Mike Reynolds: Hi, I'm Mike Reynolds, a Senior Reporter covering the media industry with S&P Global Market Intelligence. Welcome to MediaTalk, a podcast hosted by S&P Global, wherein the news and research staff explore issues in the evolving media landscape. Today, I'm joined by S&P Global Market Intelligence Kagan Principal Analyst Justin Nielson, who specializes in the broadcast industry. How are you doing today, Justin?

Justin Nielson: Doing great. How about you, Mike?

Mike Reynolds: Pretty good. Pretty good. Thanks. Justin is going to share his thoughts on where broadcast stands on retransmission consent and the advertising world, including the presidential election cycle and the Paris Summer Olympics. Speaking of sports, Justin will also weigh in on the recently announced Sports oriented JV between Disney, Fox, and Warner Brothers Discovery, and its potential impact on the media ecosystem. We'll also discuss how broadcast is embracing artificial intelligence and the prospects for Next Gen TV. Let's get to it. Cord cutting continues to reduce the number of multichannel pay-TV subscribers. Broadcast is holding up better with more folks going to over the air antennas. Justin?

Justin Nielson: Yeah, no, it's interesting. Based on our media census survey of over 10,000 respondents last year, about 23.5 million homes used over the air antennas for TV viewing, a larger group than virtual multichannel homes combined, although the virtual multichannel home segment is growing. And looking forward, we expect [over the air] homes to grow by about three and a half percent as younger consumers continue to learn about the benefits of broadcasting and free to air. Also with the HDTV programming and we can talk a little bit about Next Gen TV, but it makes a compelling value proposition for those consumers that are trying to reduce their pay TV budget.

Mike Reynolds: I gotcha. It makes a lot of sense — dollars and cents, as it were. Retransmission consent fees remain the leading revenue stream for broadcasters. Although broadcast operators have still been able to gain rate increases, subs are declining. So, is this rate of growth flattening or declining at this juncture?

Justin Nielson: Yeah, we track it on a quarterly basis for the publicly traded broadcasters, and it has been flattening. So it's twofold. You really look at it from a perspective of declining traditional video subscriber market for cable, DBS and telco video, and then the ability for TV stations to ratchet up those retrans per sub fees on each renewal period, which they've been fairly successful at. But it's just a Catch-22 in the sense that they're running up a hill in terms of subscriber fee increases and then a declining video subscriber environment. We estimated it was about $15.09 billion in 2023 up about 1% for total gross retransmission and virtual sub fee revenue to the stations. And that was up slightly from $14.9 billion estimated in '22. For this year, we expect a similar trend in rate hikes and slow single digit increases in both up to about $15.22 billion; and then longer term, we see that kind of similar trends where it's growing more slowly and about $15.64 billion by 2028.

Mike Reynolds: Okay. Yeah, so the trend line is going that way. Advertising is the other big revenue contributor for the broadcast stations and it's an even number year. So, the ad market should benefit from the presidential election cycle as well as the Olympics, which will be in Paris this year.

Justin Nielson: Yeah, it's a big year for broadcasters. As you've stated, you've got the presidential election year and a lot of toss ups in the Senate and congressional races that could shift power in both houses, either to the GOP or the Democrats. Also, we have a lot of issue-based ads around controversial propositions like sports betting and abortion rights that could even generate more revenue in some states. Political advertising is always spent disproportionately on stations in swing markets and those that have higher expected population growth, such as Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, Texas and Wisconsin, which are forecast to rise more than the national average. I think the big question as you alluded to in the Paris Olympics is the NBC and Telemundo affiliates and how they'll be able to attract those core advertisers with all of the political crowd-out factor during the election season.

Mike Reynolds: Yeah, it'll be interesting to see also what the other NBCU competitors do in terms of what they will offer during the Games as an alternative for the folks who won't be watching the Olympic competition. All right Paramount Global has been the subject of any number of M&A potential stories in recent weeks. How do you think, Justin, this is going to play out?

Justin Nielson: Yeah, it's really interesting, to look at the news and who would be the potential bidders for Paramount Global in a sale. As you saw, [Skydance] investment partners not putting out an official bid but kicking the tires, and then Byron Allen coming out with the number as well. Even though they didn't have initial conversations ahead of that bid process. But, it's interesting in the fact with Paramount Global, if you had a strategic M&A deal, you would really have to look at it from the FCC and DOJ's perspective in terms of the top four network stations so that alleviates some of the concern around the studios but the stations and the networks may have to be spun off or divested or look for another strategic partner to take those assets.

Mike Reynolds: Super Bowl Sunday, pretty good day for the Kansas City Chiefs and Paramount Global. CBS and Nickelodeon offered a slime filled alternative telecast for the kids and their parents. Univision, Paramount+, and Univision streaming service VIX combined to 123.7 million viewers. That's most in Super Bowl history and the parties will tell you it's the largest telecast ever in the U.S. Your thoughts?

