We have taken several rating actions on the U.S. local TV broadcasters in 2024 (including two downgrades, a negative outlook revision, and one rating affirmation), reflecting increasing risks as both consumers and advertisers navigate away from TV. In some instances, we lowered our financial forecasts; in others, we lowered our business risk assessments and tightened our rating thresholds. Of the six local TV broadcasters we rate, three have stable outlooks and three have negative outlooks. Those with stable outlooks have stronger leverage and cash flow profiles.

Industrywide, we expect the two primary contributors of local TV broadcasters' revenue--retransmission and core advertising (excluding political)--to modestly decline over time, while political advertising revenue remains stable over our projection periods. We still view broadcast TV more favorably than other TV subsectors given its focus on local news and sports, which is more exclusive to broadcast TV and overwhelmingly watched live. Furthermore, we believe the impact of the recently proposed sports joint venture (between Walt Disney Co., Warner Bros Discovery Inc., and Fox Corp.) and DirecTV's recently announced "no locals" package will be relatively muted over the next several years.

Here S&P Global Ratings presents frequently asked questions from investors about our expectations for the industry's various revenue streams and our outlook for local TV broadcasters.

Frequently Asked Questions

What is S&P Global Ratings' outlook for retransmission revenue growth?

After several years of healthy growth, we expect gross retransmission revenue (the fees local TV stations receive from pay-TV distributors giving them the right to retransmit the station's broadcast content) will peak in 2025. We expect gross retransmission revenue will increase about 2.8% in 2024 (1%-2% when normalizing for blackouts in 2023) and be essentially flat in 2025 (see chart 1). This is because we expect price increases during contract renewals to be more moderate and insufficient to offset elevated subscriber churn. We believe it will be increasingly difficult for local TV broadcasters to increase prices given the already high cost of pay-TV, declining TV audiences, weaker broadcast network content, and less exclusive broadcast network content (as the parent companies of the broadcast networks prioritize their owned streaming platforms versus their owned broadcast networks). At the same time, we expect total pay-TV subscribers (including both legacy and virtual pay-TV subscribers) will decline 6.5%-7% in 2024 and 2025 as consumers continue moving to streaming video alternatives. Beyond 2025, we believe declines in gross retransmission revenue will be manageable and no higher than in the low-single-digit percent area within the next five years.

Chart 1

After completing a review of the local TV broadcasters we rate, we recently lowered our business risk assessments on Tegna Inc. and Gray Television Inc. to fair from satisfactory, which is in line with Sinclair Inc. and E.W. Scripps Co., and on CMG Media Corp. (also known as Cox Media Group) to weak from fair (see table 1). This reflects the more-limited geographic reach of these companies, which we believe limits further retransmission revenue growth, and that local TV broadcasters primarily remain a distributor of content rather than a creator or owner. We believe that makes it more difficult for them to adapt to the evolving media landscape.

Table 1

How are individual local TV broadcasters positioned to grow retransmission revenue?

Expected growth from Nexstar Media Group Inc. and Sinclair is the main driver of our industry retransmission revenue growth estimates for 2024 and 2025. We anticipate gross retransmission revenue for most of the other local TV broadcasters will be relatively flat to down in the low-single-digit percent area over the next few years (depending on the cadence of contract renewals with pay-TV distributors; see table 2).

Table 2

We believe Nexstar's prolonged growth runway is largely attributable to its materially greater geographic reach, as its local TV station portfolio reaches approximately 70% of TV households in the U.S., while its closest peer reaches 39%. We believe this strengthens its position when negotiating retransmission agreements with pay-TV distributors and reverse retransmission agreements for network programming.

Sinclair's retransmission revenue growth rates were lower than its peers over the last few years. We believe this is because it was responsible for securing carriage for Diamond Sports Group (the owner of the regional sports networks), which could have negatively impacted the retransmission fees for its local TV stations. Sinclair will not be negotiating on behalf of Diamond Sports Group during its next round of contract negotiations with pay-TV distributors, which we believe will support retransmission revenue growth in 2024. Nearly all of its traditional big-four network subscribers are up for renewal before the end of 2024.

