Does Apple TV Upset Media Retransmission Fee Growth?

Apple TV - 9-2015
Source: courtesy of Apple Inc.
At an entertainment industry conference in Beverly Hills Wednesday, NBCUniversal CEO Steve Burke said he expects the NBC network to garner about $500 million in retransmission revenues in 2015. That is an improvement for the network, but still lags peers like CBS, which is expected to rake in about $1 billion in 2015.

Burke also said that he expected NBC’s retransmission fees to grow significantly over time. NBCUniversal is a wholly owned subsidiary of Comcast Corp. (NASDAQ: CMCSA).

Well, maybe. When Disney forecast lower advertising revenues for its ESPN network, stockholders fled entertainment stocks in a rush. If even ESPN cannot stop consumers from cutting the cable cord, how will any other content producer stop them? It reminds us of the words that Yogi Berra uttered once when asked about the small crowds coming to watch the New York Mets: “If people are not going to come to the ballpark, you can’t stop them.”

That is NBC’s problem, and the problem of its peers: now there are several ballparks where viewers can get the entertainment they want. According to Multichannel News, Burke said the NBC is the top-rated network among adults ages 18 through 49. He also noted:

We said that given the trend in ratings, it’s unlikely that ratings would grow over the next five years as they did the last five years. The good news is that people are watching more video than ever before, they’re just watching in places that many times aren’t rated, that aren’t monetized.

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Burke said that he thinks that the distribution business is “very robust and will be around for a very long time.” He also said that growth rates will be lower. That is survival, not success, and what it has come to mean is that the pay-TV providers have to raise prices to their remaining customers. At some point that cycle will end as the networks that can will follow HBO’s lead and offer an a la carte product that consumers are willing to pay for.

The pay-TV companies just got another headache as well. Reaction to Wednesday’s announcement by Apple Inc. (NASDAQ: AAPL) of Apple TV has been quite positive, and pay-TV operators not worried that the new device will affect their businesses have not been paying attention. Deserved or not, Apple conjures a magic that could change the TV distribution business in a big way and in a pretty short time. If Apple TV is a success with consumers, Apple will be in a solid negotiating position with networks for streaming rights.

There are fewer than 20 channels of the hundreds available that command much attention from consumers. And those channels only appeal to subsets of the entire population. If consumers can subscribe to the half-dozen or so channels they typically watch for a fraction of the price of a pay-TV subscription, why wouldn’t they? If people are not going to shell out $100 or more a month for pay TV, you can’t stop them.

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