An 11% decline in auto advertising puts a drag on the quarter, offsetting gains in retail, telecommunications, financial, attractions, furniture and, especially, political.
Hearst-Argyle Television, the New York-based owner/operator of 28 TV stations and two radio stations, released second-quarter earnings this morning that showed just how severe the slowdown in auto advertising in spot TV has been.
The group reported that auto was off 11% in the quarter compared to the same period of 2005, noting that the category accounts for 27% of the group’s gross advertising sales.
The loss of the auto dollars drove down core (non-political) advertising revenue 4.6% in the quarter compared to last year. But healthy year-over-year growth in political spending (from $2.3 million to $12.9 million) allowed the company to post a 1.6% gain in total net advertising.
Total revenue for the company increased 3% to $194 million with increases in cable retransmission consent fees offsetting decreases in network compensation.
Adjusted EBITDA declined 6% in the quarter to $72.7 million from $77 million in the prior year due to higher operating expenses and the impact of a new stock-based compensation plan.
“To the extent that automotive represents 27% of our business and it’s down 11%, that’s a tough hurdle to overcome,ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€šÃ‚Â Hearst-Arygle President/CEO David Barrett told securities analysts in a conference call this morning. “At the risk of sounding foolish, if I back automotive out all together, the rest of our business was up 6.3%. But I recognize that’s like saying. ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€¹Ã…â€œWe would have won the game if Michael Jordan hadn’t lit me up for 45 points. We are dependent on automotive and it was a down category.ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€šÃ‚Â
Barrett also says that core advertising revenue was hurt by soft sales in the Northeast, especially in the Boston, where the group has its largest stations, WMUR and WCVB, both ABC affiliates. NBC’s poor primetime showing also didn’t help. With 10 stations sporting the peacock, Hearst-Argyle is the second largest NBC affiliate group.
Looking ahead, Barrett says the auto pacing is better in the third quarter than it was in the second, but “not as positive as I would like it to be.ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€šÃ‚Â
But the company says it is still “comfortableÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€šÃ‚Â with its forecast that political spending for the year could go as high as $60 million. That means the company can count on political to more than cover any additional shortfalls in core advertising in the third and fourth quarters.
The company also expects the top line to be helped by growing revenue from “digital mediaÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€šÃ‚Â—station Web sites and digital multicasting. Digital media contributed $3.4 million in revenue in the second quarter.
Nine of group’s 10 NBC stations have launched digital broadcast carriage of NBC Weather Plus, with cable carriage presently available in eight of the markets. Stations in Omaha and Des Moines also have launched digital weather channels.
Among its expenses, the company says, is $2.5 million associated with the write-off of its investment in USDTV, which filed for bankruptcy earlier this month. USDTV had hoped to provide an over-the-air cable service, using broadcast digital spectrum.