Key Points:
- Guggenheim Partners analyst Curry Baker says Wall Street remains bullish on broadcast TV, though growth in retransmission and advertising revenue will slow over the next several years.
- Baker expects FCC Chairman Brendan Carr to continue deregulating broadcasting, which will help lift the industry.
- While NextGen TV are seen as long-term opportunities, Baker says investors view them as future prospects with limited near-term financial impact.
Financial experts are still optimistic about the long-term health of the broadcast television industry, even as some of its key revenue streams are expected to taper off in the years ahead.
That was the key takeaway from a conversation with Curry Baker, the Director of Media and Head of Live Entertainment Equity Research at Guggenheim Partners, who spoke during an appearance at the TVB Executive Summit in New York this week.
Baker said he expects the Federal Communications Commission (FCC) under Chairman Brendan Carr to continue pushing deregulation in a way that is favorable for broadcasters, and affirmed investors are taking note of the shifting regulatory environment in Washington, D.C. as the FCC and others chip away at regulations that burden the broadcast TV industry.
Some of that reform was pulled into focus this week when the FCC released a draft Notice of Proposed Rulemaking (NPRM) that is geared toward helping broadcasters shift away from the current digital transmission standard toward one known as NextGen TV, which fuses traditional broadcasting with interactive capabilities via broadband Internet.
While some broadcasters have championed NextGen TV as the industry’s biggest evolution in years, Baker said Wall Street still hasn’t seen the benefits reflected in the valuations.
That said, other efforts by the FCC — including modernization of broadcast ownership rules — are viewed as positive developments within the sector, Baker said.
On the financial front, Baker said the climate for mergers in the broadcast sector is more favorable than it was a few years ago, describing 2021 through 2024 as a “sleepy sector.” Now, “everyone is talking about” broadcasting again, he said, crediting in part the deregulatory posture of the Carr-led FCC.
“Scaling up makes a lot of sense,” Baker said, predicting that larger groups will continue acquiring mid-sized broadcasters. He cited retransmission consent and reverse compensation as key revenue sources for the foreseeable future, but warned growth would slow to “mid-to-low single digits.”
Even so, Baker said retransmission revenue remains critical because “the last bastion of must-have programming” is live and local TV, particularly sports and news. “It has to be in the bundle, and broadcasters are still under-monetized,” he said.
Baker acknowledged cord-cutting remains a headwind for cable and satellite providers, estimating a “mid single-digit” decline. Still, he said the traditional pay TV bundle continues to make sense for households that want simplicity over managing multiple streaming subscriptions.
On advertising, Baker was less optimistic.
“There’s a lot of digital competition, and it is tough,” he said. “For local television, advertising will be flat to slightly down going forward.”
Political advertising, however, remains a bright spot. Baker said it will “continue to be a good story” for broadcasters as campaign spending shows no sign of slowing down.
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Read more:
- Proposed FCC rule will let broadcasters choose ATSC 1.0 shutoff date
- FCC chairman says vote coming on NextGen TV
- FCC should exempt small TV stations from NextGen TV rules, group says
- Lack of funding causes NextGen TV emergency warning program to close
- DirecTV says it can’t broadcast NextGen TV signals to customers
- Broadcast group, SiliconDust trade blame over NextGen TV DVR issue
