Broadcast Execs Downplay Sports Streaming Bundle
TV broadcast executives were dismissive of the planned ESPN/Warner Bros. Discovery/Fox sports streaming venture (see 240207000), largely confident about 2024 political advertising and predicted a looming shakeup on broadcaster compensation from streaming services during Q4 earnings calls for Nexstar, Gray, Sinclair, Tegna and E.W. Scripps. “I can’t see why analysts or investors would see this as a killer app,” Scripps CEO Adam Symson said of the joint venture. Said Nexstar Chief Operating Officer Michael Baird, “We have more questions than answers about this proposed product, including assurance that it will actually launch.”
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All the broadcasters reported decreases in revenue from Q4 2022, attributing the declines to the political advertising cycle, because 2022 was a midterm election year. Gray’s Q4 revenue was $864 million, down 19% from Q4 2022, according to its earnings release. Sinclair’s Q4 total revenue dropped 14% from Q4 2022 to $826 million. Nexstar reported Q4 net revenue of $1.3 billion, a 12.3% decrease from the prior year quarter. E.W. Scripps revenue was $616 million, a 9.6% decline from Q3 2022. Tegna’s Q4 revenue was $726 million, off 21% year over year.
During the calls each company’s executives said they had been reassured that the JV will operate and compensate broadcasters for their Fox and ABC station content as existing virtual MVPDs do. The bundle “will not negatively affect us” and isn’t necessarily a “game changer” for media, said Sinclair CEO Chris Ripley. If the joint venture brings "more people into the pay-TV universe” and broadcasters can “opt in and be paid to be a part of that offering,” the bundle is a positive for Nexstar, said CEO Perry Sook. Similarly, Symson said, “Hey, if it adds new value to linear television, I'll be happy to root for success and take advantage of its reach.”
Several executives predicted a coming shift in the way virtual MVPDs compensate broadcasters for retransmitting their content. The current system “has to change, and I expect all the broadcasters see that,” said Gray Television Chief Legal and Development Officer Kevin Latek. Networks airing their content on their streaming services makes it less exclusive and thus not as valuable to broadcasters, said Sook. “Everyone at the table is aware of what's going on in the industry and that the sands are shifting under our feet,” he said.
Ripley said he is “cautiously optimistic” about the potential for FCC action in the virtual MVPD docket, though he also said “the regulatory environment is far from positive overall for broadcasters.” The current FCC has been “quite rigid” on keeping and bringing back broadcast regulations, said Tegna CEO Dave Lougee. A change in the presidential administration or FCC leadership could potentially create more opportunities for Tegna to grow, Lougee said,
The broadcasters were largely bullish on a resurgence of live sports on broadcast TV. On nearly every company’s earnings call, executives pointed out that the 2024 Super Bowl was the broadcast watched by the most viewers since the 1969 Apollo moon landing. Teams see “a massive increase in viewership” when games appear on local broadcast stations instead of regional sports networks, said Gray co-CEO Hilton Howell. He said Gray is “aggressively” pursuing deals for more live sports. RSNs are in “critical condition” and “can't deliver the reach that team owners need given the erosion we're seeing in pay TV,” said Symson. “And that's why they continue to turn to broadcasters.”
Most of the companies repeated their past predictions that 2024 will be a record year for political advertising, but Scripps and Gray mentioned uncertainty about the level of spending. “Biden’s support is not what it was in 2020,” said Symson. “And too much of the money Trump has raised is going to his legal defense, not to his campaign." Howell noted that third-party candidates such as Robert F. Kennedy Jr. are a complicating factor in election spending but also said he believes former President Donald Trump will spend more on ads than he has in prior contests. “While you may be thinking that a lot of his money is going to legal fees -- we'll see,” Howell said. Gray executives explicitly declined to predict how much political ad revenue the company will receive.
Several broadcasters said that the national advertising market continues to be soft, while local ads remain strong. “We're seeing some softness on the national side as we're into first quarter of 2024,” said Tegna Chief Financial Officer Julie Heskett. That dynamic hit Nexstar particularly hard because it's more exposed to the national ad market due to its size, Baird said. “We're in some phase of a recession here,” said Sook. “Advertising is generally a leading indicator.”