Why does S&P Global Ratings expect continued consumer demand for broadcast TV?

Despite increasing risks to broadcast TV, we still view it more favorably than other TV subsectors (such as general entertainment) given its focus on local news and sports, which is more exclusive to TV and overwhelmingly watched live. Broadcast TV has the broadcast rights for key sports leagues, including the National Football League, which will remain on broadcast TV through the 2033-2034 season.

Additionally, we believe it is important to U.S. federal regulators, in particular the Federal Communications Commission (FCC), that broadcast TV remain widely available to the entire U.S. population for the broad dissemination of information. As a result, we expect it will remain a key component of pay-TV distributors' video offerings. We also believe there is a base of pay-TV subscribers (primarily sports enthusiasts and families with a variety of viewing preferences) that will continue to value the pay-TV bundle.

Offering direct-to-consumer (DTC) services within pay-TV bundles could increase consumers' value perception and help stem the rate of cord cutting. We expect live sports will become increasingly available through streaming services over the next few years, including Disney's planned launch of its ESPN flagship DTC service in fall 2025. Even so, we believe sports fans will continue finding value in the pay-TV bundle as it will continue providing the most comprehensive package of sports rights, rather than having to aggregate many streaming services, which could be more costly. We note Disney's contract with Charter, renewed in fall 2023, will make the ESPN flagship streaming service available in 2025 to all Spectrum TV Select subscribers at launch.

What does S&P Global Ratings expect for reverse compensation expense?

The parent companies of the broadcast networks are increasingly putting content on their owned streaming platforms over their owned broadcast networks and making some content available on both their streaming platforms and broadcast networks. This makes the content no longer exclusive to broadcast TV.

As a result, many local TV broadcasters have stated over the last two years that the growth in reverse compensation expense (local TV stations pay a portion of retransmission revenue to the broadcast networks they are affiliated with) has moderated. We expect the rate of growth will continue to moderate over the next few years to the low-single-digit percent area from the mid-single-digit percent area. Beyond the current round of contract negotiations with the broadcast networks (typically around three years), we believe reverse compensation growth could potentially become negative.

We believe it would be an oversimplification to say that variable-rate contracts with the broadcast networks are better than fixed-rate contracts, as the terms of individual contracts are complex and can vary widely. TEGNA recently announced that the majority of its reverse compensation agreements are now variable (based on subscriber counts) rather than fixed, which should provide the company with downside protection. While other local TV broadcasters could potentially look to change their contract structures to be more variable during upcoming negotiations, Nexstar noted at a recent conference that at the right price, a fixed-cost structure makes sense. We give more consideration to the total expected amount of reverse compensation expense, rather than the type of contract, in our analysis.

We believe local TV broadcasters could drop network affiliations for a handful of TV stations over the next couple of years, particularly to accommodate acquired local sports rights (so the timing of games doesn't conflict with network programming). While we do not expect any meaningful shift toward independent stations over the next several years, we believe local TV broadcasters could increasingly consider this option if they believe reverse compensation payments will exceed the value of network programming.

What is S&P Global Ratings' outlook for political advertising revenue?

Given the intense political climate in the U.S., we expect record political advertising revenue of $4.15 billion for local TV broadcasters in 2024, exceeding that of 2020 (the last U.S. presidential election). We are also seeing increased spending on political issues, in addition to political candidates.

However, our estimates vary widely between companies depending on each company's geographic footprint and the amount of competitive races within that footprint. As was the case in 2022 (the last U.S. mid-term election), we believe companies with larger geographic footprints will be better positioned to take advantage of more mobile political action committee (PAC) money.

