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1. The Unlikely Return of the TV Antenna

Big news: EW Scripps is placing additional bets on multicast networks with the launch of three new channels (Newsy, Defy TV, and TrueReal) across their 41 market footprint.

 

Big question #1: What is a multicast network?

 

Quick answer: A multicast network takes advantage of digital TV signals and allows local broadcasts to offer multiple channels (2.1, 2.2, 2.3, etc.) as sub-channels with the primary network.

 

Companies launching multicast networks include:

1) CBS

2) EW Scripps

3) NBCUniversal

4) Nexstar

5) Sinclair Broadcast Group

6) Tegna

 

Big Question #2: What is driving the launch of multicast networks?

 

Quick answer: As more consumers leave the pay-TV bundle, antennas become a common way to access local broadcast stations.

 

Share of US TV households with at least one antenna according to Horowitz Research:

1) 2019 – 29%

2) 2020 – 40%

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Quote from Michael Teicher – Chief Revenue Officer @ EW Scripps:

“One out of four homes are now cable-free.  And those numbers are growing. We think that this is going to get down to around 50 million homes. At the same time, antenna sales are growing, and consumers are rediscovering over-the-air television, which is now available in compression-free HD. “There’s a little over 40 million homes right now that are using digital antennas, and we believe that that’s going to continue to grow,”

 

Big question #3: Is it a net positive for local broadcasters when consumers drop pay-TV but continue watching broadcast TV through an antenna?

 

Quick answer: No.  Broadcasters lose out on significant revenue from retransmission fees.

 

Big question #4: What are retransmission fees?

 

Quick answer: Pay-TV companies pay local broadcasters for the right to carry their programming along with the cable feed.  These costs are passed along to consumers in the form of a higher bill.

 

Retransmission fees according to Kagan:

1) 2012 – $2.4B (↑ 36%)
2) 2013 – $3.6B (↑ 50%)
3) 2014 – $4.9B (↑ 34%)
4) 2015 – $6.4B (↑ 32%)
5) 2016 – $8.0B (↑ 24%)
6) 2017 – $9.4B (↑ 17%)
7) 2018 – $10.6B (↑ 13%)
8) 2019P – $11.7B (↑ 11%)
9) 2020P – $12.8B (↑ 9%)
10) 2021P – $13.8B (↑ 8%)

Big question #5: How can local broadcast stations continue growing revenue as pay-TV subscribers decline?

 

Quick answer: Advertisers are willing to pay more for targeted video advertising (digital and linear).

 

Local video advertising spend according to BIA Advisory Services:

1) 2021 – $26.7B

2) 2025 – $36.0B

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Big question #6 – What verticals are rapidly growing their local video ad spend?

 

Quick answer: Politics (more on that soon) and online gambling.

 

Local TV spend (YoY growth) for online gambling according to Nielsen:

1) 2019-Q1 – $11M

2) 2020-Q1 – $13M (↑ 23%)

3) 2021-Q1 – $154M (↑ 1,062%)

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2. Will Local Streaming Be A Game-changer for Sports Broadcasts?

Big news: Sinclair/Bally Sports is launching a direct-to-consumer (DTC) version of their regional sports network (RSN) offering in 2022.

 

Why this matters: Local sports is a key draw for the pay-TV bundle. This provides consumers with a way to access these events without paying $100+ per month.

 

Flashback #1: Bally’s Bets Big on Sports Networks

 

Flashback #2: Sinclair Buys Regional Sports Networks From Disney in $10.6 Billion Deal

 

Big Question #1: What does Sinclair project for subscribers?

 

Quick answer: 4.4M subscribers by 2027.

 

Source of projected subscribers (% of total) according to Sinclair Broadcast Group:

1) Non-pay-TV – 1.7M (39%)

2) Current pay-TV without RSN – 1.4M (32%)

3) Current pay-TV with RSN – 1.3M (30%)

Big question #2: How much will the service cost?

 

Quick answer: Estimates range from $19 – $40 per month.

 

Quote from Chris Ripley – CEO @ Sinclair Broadcast Group:

“We believe that ultimately, the incremental revenues from direct-to-consumer will likely more than offset the loss of revenue from churn of subscribers of traditional distributor platforms. And much like the authenticated viewers who currently subscribe to the RSNs, the direct-to-consumer viewer will benefit from the upgrades that we are making to the digital viewing experience including increased functionality of playback and recording capabilities, enhanced news and statistics, new programming developed in conjunction with Bally’s and elements of gamification, including watch and Bet via Bally Bet.”

 

Big question #3: What are pay-TV subscribers currently paying for RSNs?

 

Average revenue per subscriber (YoY growth) for RSNs according to S&P Market Intelligence:

1) 2015 – $2.50 (↑ 14%)
2) 2016 – $2.60 (↑ 4%)
3) 2017 – $2.90 (↑ 12%)
4) 2018 – $3.10 (↑ 7%)
5) 2019 – $3.30 (↑ 6%)
6) 2020P – $2.60 (↓ 21%)
7) 2021P – $3.70 (↑ 42%)
8) 2022P – $4.00 (↑ 8%)
9) 2023P – $4.30 (↑ 8%)
10) 2024P – $4.50 (↑ 5%)

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Big question #4: What is a possible revenue split between subscriptions and advertising?

 

Quick answer: 50%/50%

 

Quick math on Bally Sports DTC business model:

1) 4.4M subscribers by 2027

2) $2B in total revenue ($1B from ads + $1B from subscriptions)

3) $227 in annual revenue per subscriber

4) $19/month in subscription fees

5) ≈ $30 CPM for advertising

6) 12 minutes/hour of ads

7) 631 ad spots per month

8) 26 hours of viewing per month generates $1B in ads from 4.4M subscribers

 

More #1: Sinclair Venture Steps Nearer to Unbundled, DTC Local Sports Content

 

More #2: Sinclair’s stand-alone app would be a welcome step forward that RSNs have needed to make