TVN FOCUS ON 3Q EARNINGS

TVN Focus | Legal Ads Grow, Election Windfall Approaches

While the third quarter brought softening auto advertising, legal is helping fill the gap, broadcasters say. And with 2020 comes the expectation that political advertising will blow away all previous records.

Broadcasters seem to have a new twist on Shakespeare: First, let’s bill all the lawyers.

While automotive remains the biggest ad category for local TV stations — and the focus of much attention from Wall Street analysts — a fast-growing category has emerged to fill some of the gap as the auto industry pulls back from recent record sales years. In Nexstar Media Group’s third quarter conference call, Chairman, President and CEO Perry Sook noted that legal advertising has experienced “phenomenal growth” and is now his company’s number two category.

Likewise, both Gray Television and Sinclair Broadcast Group cited legal advertising as one of the growth categories softening the impact of the auto’s declines. “We’re seeing the strength of pharmaceuticals, attorneys, insurance driving our business,” said Steve Marks, EVP and COO of Sinclair Television Group.

But don’t think that auto is ever going away. “Our sense is that automotive is settling in where it is,” Sook assured analysts. “It’s maybe not 26% or 27% of our business, but it is 23% or 24% of our business. We think that’s going to be a fairly steady state.”

Brian Lawlor, president, local media of E.W. Scripps, expressed relief that the General Motors strike proved to be a non-event for his company’s stations. “There were virtually no cancellations or dealer pullbacks as a result of that,” he said. “They were able to get it resolved before it meaningfully affected the local dealers.”

The various TV groups report that core business is looking good for 4Q, but the big excitement is anticipation of what lies ahead in the 2020 presidential election year. Of course, that’s true for all ad-supported media, except maybe for Twitter, which announced that it won’t accept political advertising to avoid any controversies over false claims and/or foreign interference.

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By law, broadcasters don’t have that option (assuming anyone would even want to take it) and as yet no other major Internet ad players are choosing to forego their share of the political advertising windfall. However, both Facebook and Google are reported to be considering some new restrictions for political ads.

Twitter’s own quarterly revenues (mostly from ads), while up 9%, fell short of Wall Street expectations. It reduced its guidance for the current quarter. Meanwhile, Facebook’s ad business was up 28% in the latest quarter and Google’s grew by 17%.

For broadcasters, expectations that 2020 political advertising will blow away all previous records were reinforced by the heavy spending seen in this year’s off-year state elections. In the Gray Television conference call, executives noted that it is rare for a state senate candidate to advertise on television. This year, though, Gray’s Richmond, Va., station had 14 on the air.

Asked if anything could go wrong, Kevin Latek, Gray’s EVP and chief legal and development officer, noted that both the U.S. House and Senate are in play along with the White House. And the impeachment drama is just getting underway. “If anything, I think the bias is in favor of becoming more competitive,” he told analysts.

The election-year windfall will be less of a factor overall for the large media companies that own the Big Four networks, but something to anticipate nonetheless. And those TV companies had a mixed quarter.

For Comcast-owned NBCUniversal, the broadcast TV operation — NBC and Telemundo — saw a 9.1% revenue decline, largely due to the tough comps against the previous year’s World Cup advertising on Telemundo.

The television segment at Fox Corp. saw revenues rise 6%, with advertising down but reverse comp and “other” more than filling the gap. At CBS Corp., where the O&O stations are called the “Local Media” division, revenues fell 6% to $406 million, with the decrease attributed to lower political ad sales and a 19-day blackout by AT&T.

At the Walt Disney Co., broadcasting revenues were up 22%, despite a decline in advertising and higher costs for the ABC Network. “Lower advertising revenue reflected a decrease in rates at the owned television stations,” the company stated.

Most Wall Street attention is focused on Disney’s new streaming service, which launched just days after the company reported results for its fiscal fourth quarter. Disney Plus, which made its debut Nov. 12, is the latest of a fast-growing number of players competing for viewers in the online space. It enters the market with content from Disney, Pixar, Marvel, Star Wars and National Geographic.

With literally dozens of streaming services now in the market — ranging from broad virtual MVPDs like Sling and DirecTV Now to obscure specialty streamers — the cord-cutting trend may not have the negative affect on broadcasters’ retrans revenues once feared. Sinclair President-CEO Chris Ripley told analysts that the value of sports and news will increase as the relative value of other programming declines in the years ahead.


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