We continue to believe broadcast TV is more attractive than other forms of media for political advertisers given its wide reach and ability to target voters in select districts. As a result, we expect the broadcast TV sector will maintain its share of about half of all political advertising dollars. Given the relatively short presidential primaries in 2024, we expect a greater percentage of political advertising dollars will be spent between Labor Day and Election Day than in previous elections (typically more than 50%).

What is S&P Global Ratings' outlook for core advertising revenue?

We expect core advertising revenue will decline about 2% in 2024 due to still-depressed advertising trends, continued pressure in large markets, and crowding out from political revenue, before increasing about 1.5% in 2025 amid improving economic conditions. In 2023, many companies benefited from the resurgence of automotive advertising (historically one of their largest advertising categories), although we expect growth to slow down in 2024 with tougher year-over-year comparisons and that advertising revenues from this category will remain below pre-pandemic levels.

Given declines in audience ratings, we do not expect core advertising will recover beyond 90%-95% of 2019's pre-pandemic levels. After 2025, we expect core advertising revenue will decline in the low-single-digit percent area annually, performing better in odd years without displacement from political advertising revenue. However, many companies do not report digital advertising revenue, such as from TV station websites, Connected TV, or other advertising platforms, separately from TV advertising revenue, which will make it difficult to fully evaluate advertising tends.

To the extent that local TV acquires additional local sports rights, it could provide modest upside to our current advertising forecast. Local TV broadcasters that acquired local sports rights in 2023 cited an incremental lift to their core advertising revenues. For example, E.W. Scripps noted on its fourth-quarter 2023 earnings call that it is expecting a 3% lift in core advertising in 2024 from recently acquired sports rights.

What is the potential effect from DirecTV's recent addition of a "no locals" package?

DirecTV recently announced it is giving satellite customers (not DirecTV Stream or U-verse) the ability to opt out of local TV stations and receive a corresponding discount. Customers can opt out of local programming and resume service whenever they choose. We expect a relatively muted effect on local TV broadcasters because we anticipate limited customer uptake as broadcast TV remains the most watched content on TV, given its focus on local news and sports. Based on current laws, customers will either need to elect all local TV stations or elect none, and customers that opt out will not be able to receive a national feed from the broadcast network.

DISH has offered this option to its customers for several years, with little effect on the industry. As we understand it, the 1992 Cable Act prevents cable companies from offering customers a similar option.

How will the proposed sports pay-TV bundle affect local TV broadcasters?

Disney, Fox, and WBD reached an understanding on principal terms earlier this year to form a new joint venture to launch a sports-focused, virtual pay-TV bundle in fall 2024. Since this is a virtual pay-TV bundle, we expect that ABC- and Fox-affiliated TV stations will be included and local TV broadcasters will get paid through an arrangement similar to those with other virtual pay-TV distributors. That is, the virtual pay-TV distributors directly pay the networks and the networks then pay the local TV broadcasters.

Depending on how much the partial sports pay-TV bundle attracts cord-cutters or cord-nevers (people who have never subscribed to pay-TV), this could provide an incremental benefit to the ABC and Fox affiliates. If there is a modest uptick in cord cutting to the new service, this would modestly hurt NBC and CBS affiliates that aren't included in the pay-TV bundle.

Given these factors, we believe the overall effect to local TV broadcasters is largely neutral. For more details about the proposed joint venture, see "Proposed Sports Pay-TV Bundle Is Not The Heavyweight Investors Fear", published Feb. 21, 2024, on RatingsDirect.

What are potential growth opportunities for local TV broadcasters?

We believe potential growth opportunities for the local TV broadcasters are modest.

Local sports.  Recognizing that network content is becoming weaker and less exclusive, local TV broadcasters are looking for ways to bring their own value-added, differentiated content. Sports content is particularly attractive because it is still overwhelmingly watched live and would complement local news. Acquiring sports rights could provide an opportunity to increase local advertising revenues over the next couple of years.

