Belo’s Retrans Margins to Compress as Networks Take Bigger Share
Retransmission consent fees are becoming less profitable for Belo’s TV stations as broadcast networks renegotiate affiliation agreements with station groups. CEO Dunia Shive told analysts Thursday during an earnings teleconference that retrans revenue will continue to outpace the cost of buying network programming, and “remain a net-positive for us.” But in some quarters programming costs may increase faster than the fees it collects from pay-TV distributors, she said. The Dallas-based broadcaster was one of the few media companies to report earnings early this week, after several based in the Northeast U.S. rescheduled them because of Hurricane Sandy (CD Oct 30 p17).
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Retrans fees grew from close to zero just a few years ago to become a nearly 100-percent profit-margin revenue line, Deutsche Bank analyst Aaron Watts said during the teleconference. He wanted to know where Shive expected retrans margins to settle in three to four years. Belo is already paying ABC and CBS so-called reverse compensation fees, Shive said. Its affiliation agreements with NBC expire at the end of 2012, she said. “I can’t tell you where that comes out,” she said. “Regardless of what those agreements call for … I think it will still be a healthy margin,” she said without providing a number. Belo expects to pay NBC to keep its stations affiliated with the network, said Carey Hendrickson, the company’s chief financial officer. “There will be increases in that [programming cost] line going forward."
Belo’s retrans revenue may also get a boost next year as the TV station owner renegotiates distribution agreements with subscription-video providers, Shive said. “We also have three of our top 10 [distributors] … coming due next year.” Belo’s agreement with a fourth top-10 distributor will expire in 2014, she said.
Belo had $166 million in cash on hand Sept. 30, the result of a strong political ad and Olympic revenue year. The company said it will use some of that cash to pay a special dividend later this year. Additionally, it will use some cash to buy back its 6.75 percent senior notes that come due in May, it said. “We happen to have a lot of cash on the balance sheet and … we thought it made sense to go ahead and take those out,” Shive said.
Shive wouldn’t rule out borrowing more money in the future if there was a good opportunity to buy back some shares or buy external assets. “The interest rate environment is expected to continue to stay low, and for the right opportunity, I think we would have a very strong position to do any type of financing in the public market,” she said. Belo Q3 sales increased 16 percent from a year earlier to $176 million, the company said. Political ad sales of $17.7 million helped results. Profit increased 79 percent to $24.6 million.