We have updated our industry retransmission fees projections, and now expect that TV station owners retrans fee revenues could reach $6 billion by 2018 versus the $2.36 billion projected this year.
As of 2015, we are projecting that retrans revenues could reach $4.28 billion versus the $3.9 billion in our November 2011 forecast, indicating an increase in the projected numbers versus our last forecast. By 2015, that $4.28 billion approaches 10% of the total $43.0 billion that multichannel operators are projected to pay in affiliate fees to basic cable and regional sports networks.
In 2012, we expect that total retrans industry revenue should rise to $2.36 billion compared to the $1.76 billion of 2011, with 58% coming from cable MSOs versus DBS or telco video providers. By 2018, that 58% decreases to 51% as cable subs decline and telco video subs increase over time. Altogether during this period, multichannel subscribers are projected to grow from 100.4 million at year-end 2011 to 103.7 million in 2018, driven largely by growth in telco video subscribers. Our analysis indicates that by 2018, the projected $6.05 billion of retrans revenues would be approximately 23% of the expected $26.2 billion in TV station ad revenues.
By 2018, we project that the average fee paid per TV station is slightly less than $1.00, while each multichannel subscriber is responsible for retrans fee revenue of $4.86 per sub per month. For all five major broadcast networks combined in 2015, multichannel providers are expected to pay $3.49 per month, or an average retrans fee of 74 cents per TV station per month, which is significantly below the $6.37 per sub per month that multichannel providers are projected to pay for ESPN alone.
Our retrans projections are built using both a top-down approach as well as a bottom-up approach. In the spreadsheet attached, we have estimated total industry retrans revenue by projecting cable, satellite and telco video subscribers, average fees paid and the numbers of TV stations earning retrans fees.
We have also analyzed potential retrans revenues on a station-by-station and market-by-market basis in order to validate our top-down approach. In doing so, we have used retrans revenues and guidance from public TV station groups and network owned-and-operated execs, as well as the number of multichannel subscribers per market (click here for full information on this data set), TV stations owned by market and by owner, and have added up the total. These two analyses support the numbers in the attached spreadsheet.
By 2015, the 74 cents per sub per month average that we are projecting for TV stations is still below that of nine basic cable networks, but has exceeded the monthly sub fee paid for networks such as Nickelodeon, USA and CNN. It is still below the monthly fee expected to be paid for such networks as TBS, FOX Newsand TNT. That is despite the continued — and much discussed — large difference in viewership among the broadcast networks and those cable networks.
For example, the average prime-time rating for TNT in 2011 was 1.49 versus 6.05 for CBS and 5.11 for FOX. Although the retrans fee paid per viewer point will continue to be out of parity for some time, broadcast networks are at least projected to begin to approach closer parity with the majority of cable networks in several years.
We have also broken out our retrans projections by network and by O&O stations versus affiliates through 2016. We previously published an analysis of projected O&O retrans revenues that showed major network O&O stations generating retrans revenue of $1.16 billion in 2012, growing to $2.01 billion by 2016. In 2012,Univision Communications Inc. and News Corp. are estimated to generate the most in retrans dollars, and that situation still holds true in 2016 even after NBCbegins to gradually ink deals to get this revenue stream flowing over the next several years.
Network execs have been vocal about what they expect to receive in retrans and reverse retrans over the medium term, and Walt Disney Co. and CBS Corp. recently gave specific numbers.
Disney CFO Jay Rasulo said on the company's third-quarter earnings call Aug. 7 that the company is expecting a total of $450 million to $500 million in retrans andreverse retrans in fiscal 2015.
CBS Corp. President and CEO Les Moonves told an investor conference Sept. 20 that retrans and reverse comp by late 2016/early 2017 will be more than $1 billion. Reverse retrans is expected to exceed $100 million in 2013.
Although we expect the industry to generate $6.05 billion in total retrans revenue by 2018, the amount that TV stations expect to keep versus what they pay to the networks in reverse retrans remains under pressure, with more than 50% of affiliates' retrans revenue expected to be paid back to the networks in reverse comp several years out. It is in the networks' interest to ensure a healthy affiliate body and also maintain affiliates' vested interest in pushing retrans rates, so we believe that affiliates will keep a healthy portion of their retrans revenues, especially as fees continue to rise.
FOX, for example, last year publicized a schedule of reverse retrans fees that, although they unsettled the market initially, now may work in station owners' favor when they go to renegotiate carriage deals with multichannel operators. Sinclair Broadcast Group Inc., for example, in May renewed its affiliation agreement with FOX covering 20 stations, entering into a five-year deal that runs through 2017. Included in the bundle of agreements executed with FOX is a schedule of reverseretrans payments along with annual escalators, which Sinclair said could be beneficial in future retrans negotiations with the multipoint video program distributors due to the added clarity.
Our reverse retrans projections estimate that between 2011, when reverse retrans agreements began being signed with increasing regularity as part of affiliation agreements, and 2016, almost all affiliation agreements would have come up for renewal with the big five networks and reverse retrans would be a bigger part of that equation. As shown in the table above, in total, we project that reverse retrans payments from affiliates to networks could increase from the $146 million of 2011 to more than $2.00 billion by 2018.
Some affiliate groups are still enjoying the growth of retrans fees without sharing too much with network partners yet. For example, Gannett Co. Inc. President and CEO Gracia Martore on Sept. 20 told an investor conference that the company has three ABC affiliates coming up in February 2014, six CBS affiliates that come up Dec. 31, 2015, and then 12 NBC affiliates coming up in January 2017. "So, it's a fairly long arc until we get to the end of … the bulk of those affiliation agreements," Martore said. She went on to say, "Looking at where the market is today and how the market is growing for retrans, we see retrans as a much bigger pie going forward. And so, we would anticipate that by the time we have to share our retrans dollars in any kind of meaningful way, we'll be at a point where even with sharing, our number in 2017 will be higher than what our retrans number is today.
"So, the pie, it will expand and our feeling on sharing is that as long as those dollars are used by our network partners to improve their programming, especially in the case of NBC … and to really reinvest it in their business, then that's going to be a win for us as well as a win for them," Martore said.
While our projections show that the networks could reap $2.00 billion in reverse retrans by 2018, part of that windfall will go to pay for rapidly rising TV sports rights recently inked by the networks, such as the latest deals for MLB and other sports such as the NFL. Of course, from a station owner's perspective, the more major sports remaining on broadcast versus cable channels, the better.
While the good news for station owners is that retrans fees are expected to keep growing for broadcasters, the risk is that as the revenue stream increases, it becomes more vulnerable to attack from new technologies, not to mention increasing push-back from multichannel providers that are working hard to combat rising programming costs. Aereo could be just the first in a string of initiatives that seek to disintermediate the multichannel/TV station ecosystem, and in its current form is a direct threat to retrans fees. That is especially true for top-market stations. While the market and consumer appeal of the service from an ease-of-use and cost standpoint has not been conclusively proven, and Aereo still needs to clear the significant hurdle of a win in the final ruling on the copyright infringement suit in progress, Aereo is already eyeing content expansion.
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