Spots N Dots
The Daily News Of TV Sales
November 10, 2017

STEADY GROWTH SEEN FOR RETRANS FEES

CORD-CUTTING MAY HAVE IMPACT

Spot sales will remain the big driver of local TV station revenue for the foreseeable future. But retransmission consent fees—the money stations receive from cable and satellite providers—have gone from being a boost to the bottom line to part of the industry’s financial foundation.

Kagan estimates local TV operators will pocket $9.3 billion retransmission fees this year—a figure forecast to grow to $12.8 billion by 2023. “It’s really solidified the industry,” analyst Robin Flynn said. “Overall as a revenue base, we won’t see those odd-even year fluctuations as much because retrans is a steadily growing revenue stream and it makes for a much healthier industry.” At Kagan’s TV & Radio Finance Summit earlier this year she said retrans is even more important in non-election years like 2017. And Flynn credits it for helping stations develop “really strong partnerships” with their networks making blackouts less common.

“It is clear that we no longer need to explain how broadcasters and our stations in particular deliver the most value to pay TV operators and deserves to be compensated accordingly,” Gray Television EVP Kevin Latek confirmed to analysts this week.

For how important retrans fees can be to local TV one need only look to BIA/Kelsey data which shows it accounts for more than half of the revenue in some mid-sized markets. In Roanoke-Lynchburg, VA the firm says it makes up 63.5% of the total. In Champaign-Springfield-Decatur, IL it makes up 62%. It’s nearly as high in Greensboro-High Point-Winston Salem, NC (61.1%) with Wilkes Barre-Scranton, PA (58.9%), Little Rock-Pine Bluff, AR (58.5%) and Eugene, OR (56.8%) not far behind. “In 2018 with Olympics and political advertising becoming so strong those percentages may be lower but they are still incredibly significant amounts,” BIA/Kelsey chief economist Mark Fratrik said during a Media Financial Management Association webinar.

On a larger scale BIA/Kelsey estimates local TV revenue will grow 5.8% from $22.3 billion in 2018 to $23.6 billion in 2021. The impact of retrans can be seen when stacked up against local cable TV ad sales which Fratrik projects will decline 2.8% during the same period due to the projected impact of cord-cutting.

Yet because how much a TV group is paid is based on subscribers to pay TV services some analysts worry cord-cutting could slice into that revenue line. But Nexstar CEO Perry Sook said he has “zero cause for concern” that cord-cutting will impact how much his company receives in 2017 retrans revenue. Thanks to some renewed contract agreements Nexstar’s retransmission third quarter revenue soared 162% compared to a year ago to $258 million. And those Q3 dollars, combined with digital sales, accounted for 51.3% of the company’s net revenue. In fact Nexstar is on pace to receive close to $1 billion in retrans fees this year, which would set a record for the 171-station group. “That retrans revenue is at 100% margin to the company,” Sook reminded investors this week.

But the first whiff of a cord-cutting impact has been detected by Sinclair Broadcast Group CEO Chris Ripley who said they’ve seen some “slight declines” this year. Same for E.W. Scripps president of local media Brian Lawlor, who said they’ve witnessed a 2-3% drop in subscribers at pay TV services which carry Scripps stations. But Lawlor said digital services like Hulu and YouTube TV have “similar net economics” for TV groups and should help make up the difference. “We're starting to see some early numbers—so we're optimistic that some portion of decline is moving over to these new virtual services,” he said. For now, retrans revenue jumped 20% in Q3 which helped soften the blow from not having the $25 million in political revenue the TV group had last year. And Scripps estimates it’ll be up double-digits again next year. “We're really positioning ourselves very well right now by securing shelf space on all of those platforms,” CEO Adam Symson said.

