While some other broadcasters say the move to bring its rep business in-house may work due to Gray’s size, many think it’s risky business, with the costs likely to outweigh the benefits. The decision to go it alone was not made lightly, said Gray’s Kevin Latek, SVP, business affairs. “We analyzed this every which way possible for pretty much close to a year until we came just to form a consensus … that this was the right direction for Gray to go.”
Gray Television’s announcement last week that it was dropping its rep firms and bringing its national business in-house is being met by other broadcasters with surprise, admiration and mostly skepticism.
“You can save commission, which is between 5% and 7%, probably around 5% for Gray, but you still have to build out your staff,” said a top sales executive for a major station group. “By the time you’re done, there’s the headache of staffing and the potential disruption to business. It’s not worth it.”
Gray was “courageous” to try it in a year  when political spending will be setting new records, the executive said.
“When you [rep yourself] you have to chase around a lot of buyers,” said a group CEO with stations in larger markets than Gray. “You have to have people in all the major cities — New York, probably Chicago, Los Angeles, Detroit, Dallas and maybe Atlanta. There are a lot of places where the buying comes out of.
“Gray seems like it’s slightly an outlier. I don’t know that it’s signaling a trend,” the CEO said.
It was not Gray’s intention to start a trend, only to bolster its bottom line.
In its Aug. 31 announcement, which got the entire industry talking, Gray said that it would be terminating its contacts with Katz Television and CoxReps for “nearly all” its 80-some stations in January, noting that a quarter of them were already operating without reps.
The move was a bigger blow to Katz, which handled the bulk of Gray’s business. Katz and CoxReps declined to be interviewed for this story.
Gray said the move would save between $8 million and $9 million in 2016, even after factoring in the expense of new sales people.
Offsetting the savings over the next two years will be $6.1 million to buy out its contacts with the reps. Gray said it will pay the reps in monthly installations over the two years, although it will book the entire charge during the current quarter.
“We think this is the right time to do it and we are confident, said Bob Smith, SVP, Midwest and West Region, Gray Television. “We’re well positioned because we have seen it with our own stations. They are doing very well.”
It’s not just about saving money, Smith said. It’s about growing national spot, which now accounts for about 20% of the group’s total sales. “We think that the relationships will be stronger. We think the one-on-one contact between our stations and the [media] agencies without anybody in the middle is going to be a benefit for us.”
The decision to go it alone was not made lightly, added Kevin Latek, SVP, business affairs. “We analyzed this every which way possible for pretty much close to a year until we came just to form a consensus … that this was the right direction for Gray to go.
“We looked at lots of the permutations from retaining our current rep with our current fees, retaining our reps at a different payment structure, retaining our reps for some business, but not other business. It became clear that the major direct model just made the most sense.”
To implement the new strategy, Gray hired two executives from Katz — Becky Meyer, who will remain in Chicago and lead the initiative as VP of national sales, and Mike Jones, a political advertising specialist who is based in Washington.
Latek confirmed that Michael Spiesman, a one-time Katz executive who had the title of VP of national sales, left the company a few months ago.
Smith said there are no immediate plans to hire additional national sales executives. “We will just see how this goes and we will adjust accordingly if need be.”
Nonetheless, Smith said, Gray will be able to touch all the bases. Most of the national business now comes out of New York, Los Angeles, Chicago, Detroit and Dallas, he said.
“So we will travel to those markets. It’s not like everybody [at the rep firms] was making a ton of calls and a ton of market visits. I mean, once the buyers know you and know how to contact you, you can do business. A lot of this is done electronically.”
In an interview with TVNewsCheck posted yesterday, Mike Fiorile, CEO of the two-station Dispatch Broadcast Group, called Gray’s decision a “bold move,” but not one that he was likely to emulate.
“I like having as many sales people in as many cities as I can. For me, there’s no substitute for getting a sales person in front of a buyer and having a relationship. I think that’s a challenge when you start a new rep firm.”
Fiorile did allow that if he had 20 or 30 stations, he would at least consider giving up the reps.
Terry Hurley, president of Cordillera Communications, which, like Gray, operates small-market stations, said the in-house rep mode is “not sustainable” for Cordillera.
“Staffing, infrastructure and management would rapidly equal the amount we pay CoxReps. As long as they keep doing things as well as the have, they will be our partners.” However, he added, “we understand that [going it alone] may make sense for groups with significantly more revenue.”
Not everybody thought Gray had gone astray. “Broadcasters the size of Gray do have the scale to bring things in-house and handle it with national and general sales managers directly one on one with the buyer,” said a broadcaster with a group with fewer stations, but much larger markets.
“I wouldn’t be surprised if the volume of business for the larger groups, the volume of revenue in terms of billings, could possibly justify it from a cost basis,” he said. ”For what it costs them to use a Cox or a Katz, they could probably afford to build an infrastructure similar to the O&Os’ rep businesses.”