Bernstein: Broadcasters Once Again Have a License To Print Money

Most forecasters have expected broadcast ad revenues to experience a nice recovery as the recession eases, but BernsteinResearch analyst Michael Nathanson expects a TV advertising to see a rebound that could bring stations back to their healthier 2007 levels. While the major station owners took a big hit on revenue declines last year, margins remained fairly strong. For example, while Gannett’s broadcast revs fell by almost 20 percent in ’09, it was still able to post EBITDA margins of 42.6 percent. Belo’s TV station ad revs dropped 23 percent between ’07 and ’09, but it still managed to produce respectable a 26.7 percent EBITDA margin. And although CBS’ and Scripps’ margins have gone from the 30 percent neighborhood down to the mid-teens, Nathanson says that a large wave of political ad spending this year to boost those levels back up — though on a smaller revenue base.

But Nathanson’s research note (sub. req.) also spells out some pitfalls for broadcasters. For one thing, the coming changes resulting from the FCC’s plan to use parts of the broadcast spectrum to expand broadband speed and access.

In particular, he sees a crossroads for broadcasters with the possibility that the FCC might levy spectrum fees or ask stations to give up parts of the spectrum in exchange for auction proceeds. The best hope for broadcasters is that retransmission fees from their local cable MSOs. Broadcasters can’t have it both ways anymore, Nathanson writes, saying that stations’ arguments boil down to: “Please pay us for our channel but allow us to keep all this free (and valuable) broadcast spectrum for ourselves. Given that less than 10 percent of the nation’s household watches TV over the air, it is likely time to reclaim this spectrum over the next decade.”