Part of the company’s plan for surviving these tough times is reducing the prices it pays for syndicated programming with ratings declines.
Belo boss Dunia Shive sent a clear message to syndicators during today’s first-quarter results conference call: Don’t expect us to pay last year’s prices for shows with sagging ratings.
Specifically citing ratings declines for Oprah and Dr. Phil, Shive said, “I can’t imagine paying anywhere near the same type of prices for those programs.”
The underlying message: At a time when cutting costs and generating cash are the recession gospel for beleaguered broadcasters, vendors should expect tough negotiations.
And just to make sure her comments don’t come off as just posturing, Shive drove the point home: “If we couldn’t get deals done, we would have the ability to produce our own programs.”
Like every other station group struggling to weather the economic downturn, Belo’s imposing stringent measures internally as well.
In March alone, the company announced that on top of cost-cutting measures enacted in 2008, it was suspending its 401k matching contribution for all employees; reducing by 5 percent salaries for employees who are part of management compensation programs; and cutting 150 jobs.
So far, the reductions are producing results: Combined station and corporate operating expenses declined 14 percent in the first quarter, considerably better than the 10 percent the company forecast. (See related results story.)
The measures aren’t enough to offset steep declines in revenue, including a nearly 24 percent first-quarter drop compared to the same period last year. But along with various debt reduction measures, including paying down debt and buying back bonds, they are helping.
So are retrans revenues, up 10 percent in the first quarter to $9.7 million. And even though the company has about $1.1 billion in debt, debt reduction measures — which helped lower debt by $15 million in the first quarter — are helping it maintain a 4.8 debt to cash flow leverage ratio.
Bank loan covenants permit Belo’s leverage ratio to go no higher than 6.25 times. The company expects to stay well under that this year, though Shive said increases are likely. Maintaining the low leverage ratio allows Belo to continue buying back bonds, further reducing debt.
“We realize that will probably go up in the second quarter,” she said. “We’re doing everything we can to stay under that covenant.”
Projections for the second quarter are roughly the same as for the first. Pacing for auto advertising is down 60 percent at the moment, though Shive said she expects the second-quarter decline to be roughly on par with the 51 percent first-quarter drop. The company projects continued low double-digit growth in retrans revenues and overall expense reduction of 11 percent.
With ad revenues dropping across most categories — including auto, financial services, retail, entertainment and restaurants — most station groups are seeking to exploit the potential of new media, particularly the Internet. Some have been successful, though the gains are small. Belo’s still searching for the right formula there.
The company reported that ad revenues associated with its Web sites decreased 5.4 percent to $6.5 million in the first quarter, representing almost 5 percent of Belo’s total revenue. Shive said those revenues are likely to be flat to slightly down for the year, lower than the company’s earlier guidance.