Justin Nielson: There's the Taylor Swift effect, obviously, and Usher halftime show. Yeah. A lot of Millennials were looking forward to both events. And it was definitely interesting that they had the different viewing options in terms of Nickelodeon and CBS and Paramount+. They tried to get as many people, watching the game as possible with those different viewing options. And it was a good game all the way down to the end. So, I think that benefited the broadcast segment as well as the network segment. And maybe, looking forward, the broadcast component is a very important piece of the Superbowl viewing audience. So, I would still feel like, even though there's been talk about potentially a streamer taking on the Super Bowl primary rights, I think there's still a long term potential for broadcast.

Mike Reynolds: Yeah, it makes sense. I think CBS's count was over 120 million. Continuing on the sports watch, Justin, ESPN, Fox, and Warner Brothers Discovery have formed a JV that will stream 14 sports-oriented stations as well as ESPN+ I think they're gearing up for a fall launch. What's your sense for its potential across broadcast, the multichannel and advertising industries?

Justin Nielson: It's interesting because Wall Street definitely took that news and started selling the broadcast stocks. From that perspective, Wall Street put its bet on this joint venture. I think there's a lot of potential for it, although I think there's some major challenges as well, because it could be a competing service against the ESPN direct-to-consumer-type products that Disney's also looking to launch as well as the other virtual multichannel options out there like FuboTV and YouTube TV and others. So, it's more of a skinny bundle type package, but the kind of all-you-can-eat multichannel bundle still is attractive.

Mike Reynolds: Yeah, if you look at this, it's if you're the total sports nut, like some of us are, you still need Paramount Global entries. You need NBCU's entries. And you need Thursday Night Football from Amazon. So anyway, it's going to be interesting to see how that plays out. Going to switch gears a little bit on the sports side to the regional aspect. As Diamond Sports has been in Chapter 11 bankruptcy protection now for almost a year, Justin, we see more teams like the NBA Phoenix Suns, the NHL's Vegas [Golden] Knights and Arizona Coyotes exiting the traditional RSN model for hybrid offerings.

Justin Nielson: Yeah, another interesting development in the broadcast segment — that they're getting back into the local sports rights games with those packages as well as even with the Diamond Sports Group extension in some markets. They're offering up to 10 games in the NBA to be offered to local broadcast stations. And you've seen that for the Milwaukee Bucks, the Oklahoma City Thunder and others. And then also you've got the LA Clippers and KTLA that have extended that partnership for 15 games this season. So, I think there's definitely an appetite out there for local broadcast deals to increase that fanbase that may not have a pay TV package or streaming package. But I don't think you're going to see a major shift to broadcast, but it will be a complimentary part of some of these rights deals.

Mike Reynolds: Now, technology always ushers in new changes and artificial intelligence is making its way across many industries. How is it shaping broadcast today, Justin? And what might we see in the years to come?

Justin Nielson: Yeah, AI is the big talk across all the different industries that you look at. And especially in the large language models and Gen AI, I think for the creative industries like television, it may be slower on the creative process on bringing in AI and Gen AI tools, but definitely on the back end in terms of the processing aspect, the targeting for advertising, more of the transactional aspect of the business. I think you could see opportunities in AI and especially around the production. And, we've also seen, even in the Super Bowl, some AI components being used around graphics and visuals around the game.

Mike Reynolds: Sure. That's for sure. Another big technology push for the broadcast industry is Next Gen TV. We've been talking about it for a few years — some things are starting to pop that way. Can you give us, Justin, a little bit of a layman's tutorial on what Next Gen is and what it may bring to the table for broadcast opportunities in the years to come?

Justin Nielson: Yeah, I think the simplest thing in terms of Next Gen TV is it's just the next kind of iteration of the broadcast standard that's bringing it up to parity in terms of the ability for it to be interactive, the ability for it to have additional type of audio and visual options, as well as the potential for the station owners to generate a revenue around either additional channels, additional VOD options, or actually licensing or leasing the spectrum to IOT type of devices or industries. As the year came to a close, we looked at about 70% of U.S. households that were able to receive Next Gen TV signals. Chicago went live with a bunch of stations in early February to get up to 75%. And then now San Antonio, San Diego, and Cleveland are all set to go live in '24, which would increase that number up to about 81% of the U.S. by the end of '24. So, it's gaining that reach that it needs to be relevant. The next step in this iteration is really getting the consumers to buy in — either upgrade their TVs or get dongles — and putting out the value proposition of why you need that Next Gen TV on your TV.

Mike Reynolds: I think we're at the end of our time here. I just want to thank you, Justin, for spending these moments with us and sharing your views across a lot of the things that are impacting the broadcast industry and it's changing position overall in the video market. So, we appreciate it, Justin.

Justin Nielson: Thank you so much, Mike.

Mike Reynolds: All right. This is Mike Reynolds. Thanks to all of you for listening. We'll catch up soon on the next edition of MediaTalk.