|[June 25, 2014]
Fitch: Aereo Decision Removes Risk Overhang for TV Broadcast Cos.
NEW YORK --(Business Wire)--
A significant risk overhang for TV broadcast companies has been removed
as a result of the U.S. Supreme Court's landmark decision that Aereo
violated broadcaster copyrights, according to Fitch Ratings. This is
especially true for broadcast affiliates whose stable, high-growth and
high- margin retransmission revenues have become an important and
valuable source of revenues.
Fitch recognizes that the growth in high-margin retransmission revenues
will be somewhat offset by increases in reverse compensation fees to the
networks, driven by the leverage that broadcast networks retain over the
local affiliates. However, broadcasters should continue to see a
positive net impact. M&A activity within the television broadcast
industry has been undertaken in part to support retransmission revenues
growth. Consolidation provides TV broadcasters with increased scale that
will benefit them during retransmission negotiations with multichannel
video programming distributors (MVPDs).
Local broadcast affiliates also depend on networks for prime time
programming. Today's decision removes the near-term risk of broadcast
networks converting to cable networks. The potential loss of
retransmission fees and increased program costs would have weakened
credit profiles. Fitch notes TV broadcast companies will continue to
face long-term risk associated with technological changes/innovation
within the industry.
The Supreme Court Wednesday ruled 6-3 in favor of broadcast companies
and against Aereo, which contended that its service constituted a
private performance of copyrighted content. Media companies had claimed
that Aereo's service violated copyright law by reformatting and
retransmitting broadcaster TV signals without consent or compensation.
The economic over-the-air broadcast television model could have been
significantly altered by an Aereo victory. Pay TV providers (cable
companies, satellite companies, and telephone companies) currently pay
the broadcasters retransmission consent fees to include local broadcast
content in their respective video services.
A ruling against Aereo is positive for broadcasters as the need to
protect their high-margin retransmission consent revenues is a key
factor in their operations. These particular revenues are more stable
than cyclical advertising revenues, and we expect they will continue to
grow for broadcasters.
Retransmission consent and reverse compensation revenues are among CBS's
fastest growing revenue streams. CBS aims to close the pricing gap
between its current retransmission rate charged to MVPDs and the rates
charged by other leading cable networks as CBS believes the current
retransmission rates do not accurately reflect the relative value of the
content broadcast by the network. To that end CBS expects its
retransmission consent/reverse compensation revenue to grow to $1
billion by 2017 and to $2 billion by 2020.
Reaching these revenue objectives in large part depends on CBS's ability
to maintain strong network ratings and retain its valuable sports
programming rights portfolio, including rights to the NFL. Fitch
believes that the combination of escalators built into existing
agreements and anticipated rate increases in new deals to be executed
firmly place CBS on a path to achieve its revenue goals.
Media companies had sought an injunction to prevent Aereo from operating
while litigation was pending, which was previously denied. But now that
a decision has been made, Aereo has lost a material piece in its content
line-up and is likely to come under significant pressure as without
retransmission rights, the company has no materially compelling content.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include
hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
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