1Q EARNINGS RECAP

TVN Focus On Business | For Local TV, Optimism Amid The Pandemic

An unprecedented first quarter saw local TV’s ad sales go off a cliff with some broadcasters declining to give guidance for what’s ahead, but a bright spot was the double- and triple-digit ratings gains for local newscasts.

Broadcast companies discussing first quarter results with Wall Street analysts had pretty much the same story to tell: Everything was going great until mid-March, when the nation began locking down to stem the COVID-19 outbreak and ad demand fell off a cliff. But with the conference calls coming as plans were being implemented for reopening in many states, there was also uniform optimism that advertisers will return, and the worst was in the rearview mirror.

If there is an upside to the pandemic experience, it was having younger adults discover the value of local television. Group after group reported double- and even triple-digit ratings gains for local newscasts. “Not all of these viewers will stick around when summer arrives and the current crisis abates,” said Pat LaPlatney, president and co-CEO of Gray Television. “We’ve established the value of our local news franchise to our loyal viewers, as well as large groups of younger consumers who rarely watched local news previously. That’s not all going to disappear once people return to work and school.”

Despite the rise in viewership from millions of people sheltering in place, many businesses have been closed and uninterested in advertising. “When demand goes down, rates go down, right?” said Tegna President and CEO Dave Lougee. With ratings at record levels, he noted that businesses that are able to advertise will see their best return on investment ever.

Given the uncertainties of the marketplace, the station groups were stingy with guidance. However, with the exception of Tegna, they offered estimates on how deep the declines in 2Q ad sales would go. They ranged from 32% to 50%.

Fox CEO Lachlan Murdoch said that, despite viewership gains, sales at the station group would be off 50% in Q2 (fiscal Q4). He shared nothing on Q1 (Q3).

It wasn’t quite that bad at Sinclair, which reported that Q1 core was down 1%. CFO Lucy Rutishauser guessed that Q2 core would fall between 32% and 39% depending on how quickly the economy got back on its feet.

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Nexstar CEO Perry Sook said that same-station Q1 core was down 5%, noting that “solid growth” in the January and February couldn’t overcome the hit the company took in the last half of March.

Nexstar didn’t want to provide any guidance for Q2, but under persistent questioning by Craig Huber of Huber Research, Sook and CFO Tom Carter relented and agreed that it might be off 35%-40%.

At Gray, the story was much the same. Said CFO Jim Ryan: “As of today, again cautioning that the situation is fluid and our visibility is very limited, we believe that core ad revenue for Q2 will decline at least 33%, but with each month of the quarter showing sequential improvement.” The group reported that Q1 core was down 4.2%.

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Rather than go the conventional route and give year-over-year quarterly guidance – and, I suppose, allow easy comparison with peers – Scripps opted for a month-to-month “sequential” approach.

CFO Lisa Knutson said April sales were off 40% from March with pacings indicating increasing improvements in May and June. Local Media President Brian Lawlor added that April is usually flat or slightly down from March.

Only Tegna, coming off of its brutal proxy fights with hedge fund manager Soo Kim, refused to give any numbers on Q2. Asked to comment on Fox’s 50% shortfall, CEO Dave Lougee said only the Tegna’s was “not quite that severe.”

Travel, restaurants, retail and automotive were cited time and again as particularly soft ad categories — not surprising, because some many of those businesses were closed down or had very limited operations under state restrictions. But there were some up categories, such as pharmaceuticals and lawyers, and station groups noted that they managed to add new advertisers even during the lockdown period.

“We actually had a fair number of churches and other spiritual groups reach out and want to air messages of hope and prayer lines and that type of thing,” Gray’s LaPlatney said. “It added up to what is a pretty significant number. We had a lot of new home improvement clients. A lot of people were sitting at home and felt like they want to do those ‘honey do’ jobs that they’d been putting off for a while. We saw some auto dealers that hadn’t been on TV for a long time.

“Will we keep those clients? That’s certainly our hope. We see a good chance of keeping a lot of them,” LaPlatney said.

Broadcasters are expecting the auto category to return strong, as dealers work to move inventory off their lots. “The 0%, 84-month financing — people take advantage of those offers,” noted Perry Sook, chairman, president and CEO of Nexstar Media Group.

With sports events shut down, including the entire NCAA Basketball Tournament, broadcasters missed out on a lot of advertising, but many also saved on live sports production costs, so the losses were somewhat ameliorated. It’s clear, though, that fans and broadcasters are anxiously awaiting the return of live sports (in some cases without fans in the stands) as NASCAR racing resumes next weekend on Fox and PGA golf next month on CBS.

Broadcasters quickly reconfigured their operations in the COVID-19 shutdown, with many staffers working remotely from their homes. But few staff layoffs have been reported in television. While Disney and Comcast did have massive furloughs, those were almost entirely at their theme parks, which had temporarily shut down completely.

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For TV group owners, the underlying financial support has come from rising retransmission consent revenues and political advertising. Including a big boost from the Michael Bloomberg campaign, first quarter political spending was at record levels. Some second quarter buys were moved due to rescheduling of primaries in some states, but all broadcasters are expecting unprecedented spending in the fourth quarter ahead of the November election.

One analyst wondered whether the economic uncertainty might make it more difficult for campaigns to raise money. Even if that were to be the case, broadcasters would still break records for political, insisted E.W. Scripps President-CEO Adam Symson, because “TV comes first” when it comes to targeting voters.

Television’s big online competitors have experienced similar advertising trends, with a big drop-off during the pandemic crisis.

At Google parent Alphabet Inc., CFO Ruth Porat told analysts it was premature to extrapolate the entire second quarter from just a few weeks. “That being said, the decline in our Search and Other Ads Revenue was abrupt in March,” Porat said. “And although we’re seeing some early signs at this point that users are returning to more commercial behavior, it’s not clear how durable or monetizable that will be.

“Based on our estimates from the end of March through last week, for Search, we haven’t seen further deterioration in the percentage of year-on-year revenue declines. For YouTube, direct response has remained strong. However, we have seen a continued decline in brand advertising. And it’s really too early to add more,” Porat said.

Much like broadcasters, Facebook has experienced a “demand shock” from advertisers at the same time that user engagement has increased. “You know, if demand recovers, then we would expect prices to rise,” Facebook CFO Dave Wehner told analysts. “And in the meantime, it’s a great time for advertisers to find ROI in the system, and that’s what we’re seeing from certain segments that are very price-sensitive, like your typical gaming company doing app install ads,”

Amazon doesn’t break-out advertising, which is still a relatively small part of its business. According to Adexchanger.com, Amazon CFO Brian Olsavsky told investors that the first quarter ad growth rate was in line with the fourth quarter of 2019, when he disclosed that it grew at a 40% clip. That would mean that Amazon was well-positioned for the sudden downturn. “Our advertising will prove to be very efficient,” Olsavsky said in the company’s conference call. “So even as some advertisers cut back on costs, I think this will show its value.”


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