ADVERTISER NEWS

Macy’s quarterly same-store sales fell by 3.6%, a full point worse than analysts had expected, and total sales were off by 6.1% to $5.28 billion. The company did stick by its earlier prediction of a 2.2 to 3.3% decline for the full fiscal year, expecting a better fourth quarter from loyalty members and digital sales……Kohl’s said it saw strong results from the back-to-school selling season, but soft conditions during the middle of the quarter pulled down those gains. Still the chain managed a tiny same-store increase (0.1%) that had not been expected. It was the company’s first same-store gain in seven quarters……Buick is extending its Avenir upscale subbrand to the LaCrosse sedan after having introduced the premium trim package on the 2018 Enclave crossover. The new upgraded versions will arrive at dealers in January……It will be a reunion of sorts as Panera Bread, now a division of JAB Holdings, will buy Au Bon Pain and its 300+ locations. Au Bon Pain acquired the Saint Louis Bread Company in 1993 (later renamed to Panera) and the company sold off Au Bon Pain in 1999. Both are now siblings of several other chains including Krispy Kreme and Peet’s under the JAB structure……While some pizza concepts are doing well, some of the smaller players in the segment are having very tough times. Papa Murphy’s Take ‘N’ Bake same store sales fell 4.1% in the quarter that ended on 10/2, and Nation’s Restaurant News reports the number of locations has fallen by 40 in the past year from 1,582 to 1,542. Cutbacks were 18 company-owned stores and 22 franchised units. And Pie Five is doing even worse with quarterly same-store sales down 17.3% after having closed 18 units in underperforming markets earlier this year. Sibling Pizza Inn at least produced a small positive with comps up 1.4%...... Ahold Delhaize says a bit of food price inflation and “strategic price investments” helped its U.S. supermarkets improve sales and gain market share during the third quarter. The Ahold USA division (Stop & Shop, Giant-Landover and Giant Carlisle) comp store sales rose 0.7% excluding gas and the Delhaize USA division (Food Lion and Hannaford) saw comps go up by 2.3%. There’s some dissatisfaction with the Peapod e-commerce operation showing just single-digit growth……Although it has put itself up for sale, Rent-A-Center is not jumping at the first offer. Furniture Today says the company turned down a $13 a share bid from Vantage Capital Management saying it was too early in the process to sign an exclusive agreement which would give Vantage a 30 day exclusivity period to do due diligence.

NETWORK NEWS

ABC and dick clark productions announced on Thursday that international music superstar P!NK will once again perform a one-of-a-kind musical experience at the 2017 American Music Awards. The artist will perform a rendition of the title track from her most recent album Beautiful Trauma, which debuted at No. 1 on the Billboard 200 chart in October and marked a career high for the first week sales. P!NK’s appearance on the upcoming awards telecast will be the first time since her 2012 acrobatic performance of her hit song Try. The 2017 American Music Awards will be broadcast live from the Microsoft Theater in Los Angeles on Sunday, November 19th at 8 PM (ET) on ABC……Patti LaBelle and Brandy Norwood have both agreed to guest star on the Fox music drama Star, according to a release from the network. Both Grammy Award-winning artists will appear in multi-episode arcs this spring. LaBelle will play Carlotta Brown’s (Queen Latifah) tough but loving mother, Christine, while Norwood will play Carlotta’s younger sister, Cassie. Star is a production of 20th Century Fox Television in association with Lee Daniels Entertainment……. The CW freshman reboot Dynasty has picked up an order for a full season from the network. The updated version of the iconic primetime soap centers on the powerful Carrington family as they defend themselves against the Colbys, new rivals, new threats, and even each other. Dynasty on the CW stars Elizbeth Gillies, Nathalie Kelley, James MacKay, Sam Adegoke, Robert Christopher Riley, Rafael de la Fuente, Alan Dale and Grant Show. Airing on Wednesday night after the popular CW series Riverdale, Dynasty is averaging a 0.26 adult 18-49 rating and 0.91 million total viewers. The new CW freshman military drama series Valor is not far behind with a 0.24 average demo rating and 1 million viewers per episode……According to an exclusive article in Variety, actress Eva Longoria (Desperate Housewives, Telenovela, Devious Maids) is attached as executive producer to a single-camera comedy in development at Fox. The untitled project follows a woman who is married to an Italian aristocrat. She and her husband are co-hosts of a Home Shopping Network-type show. Her husband leaves the show putting the woman’s royal title, and the show’s shtick in jeopardy. To keep the brand alive, she enlists the help of her estranged stepson to continue the show. The project will be written, and executive produced by Matteo Borghese and Rob Turbovsky (It’s Always Sunny in Philadelphia). Longoria will executive producer through her company UnbeliEVAble Entertainment, along with her producing partner Ben Spector……Meanwhile, Fox has also given a script commitment with significant penalty to Model Minorities, a single-camera comedy from Sanjay Shah (King of the Hill, South Park, Cougar Town), and the co-executive producer of ABC’s Fresh Off the Boat, Jonathan Krisel, co-creator and executive producer of Portlandia and Baskets. Model Minorities, written by Shah, follows a highly educated but struggling Indian-American who moves in with his uneducated, but rich, immigrant cousin. The project will be executive produced by Shah and the husband-and-wife team of Krisel and Danica Radovanov.

