Local TV advertising revenue will grow almost 3 percent over the next few years, dipping in BIA/Kelsey. The end result will be a jump from $21.9 million this year to $24.6 billion in 2020. Local stations do benefit from political advertising and big-time sporting events, but they’re also on the receiving end of a portion of the retransmission fees paid by cable companies to carry network content.
Retrans Growth Outpaces Other Segments
Gross retransmission fees are expected to be $6.3 billion this year and $8.5 billion by 2020. Local television stations keep about half of this money, which will amount to $3.4 billion this year and $4.4 billion in 2020. They pay the remainder to networks, like ABC, CBS, and NBC, for affiliation rights. By 2020, television will still be on top of the local media advertising at 67.6 percent. But, for many stations, percentage growth in retrans fees currently is one of the main drivers behind overall revenue growth, as evidenced by 2Q 2016 financial results released by large station groups.
Retrans in Action
Take Scripps Howard, for example. For the second quarter, revenue in the television group was $192 million, a 15 percent increase compared to the same reporting period a year ago. Retransmission revenue was up 46 percent to $53.4 million. Comparatively, local advertising brought in an impressive $88.8 million (on a same-station basis), but this only represented a 2.6 percent increase over 2Q2015. National advertising actually dropped 2.4 percent to $37.9 million. And political advertising, specifically, added $8.4 million to the pot, compared to $2.2 million for last year’s quarter.
Similarly, Graham Media Group said its second quarter revenue reached $96.5 million for the second quarter, which represents a 6 percent increase compared to 2Q 2015. In a statement, the company highlighted a $5.3 million increase in retransmission income as fueling the upward trend.
While retrans income is good for stations, there is some debate over how far it can continue to rise. Bonten CEO Randy Bongarten, feels local stations could feasibly see $4 to $6 per subscriber per month. He says, “Negotiations with the (operators) are basically very simple. How many customers are they going to lose if they don’t have us?”
Yet, in May of 2016, Variety ran an article questioning whether continued growth in retrans fees is sustainable. The story reported that the jump in retrans revenues overall has been “more modest” than last year and that there are signs of a slow down as new rates have been set.
Programmatic technology offers local stations a platform that could help increase the revenue growth percentages for television advertising. Local TV, by its very nature, offers some measure of geographic segmentation. However, purchasing twenty markets traditionally takes contacting multiple stations in each market, according to AdvertisingAge. With programmatic, this process is more automated.
Additionally, with programmatic’s data-driven buying, advertisers can target consumers not only on a geographic basis but also on demographics. By bringing programmatic to the local level, stations provide the opportunity for buyers to unify strategy across media by combining TV more easily with digital campaigns. These benefits make programmatic even more attractive during election years when politicos are looking to spend their money wisely on reaching the most receptive voters. This could translate to more local ad revenue and an uptick in growth percentages for that segment of station groups.