Lower-than expected spending by the Trump campaign is causing some groups to reforecast their political revenue and depressing stock prices. More important, it highlights the need for adoption of ATSC 3.0. The new broadcasting standard will allow stations to offer zoned, targeted and interactive advertising and maintain their lion's share of the political advertising dollars.
Uncertain Political Is Broadcast Wake-Up Call
Sinclair rattled broadcast stock investors on Tuesday morning, announcing in a press release that it was cutting its guidance on political advertising sales in the third quarter by up to $22 million.
Not only did Sinclair’s stock take a big hit, but so did the other publicly traded broadcast stocks which, in the minds of investors, were guilty by association.
Gray Television confirmed there was something amiss in broadcasting’s second-largest ad category after the markets closed by saying it would simply withdraw its guidance for the second half of the year because of “limited visibility” into political spending.
Both companies blamed Donald Trump for the trouble. His unconventional campaign has been slow on the fundraising and on the spending.
Fortunately, there was a Goldman Sachs investor’s conference going on the same day. There, the ever-upbeat Les Moonves of CBS said that the political dollars were flowing into his O&Os just as anticipated.
“We have no revenue warnings here,” Moonves said, according to an account in The Street. “There probably is not as much at the top of the ticket because Mr. Trump doesn’t appear to be spending as much as people may have thought. But down below, the issue spending is tremendous.”
Nexstar CEO Perry Sook helped to calm the waters the next day, saying that his group was sticking with its forecast, too, and that it had already booked two-thirds of what it is anticipating.
Despite such assurances, the broadcast stocks — with the exception of Tegna — had not fully rebounded as of noon today (see chart). You would not expect Sinclair and Gray to since they admitted they were coming up short. The others may simply be collateral damage.
A Bad Week For Broadcast Stocks
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Or maybe not. There is definitely some money missing.
I spoke to TVB President Steven Lanzano who has been fielding a lot of calls about political in the wake of the Sinclair release, and he acknowledges that political spending in spot would probably end up about about 10% short of where most had hoped it would be a year ago.
He is now saying that local broadcasters’ take will be “at least $3 billion.” That’s a hefty sum — in fact, a record sum, up from $2.73 billion in 2012, the last presidential year, according to Kantar Media count.
But it’s short of the $3.3 billion that Kantar had predicted last year and that many had come to accept as fact, at least until this week.
Marci Ryvicker, the Wells Fargo analyst, who had also settled on the $3.3 billion, is now telling us that she will likely lower her estimate.
We’ll be hearing more from Kantar (in the person of Steve Passwaiter) and Ryvicker next Thursday at the TVB Forward conference in New York where political is certain to be a hot topic. I’m hearing that their reforecasts may be more bearish than Lanzano’s.
As Sinclair and Gray indicated, the shortfall is due to Trump’s stingy ways and the fact that relatively little PAC money has materialized on his behalf. For him, it’s as if Citizens United never happened.
Which gives Lanzano some comfort. The Trump campaign is an “anomaly,” he says, suggesting that future presidential campaigns will revert to the norm — heavy fundraising followed by heavy spending on spot.
If there is a shortfall of 10% or more in political, perhaps investors should punish broadcast stocks. But they make a mistake by doing it on a wholesale basis as they did this week.
Political spending varies from state to state and even market to market, depending on what seats are in play and how competitive they are. On the presidential level, much depends on which states emerge as battlegrounds in addition to reliable quadrennials like Ohio and Florida.
That means that groups are affected unequally by the ebb and flow of political spending. And that’s why CBS can shrug off the fact that Trump isn’t spending, but others like Sinclair cannot. CBS was not counting on Republican presidential dollars; Sinclair was.
The other takeaway from this week is just how vulnerable the spot TV business is to the vagaries of political campaigning.
Lanzano is probably right. Trump is, to put it nicely, an anomaly. He can dominate the medium through a combination of celebrity, bluster and a fearless ability to provoke.
And I don’t think there are too many others out there who can follow his lead. Even if he wins in November, I would expect him to run a more conventional reelection campaign in 2020.
But the real danger for broadcasting is not Trumpism. It’s other media like network TV, local cable and digital cutting into spot’s share of political dollars.
Kantar projected that spot would get about 75% of those dollars in this election cycle. And Lanzano says he has not detected any significant drift of them to other media.
That’s good news, but to insure they don’t lose share in the future, broadcasters need to remain competitive with the other media.
Political advertisers fell in love with local broadcasting in large part because they could geo-target dollars in specific states and markets. But that’s not going to be enough in the years ahead.
The campaign pros are collecting Big Data on the political proclivities and voting habits of everyone in America. They want ways to put it to work.
To keep the political romance going, broadcasters are also going to need to demonstrate that they can target advertising by sections of cities, ZIP codes and even individuals.
And the way to do that (the only way, I think) is for them to get behind ATSC 3.0.
Among other things, it will allow stations to offer zoned, targeted and interactive advertising by linking broadcasting with the Internet and taking advantage of the storage capabilities of the next generations of TVs. Not incidentally, it will also make broadcasting a truly mobile medium.
ATSC 3.0 will pay dividends by retaining and attracting other classes of advertisers. For what it’s worth, a study commissioned by the Pearl group of leading station groups estimated that enhanced advertising would generate an extra $2 billion to $4.5 billion each year.
So, consider Sinclair’s announcement not as a sign that broadcasting’s days as the No. 1 political buy are coming to an end, but as a wake-up call that broadcasters had better make sure their medium is as capable as it can be.
P.S. Speaking of ATSC 3.0, I neglected last week to applaud FCC Commissioner Ajit Pai for endorsing the standard at the Sept. 15 Senate Commerce Committee oversight hearing. In calling on the FCC to get on with approving the standard’s use, he was the only one of the five commissioners to even mention it.
“I believe that it is important for the commission to act with dispatch. Just as the United States is leading the way on 5G in the mobile space, so too should we be at the forefront of innovation in the broadcast space,” he told the senators.
“Other countries aren’t standing still. Earlier this year, for example, South Korea adopted the ATSC 3.0 standard, and ATSC 3.0 broadcasts are scheduled to begin there in February 2017. We should get moving, too.
“I therefore hope that the commission will issue a Notice of Proposed Rulemaking on ATSC 3.0 no later than the end of this year. Put simply, the FCC should not stand in the way of innovation.”