Looking ahead, the company expects total revenue to increase mid-single-digits year to year in the second quarter, driven by subscription, political and its OTT Premion revenue. It sees its stations as being very competitive in gubernatorial and U.S. Senate and House races.
Not that long ago, a broadcast television company looking forward to a good quarter was basing its expectation on the results of its local advertising. For Tegna, however, an anticipated mid-single-digit gain in revenue will be built on other income streams.
Local core advertising was not mentioned when, looking at 2Q, EVP-CFO Victoria Harker said: “We expect total company revenue to increase mid-single-digits year to year, driven by subscription, political and Premion revenue in addition to the first full quarter contribution of [recently-acquired] KFMB [San Diego].”
That will be less of an increase than the company enjoyed in the first quarter, but then, there are no plans for anything remotely like the Olympics or the Super Bowl in 2Q.
Taking into account only continuing operations, Tegna was able to increase its 1Q revenue by 12% to better than $502 million year-over-year. Factor in $10 million lost when its digital marketing arrangement with Gannett ended last year and revenue was still up 9.4%. And it was up 5.5% without $24 million earned during the Super Bowl and the Winter Olympics, and the $5.5 million increase in political to $7.6 million.
Harker noted that incremental income from the Olympics was $14 million, as a $20 million gain enjoyed by its NBC affiliates was offset by a $6 million loss from its other stations.
David Lougee, Tegna’s president-CEO, noted that a steady increase in OTT subscribers is offsetting the steady decline in traditional MVPD subscribers. Excluding Uverse, the total number of subs is basically flat.
Returning to a discussion of Tegna’s outlook, Lougee declined to get into specifics on core advertising, but did say that “second quarter is a little bit softer than first quarter overall.” He did note that retail was positive and auto was flattish in 1Q and both were softer in the current quarter. In general, he said there is a lot of 2Q business already booked but a long way to go, and added that the pace has improved in recent weeks.
Like all TV execs, Lougee is happy to be in an election year. “Overall the political situation for Tegna looks very, very good,” he claimed. “We’ve got a very competitive footprint in gubernatorial and U.S. Senate races, but the new dynamic for us that’s becoming clear is that as of today we now expect to see more a than 50% increase in the number of competitive House seats in our footprint, and as you know, the battle for control of the House is this year’s main event.”
Harker said subscription revenue during 1Q was up 13% year-over-year, boosted in part by increased revenue from OTT services. Only 6% of the company’s subscription base renewed in 2017, while 15% will come up for renewal this year, and 48% in 2019.
Lougee reminded everybody of the old MVPD debate over the merits of menu fixe over a la carte, and said that thanks to OTT, consumers finally got to weigh in and they have clearly voted for a la carte.
He noted that the resulting “chessboard” of negotiations works out very favorably for broadcast television, which remains the most watched programming option and therefore the most needed content for any OTT service.
The best markets for subs are the big ones, said Lougee, where many consumers sign up for subscriptions with both traditional and OTT providers. The decline in subs goes hand-in-hand with market ranking, he said, and the small-market situation is further inhibited by the lack of a presence for many OTT services as they expand their footprints from the top of the market chart down. “It’s sort of a tale of two cities when it comes to markets,” he observed.
Discussing M&A, and noting that there’s been “a lot of noise” concerning the UHF discount and the Sinclair-Tribune deal, Lougee said: “Neither of these topics is of concern to Tegna.”
On the one hand, the company has a station portfolio unusually well-stocked with VHF stations and as a result Tegna’s national footprint only changes by 5% if the discount goes away, going from 27% with to 32% without it. The company therefore has room to deal in either case.
On top of that, its M&A aspirations are focused on in-market consolidation rather than territorial expansion, and an in-market transaction would have zero impact on its national cap compliance. And if an in-market upgrade is accomplished via a station swap, Tegna’s national audience reach could actually lessen while it continues to operate the same number of stations.
Lougee believes that the aforementioned noise may be pushing back the onset of the next wave of broadcast television consolidation, but fully expects that it will happen.
Premion, said Lougee, is on track to double its 2017 revenue of $30 million. This is partly attributable to its exclusive deal with Major League Baseball’s MLB.TV as part of its streaming package. Lougee touted it as “…one of the most-watched OTT services in the country.” He explained that Tegna is the only company that can sell ads on it in its 39 broadcast markets, especially benefitting 30 of them, 12 of which are home to major league teams and 18 of which are within an MFL team’s regional fan base.
Going hand in hand with that is the introduction of Premion Audience Selects, which he said is a first-of-its-kind data management platform. He said it offers “more than 2,000 different audience segments such as sports fans, auto intenders, travel enthusiasts, homeowners and so forth.”
The service works both ways — it enables advertisers to precisely target their audience, and it allows Tegna to precisely understand and sell its audience. And it provides great clarity in measuring the success of an advertising campaign.
Lougee claims it is vastly superior to the programmatic options it is competing against, and light years beyond the old banner campaigns of digital advertising.
Regarding the deployment of ATSC 3.0, Lougee said that the industry is still in the technical phase. The current challenge is to get the system up and running glitch-free. Speculation on business models is not something he is ready to indulge in — he said the answer to that one may turn out to be something nobody has even thought of yet.
Harker said Tegna’s leverage stands at 4.3x but figures to drop to 4x by years end, and added that the company’s stock is a great investment and undervalued. In fact, Tegna is putting its investment advice where its mouth is, so to speak, kicking off a return to share repurchasing as the year progresses.