That's the takeaway from the guidance provided by publicly traded station groups over the past several weeks in their 4Q earnings calls and by securities analysts. So, with core up slightly at best and political advertising not a factor, station groups will look to retransmission consent for overall revenue growth.
Despite Slow Start, Core Should Be Up For ’17
Core spot sales got off to a sluggish start in January, but they have improved as the quarter has gone on, reinforcing expectations they will be up slightly this year compared to last.
That’s the takeaway from the guidance provided by publicly traded station groups over the past several weeks in their fourth-quarter earnings calls with securities analysts and by the analysts themselves.
Outgoing Tribune CEO Peter Liguori, on his last call, acknowledged that his stations’ core business was soft in December and January. “We are noticing what everybody else is noticing: business is coming in late. It’s much more challenging to get visibility.”
“The first quarter started slow,” said Brian Lawlor, SVP of broadcast at Scripps. “February has more money booked than January. March will have more money booked than February, so the quarter is growing appropriately as we would expect it would.”
In general, the outlook was positive, although far from bullish. “If you listened closely, every broadcaster said they expected core to be up for the year,” said Daniel Kurnos, senior research analysts for The Benchmark Co.
National spot is the drag, he said. “We expect national will continue to be weak over the course of the year, but that should be offset by local.”
“Q1 core ad pacings from the station groups we cover have been flattish on the national level and up low single digits on the local level,” added Justin Nielson, Kagan senior research analyst, media and communications.
Core excludes political ad sales, which are heavy in even-numbered years when campaigning is widespread and light in odd-numbered years when few are on the stump. Last September, TVNewsCheck forecast that core would grow 1.3% this year, while total spots sales would fall 8% because of the lack of meaningful political money.
The broadcast executives attributed the slow start at their groups to various factors.
Three groups — Meredith, Tegna and Gray — cited the shift of the Super Bowl from CBS last year to Fox this year for some of the difficulty in matching last year’s spot returns. The three groups simply have notably fewer Fox affiliates than CBS affiliates.
Gray CFO Jim Ryan said local spot at the groups would be off between 4% and 6% and national would be off 11% to 13%.
And the football shift (minus $1.5 million) was only part of the problem. Big advertisers like American Home Family that Gray had on its books in 1Q 2016 are MIA or cutting back this year, he said.
Despite the first-quarter losses and second-quarter uncertainty, Ryan said, “we are still remaining generally optimistic as we move through the rest of the year.” National for the year is “probably flattish,” he said, while local increases will be in the low single digits.
Nexstar CEO Perry Sook also pointed a finger at Ford.
Sinclair Television COO Steven Marks, who expects core to be flat for the quarter, blamed weak sales in retail, department stores, food, media and technical schools. The bright spots were low single-digit gains in auto, services and telco, he said.
Broadcaster should not count on auto to drive spot sales this year, said Kurnos. “We think [auto sales] will be flattish for the year, and while there are a lot of moving pieces, so far it seems like market share gains/defense are offsetting any mix shift to digital or reduction in vehicle sales.”
Several execs said that business is being placed late, making for a very cloudy crystal ball when the knob is turned to the 2Q prediction setting.
They believe that the new Trump administration can have a positive impact on advertising later in the year by putting more money in corporate bank accounts by cutting taxes.
Lawlor noted that it is also possible that the installation of the new administration was partially responsible for the slow start to the year. It is not unusual to take a wait-and-see approach when a new occupant moves into the White House, an event that last occurred eight years ago.
With core up slightly at best and political advertising not a factor, station groups will look to retransmission consent for overall revenue growth.
How much of a contributor it will be to positive comps this year of each group is largely dependent on the vintage of their retrans contracts. Newer ones pay more than older ones. Those with new deals kicking in this year will be in the best shape.
The opposite goes for reverse comp — payments the groups make to the networks. The last deal is almost always more burdensome than the one before.
Further retrans growth can be expected as groups begin to earn money from OTT services that are coming on line, some of the execs pointed out on calls.
Said Tegna Media President Dave Lougee: “Some of these services are targeting so-called cord-nevers with skinny bundles of channels with lower overall prices and that is an opportunity for us to reach new consumers who have not yet heretofore been in the pay TV ecosystem.”