AT&T MAY GO TO COURT

Some antitrust lawyers are suggesting that if AT&T wants to go to court to fight the Department of Justice over the proposed takeover of Time Warner, the phone company could win. Numerous reports say the DOJ is demanding significant asset sales (some reports say just selling off CNN would be acceptable while other reports say AT&T would need to sell off all Turner Broadcasting assets, or as an alternative, sell off DirecTV) and at the moment AT&T is refusing to do so. A report that AT&T already had agreed to sell CNN was denied by AT&T Chairman Randall Stephenson.

CNBC reports government opposition to mega-mergers usually centers on concerns the deal would reduce competition and lead to higher prices for consumers, but as AT&T and Time Warner do not compete in any businesses, those concerns do not appear to apply. Antitrust lawyers have said the remedy in recent years has been consent decrees with the acquiring company making promises about future actions (although there has been some concerns that Comcast never fulfilled all its promises made when acquiring NBCUniversal).

“If (reports that AT&T would have to sell off Turner or DirecTV) is indeed the case, to me it would seem to be at least a break in recent precedent,” antitrust lawyer Kevin Arquit said on CNBC’s Power Lunch program.

NIELSEN ADDS COMCAST DATA

Nielsen announced an agreement to use Comcast Cable set-top-box data in its local TV measurement service. According to Nielsen, incorporating data from cable and satellite boxes into its local measurement will allow the ratings company to evolve Local TV currency ratings and “transform how local media is bought and sold.”

The incorporation of anonymized data from Comcast into Nielsen’s Local TV ratings will begin in 2018. Nielsen says incorporating data from set-top-boxes of Comcast and other providers, along with Nielsen’s own local meters, will strengthen the currency used by the Local TV industry.

ACCOUNT ACTION

The&Partnership has been named the creative and media agency for Chico’s, replacing Zimmerman on the account. Adweek reports Kantar Media data says Chico’s spent about $33 million last year, and about $15.7 million in the first half of this year, and a major spending increase may not be likely. The&Partnership CEO Andrew Bailey told Adweek its focus ”in all areas will be helping Chico’s get more for less” and “outsmarting” rather than “outspending” competitors with better advertising placements targeted at specific consumers, largely women in their 40s and 50s.

BUSINESS BYTES

As we reported earlier this week, most analysts expect a continuing growth in the already-overcrowded restaurant business, but Nation’s Restaurant News says a number of chains that are not doing well are scaling back expansion plans. We reported on Red Robin’s poor sales results a few days ago and NRN says that chain will “put the brakes on development while it looks for a strategy that works.” Red Robin is not alone, however. Chipotle, BJ’s Restaurants, Zoe’s Kitchen and Potbelly are just a few chains that have also recently said they are cutting back on growth plans. It also notes that some of the currently best-performing chains took steps back from rapid expansion a few years ago to focus on growing sales and traffic at locations that existed at the time. Domino’s kept domestic development low for several years and has now produced 26 straight quarters of same-store gains, and comebacks at both Arby’s and KFC appear to have been helped by earlier unit count declines.

Ally Financial is committing $2 billion to finance contracts for online used-vehicle seller Carvana over the next year, a big jump over a $600 million commitment it had made earlier this year. Automotive News notes Ally is Carvana’s sole financing provider. Carvana is the company that allows customers to shop for vehicles online and delivers the vehicles in close to 40 U.S. markets. It also currently operates seven “vending machines” where purchased vehicles can be picked up.
AVAILS