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The proliferation of new technologies such as Video-on-demand (VOD) and Digital Video Recorders (DVR) could change the economics of the U.S. television broadcasting industry, and combined with the industry's existing cyclical issues, poses a threat to credit quality in a downturn scenario, as discussed in a Fitch Ratings report. Emerging technologies should accelerate the shift of advertisers toward non-traditional media outlets and pressure advertising rates for traditional outlets as advertisers question the value received from premium-priced television advertisements versus lower cost media.
Fitch's report attempts to show the financial effect under stress scenarios for three different types of television broadcasters: pure-play affiliate broadcasters, diversified affiliates, and network owned and operated broadcasters (O&O). Of the three, pure-play affiliate television broadcasters currently face the biggest financial and credit risks related to VOD, DVR and other emerging technologies.
'These companies have high fixed-cost structures, are not well diversified, and do not control a large portion of the content they broadcast,' said Brendan Buckley, Managing Director, Fitch Ratings. 'It will be more difficult for them to withstand declines in advertising revenues versus diversified broadcasters.'
The diversified media companies -- those that own network affiliates and/or newspapers or radio businesses such as Tribune, Belo, and Clear Channel -- should be better positioned to withstand revenue declines due to the modest benefits of being diversified. Fitch is cautious, however, regarding the secular challenges facing these other business lines. Fitch believes the network conglomerates with the O&O broadcasters would be the least affected should broadcasting advertising rates decline. In addition to their diversified revenue sources, these companies also have the ability to sell content to VOD platforms, as well as embed content with product placements and/or commercials.
The full report 'TV Broadcasting: Emerging Technologies and the Potential Effect on Credit Quality' can be found at www.fitchratings.com
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
