A quick look at LIN TV's (NYSE: TVL) dismal third-quarter earnings report Thursday morning reveals why the broadcaster has been hammering cable operators such as Mediacom Communications to pay it huge increases in retransmission consent fees.
Operating income dropped to $20.6 million for LIN, down more than $6 million from this time last year. Its net revenue fell 3 percent to $100.8 million, and its political ad revenue plummeted 78 percent to $2.8 million.
The one bright spot for LIN TV was its digital revenues, which include retransmission consent. The company saw its digital revenues jump 38 percent during the third quarter to $22.1 million.
LIN TV is the broadcaster that recently pulled its stations from Mediacom subscribers for six weeks, until the MSO agreed to pay it increased fees to carry its stations. While LIN and Mediacom never disclosed terms of the agreement, the hike in retransmission consent fees is already beginning to show up in LIN's earning reports.
Like most broadcasters, LIN is struggling to maintain ratings for it stations that carry programming from ABC, CBS, Fox and NBC. It faces ratings erosion from viewers watching original programming on cable networks, and its local sales team faces increased competition from cable operators selling local advertising avails for ESPN, USA Network, and other cable networks that give cable operators local ad inventory.
LIN isn't the only broadcaster counting on retransmission consent to grow revenue. SNL Kagan expects that broadcasters News Corp. (Nasdaq: NWSA), Comcast (Nasdaq: CMCSA) and other companies that own TV stations will generate $3 billion annually from retransmission-consent revenue by 2015. Retransmission terms were one of the deal points that Fox and DirecTV (Nasdaq: DTV) addressed in their recent distribution deal, which came hours before DirecTV planned to drop Fox's cable networks.
Ad revenue at LIN and other station group owners may fluctuate from month to month, but one thing it they will be able to bank on each year is a check from Mediacom and other cable affiliates for retransmission fees.--Steve