Broadcast station merger and acquisition activity totaled $5.11 billion in the second quarter of 2018, the biggest quarter since second quarter 2007, according to Kagan.

Kagan says that 98 percent of the volume was attributable to TV stations sales, led by Gray Television’s acquisition of Raycom Media for $3.65 billion.

The second-quarter total also includes some sales designed to help Sinclair Broadcast Group’s acquisition of Tribune pass regulator muster. The big deals including the sale of seven stations to 21 Century Fox for $10 million and nine stations to Standard Media Group for $441.7 million.

Despite the strong volume, the pace of deal making was relatively slow. Excluding the Gray deal and Sinclair spinoffs, volume would have been just $185.8 million, the lowest since fourth quarter of 2016.

NEW YORK—The average household is paying nearly double in subscription costs to pay TV since 2000, representing an inflation-adjusted annual rate of 74 percent, according to Kagan.

When figuring in 2017 inflation adjusted dollars, legacy pay TV homes in 2000 were spending an average of $698.30 per year for multichannel service over telco, cable and satellite; by 2017, this figure had risen to $1,211.58, representing 3.3 percent CAGR. The real U.S. average income, in comparison, advance at a 0.3 percent CAGR, growing just 4.7 percent over the 17 year period, Kagan said.

The increases have not come without service enhancements, however, including a larger number of networks, and advanced services such as VOD, DVR services and improved user interfaces and resolution.

Kagan noted that multichannel revenue per subscriber “varies widely across the income spectrum.” In areas where the mean income was below $49,999, the multichannel penetration rate was 71.2 percent compared to a national average of approximately 74 percent as of Q4 2017. In areas where the average household incomes were more than $200K, penetration stood at nearly 83 percent, and in areas where average household incomes were between $50K and $100K, (the majority of households, at 73.5 percent of the total) penetration came in at 72.5 percent.

To add perspective on the impact that rising Pay-TV subscription rates have on household incomes, Kagan calculated U.S. multichannel purchasing power based on 2017 inflation-adjusted annual multichannel average revenue per user (ARPU) and average income figures, using 2000 as the base year. Based on this, Kagan developed an "affordability index" that illustrates the sharp decline in affordability, starting at 10 in 2000 and declining from then on, but relatively flat since 2012. 

Kagan blamed “the eroding multichannel affordability” partly to the growing popularity of OTT services such as Amazon Prime, Hulu and Netflix, as well as the emergence of “skinny bundles” from DISH and ATT’s DirecTV. 

MONTEREY, CALIF.—Retransmission fees are on the rise, with S&P Global Market Intelligence division SNL Kagan estimating that U.S. TV station owners fees from multichannel operators could be $7.7 billion for 2016, a 20 percent increase from 2015’s $6.4 billion. Kagan projects that number could be as high as $11.6 billion by 2022.

In addition, reverse comp, which is the retrans money stations pay to their networks for programming, is also increasing. Per Kagan, reverse comp for 2016 looks to increase by 36 percent, to $2.1 billion.

Net affiliate retrans revenue is still expected to post annual growth in the high to low single digits over Kagan’s 10-year projection period. TV station owners generally staggered their retrans contracts with multichannel operators for renewal every three years, but affiliation agreements cover an average of four to five years, which gives station owners some visibility on net retrans until the next renewal.

Kagan projects that the average TV station’s retrans fee per subscriber per month will rise from $1.40 in 2016 to $2.21 in 2022. However, by 2019, the projected $10.1 billion in retrans fees would only be about 18.7 percent of the $53.9 billion that U.S. multichannel operators will pay to basic cable networks and regional sports networks.

2019’s average $1.87 retrans fee would put the U.S. TV station industry above all but three basic cable networks in terms of affiliate fees per subscription per month, trailing just ESPN ($9.17), TNT ($2.59) and Disney ($1.88), per Kagan. Most regional sports networks, however, are expected to be above the average retrans fee.

MONTEREY, CALIF.—After a lackluster start to the year, SNL Kagan has announced that broadcast station M&A volume saw a significant increase in the third quarter, reaching $3.04 billion. A series of large TV deals were registered at $2.61 billion by SNL Kagan, while radio reached $422.1 million. The total is more than twice the combined amount registered in the previous three quarters, and brings the 2015 total to $3.41 billion.

After not registering a single deal above $100 million between October 2014 and August 2015, five such transactions were registered during Q3 of 2015.The largest deal was Media General’s acquisition of Meredith Corp., which SNL Kagan valued at $1.81 billion. However, Nextstar Broadcasting announced on Sept. 28 an offer of $4.1 billion to buy all of Media General. The Nextstar offer was not included in SNL Kagan’s total deal volume numbers.

Other deals that took place during Q3 included Gray Television’s $100 million purchase of Gazette Company’s Cedar Rapids, Iowa station and $420.5 million deal for Schurz Communication’s 15 TV stations and two local marketing agreements in seven markets. Raycom Media also acquired Drewry Communications Group’s seven TV stations at a value of $160 million.

As a result of these and other deals, the TV broadcast cash flow multiple on two-year average forward cash flow rose from 8.0x at the end of Q2 to 8.3x at the end of Q3.

SNL Kagan, a division of SNL Financial LC, is a resource for financial intelligence in the media and communications sector. The company is based in Charlottesville, Va.