Continuing decline in network comp and a “soft” national spot market are offsetting gains in local advertising and political, execs say.
With a boost from the Olympics and political campaigners, LIN TV managed to squeeze out 5.3% growth in net revenue in the first quarter of 2006.
But the station group will not be able to repeat that modest progress in the second quarter, company executives conceded yesterday in a conference call with security analysts to review the first-quarter results.
An anticipated 2% gain in advertising revenue in the second quarter will be offset by a decline in network compensation, said CFO Vincent Sadusky. The bottom line: zero growth.
The figures are pro forma—that is, they figure in the seven stations that LIN acquired during 2005 as if they had all been acquired on Jan. 1, 2005.
Local advertising in the second quarter is up “three or four percent or so,” Sadusky said. “It’s the national that’s been soft.”
LIN officials are hopeful that the year will still be a good one. That hope is based primarily on the expectation of another $18 million or $19 million in campaign advertising between now and the fall elections. “All signs are very good for the races in our states,” Sadusky said. “As of right now, we are on plan.”
The stations recorded $1.6 million in political spending in the first quarter on 2006, up from just $300,000 in the first quarter last year.
Those political dollars along with Olympics-related advertising on its NBC affiliates yielded a 7% gain in advertising in the first quarter. The loss of network compensation pushed that figure down to 5.3%.
Embedded in the 7% is a 4% gain in auto advertising, local and national combined, said LIN President/CEO Gary Chapman. Even though General Motors cut its national spot spending in most places, he said, LIN managed to increase its GM take.
According to Sandusky, other strong categories in the first quarter included telephone, entertainment, medical, restaurants and home improvement. Decliners included financial, fast food and drug stores.
Looking beyond the quarter, Chapman is bullish on the stations’ Web sites, noting that the group has already booked more money for 2006 ($5.4 million) than it had for all of 2005 ($4.4 million). “We are on a track to at least double,” he said.
Over the next five years, Chapman said he anticipates online revenue growing to $50 million—that is, to as much as 10% of total revenue—with a 50% operating margin. The only expenses are payments to the “platform” provider (WorldNow), salaries for webmasters at each station ($20,000 to $45,000 per year) and sales commissions, he said.
Chapman said top-ranked TV stations combined with top-ranked Web sites will eventually become “the most powerful local advertising platform” exceeding “all other media as we know them today.”
Chapman reassured the analysts that all the LIN stations that faced the loss of network affiliation because of the merger of The WB and UPN had signed on either with CW or My Network Television. In fact, Chapman said, the WB affiliate that LIN manages in Austin, Texas, KNVA, is affiliated with both networks. It will air CW from 7 p.m. to 9 p.m.; My Network Television, from 9 p.m. to 11 p.m, he said. “We believe this gives us the best of both worlds.”
Chapman said he couldn’t discuss the new affiliation agreements. “However, we believe we have secured terms that will benefit LIN and provide the company with an opportunity to improve UPN and WB stations revenue and cash flow.”
Chapman said he thought that it was in the best interest of the broadcast networks to partner with their affiliates in the distribution of network shows over the Internet, either as VOD downloads or as advertiser-supported streams. The affiliates would help to market the services locally, he said.
But at the same time, he expressed skepticism about the marketability of the VOD downloads. That the price of some has dropped from $1.99 to 99 cents suggests that consumer interest is lukewarm. Why would owners of DVRs who can record everything they want pay even 99 cents? he asked. “I don’t think it’s going to have big penetration and I don’t think it will develop into anything more than a vehicle to promote a program.”
Chapman repeated that he expects LIN to reap cash from cable operators in return for retransmission consent. The LIN TV signals are a “major asset” for all multichannel video providers—telephone, satellite and cable. “Obviously, we should be paid our fair share for it.”