However, in our view, this would not lead to a material increase in affiliate fees (given the already high affiliate fees for local TV broadcasters) and would not make them any less susceptible to the declining pay-TV universe and weakening TV viewership. Additionally, if the local TV broadcasters acquire sports rights, it could pressure their margins. This would depend on the type and appeal of the sports they acquire, the structure of the contract (fixed versus variable fee), and the contract price. If multiple broadcasters compete for the same sports contract, it would likely increase the contract's price.

ATSC 3.0.  The broadcast TV industry is currently deploying ATSC 3.0, the next technology standard for broadcast TV geared toward improving picture and audio quality of over-the-air TV and extending its reach to mobile devices. ATSC 3.0 could present new revenue opportunities because it improves broadcasters' ability to offer targeted advertising (because of improved geo-targeting) and send data from one-to-many (because of greater network capacity).

We are skeptical to what extent ATSC 3.0 can be monetized and do not expect to incorporate any benefit from it in our analysis until the industry has demonstrated an ability to sign and implement new contracts and generate meaningful revenue from it. ATSC 3.0 will likely reach more than 75% of U.S. homes in 2024, although consumers still need updated electronics to utilize it.

Acquisitions.  We do not expect large broadcast transactions over the next few years. After extensive industry consolidation in recent years, many of the companies we rate have a limited ability to acquire additional broadcast assets within the existing regulatory framework. We believe regulatory reform is unlikely under the current Democratic administration, and even under a different administration, we believe the FCC would primarily focus on bipartisan issues such as broadband. At the same time, the FCC has still not completed its 2022 quadrennial reviews of its media ownership rules.

What is S&P Global Ratings' outlook distribution for local TV broadcasters?

Of the six local TV broadcasters we rate, three have stable outlooks and three have negative outlooks. Those with stable outlooks have stronger leverage and cash flow profiles (see table 3).

E.W. Scripps, Gray, and CMG have negative outlooks. These companies currently have elevated leverage and could potentially face refinancing risk if they do not use all of their excess cash balance and expected free operating cash flow (FOCF) toward debt repayment. We believe the industry's concentration of debt maturities in 2026 increases refinancing risk given the potential for supply to exceed demand (see chart 2).

Gray.  Leverage has been elevated due to high capital spending to construct its Assembly Atlanta Studios over the last couple of years, which has depressed FOCF and limited debt reduction.

E.W. Scripps.  The networks segment has experienced pressure as national advertisers continue to hold back spending amid an uncertain macroeconomic environment, resulting in lower EBITDA and limited FOCF for debt reduction.

CMG.  Aggressive shareholder returns have limited debt reduction.

Nexstar, TEGNA, and Sinclair have stable outlooks. We believe lower leverage levels and healthy FOCF will support debt reduction and refinancing efforts.

Table 3

Chart 2

Related Research

• Gray Television Inc. Outlook Revised To Negative From Stable On Tightened Thresholds, 'B+' Rating Affirmed, March 28, 2024
• Nexstar Media Group Inc. Has Further Runway To Increase Its Distribution Revenue, March 28, 2024
• TEGNA Inc. 'BB+' Issuer Credit Rating Affirmed; Thresholds Tightened; Outlook Stable, March 28, 2024
• The E.W. Scripps Co. Downgraded To 'B' On Elevated Leverage, Outlook Negative, March 7, 2024
• Proposed Sports Pay-TV Bundle Is Not The Heavyweight Investors Fear, Feb. 21, 2024
• CMG Media Corp. Downgraded To 'B-' On Elevated Leverage, Outlook Negative, Feb. 9, 2024
• Sinclair Inc.'s Leverage Will Increase From Legal Settlement; Leverage Remains Within Rating Thresholds, Jan. 22, 2024
• U.S. Advertising Forecast Powered By Digital, Jan. 2, 2024
• Gauging The Business Risks Of Local U.S. TV Broadcasters (2023 Update), June 21, 2023