Liberum media analyst Ian Whittaker reckons Government noises on a likely privatisation of Channel 4 make the introduction of retransmission fees more likely. This is potentially good news for ITV (ITV) and STV (STVG).
In an interview with the Sunday Times on 13 March culture secretary John Whittingdale suggested he was in favour of privatising Channel 4. Whittaker comments: ‘We see this as influencing the Government's views on whether to allow the main commercial public service broadcasting channels to charge pay-tv operators for carriage of their channels (i.e. retransmission fees) as it would boost the value of Channel 4 in any sale, especially if the Government wants to protect certain parts of Channel 4's remit to smooth the political opposition to a sale.’
We have touched on the retransmission issue before – most recently when adding STV to our Plays portfolio. Already in place in the US, retransmission fees are essentially all upside for public service broadcasters like STV and ITV (as well as the BBC) because they involve additional revenues at no extra cost.
Whittaker notes there is unlikely to be a decision on retransmission prior to the European Union referendum on 23 June but sees a material impact if they were introduced.
‘If ITV could charge £1 per month per pay-tv subscriber for ITV1, we estimate this would boost FY revenues (and adjusted PBT, as it would be 100% margin enhancing) by £145m, or a 12% boost to our current FY17E ITV forecasts (we currently do not assume any retransmission revenues for ITV1 in forecasts). It should also – as it did for the US broadcasters – lead to a re-rating of the shares.’