But 2011 could be the peak for local stations. Their growing payments to their networks means they will have to wait until 2017 before they end up with as much as they’re collecting this year. What can stations do? They can try to collect more from pay TV companies — even though they’re losing subs due to their high rates. Moody’s also recommends that stations “strengthen their focus on growing their share of the overall advertising pie while expanding online or digital strategies.”
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