Digital Bedevils Post-Merger Media General

It’s been a challenging first half for Media General in the wake of its merger with LIN Media.

Post-merger results haven’t been horrible. Pro forma for the second-quarter, they’re in line with other station groups: up in core local, down in national.

The sticking point is digital. That is a key category where LIN’s portfolio and expertise was supposed bolster old Media General’s weakness. Granted, it’s early in the integration of the two companies. But so far, the results have disappointed analysts and investors.

Noting that results in the digital sector “keep missing” company projections, Wells Fargo analyst Marci Ryvicker said, “I think that’s one of the biggest issues we are all having.”

“The digital pace is much more difficult to predict versus television,” CEO Vince Sadusky said. That’s because that business segment has multiple different lines including programmatic buying, social media, and video, he said.

“I think kind of the trending in digital that you’ve seen over the last year or so with significant deterioration in overall CPMs as a result of cheap programmatic platforms caught us frankly by surprise in terms of the speed of the transformation and we really needed to invest and transform very, very — much quicker than we initially anticipated,” Sadusky noted later in the call, according to a transcript from seekingalpha.com.

Sadusky reiterated earlier guidance that digital should be up in the second half.

Also noteworthy, Media General revenues and profits for the second quarter, while positive, failed to meet projections.

The misses have taken a toll on Media General shares. While down as much as 20% earlier in the day, they had rebounded slightly to down around 12%. Nonetheless, shares are down nearly 23% compared to pre-merger prices.

That said, virtually all broadcast stocks have taken a beating over the last several days. Some of that may be attributable to underwhelming performance from sector bellwethers including Disney/ABC, CBS and 21st Century Fox. In the absence of political and Olympics revenues and a slide in the key auto category, many broadcast groups have experienced first-half national advertising revenue declines.

On the looming issue of the FCC spectrum auction, Sadusky said Media General continues to track action on that front but has made no bets yet.

Meanwhile, Media General continues to be on the lookout for acquisitions and has the financial capacity to execute them should opportunities arise in the second half, Sadusky said.