TVN Focus On Business | 3Q Review: A Political Haul For The Record Books

The COVID-19 pandemic may have depressed normal ad spending this year, but for TV companies the dramatic increase in political spending produced a record year. We know that even with the final quarter yet to go into the books.

“The pool of political dollars nationwide is growing tremendously, and local broadcast is taking an even larger share,” said Brian Lawlor, president of local media at the E.W. Scripps Co.’s third quarter conference call with Wall Street analysts on Nov. 6.

“In 2016, $3 billion of political dollars was raised and spent,” Lawlor said. “In 2018 it was $5 billion. This year it was more than $8 billion. In 2016, estimates were that local broadcast television took 45% of that total. This year it looks like it took more than 50% of the larger spend. This is completely to the contrary of the pundits’ views that 2016 had reshaped political spending away from local broadcast.”

Political advertising was so heavy during the third quarter that Meredith Corp. CFO Jason Frierott told Wall Street that crowd-out was responsible for eight to 10 percentage points of the TV group’s 26% decline in core advertising. The COVID-19 pandemic was blamed for the rest of core coming up short. Political, meanwhile, was 43% ahead of the same period in 2018.

Georgia’s Runoffs Lengthen Political

“We’re not done yet,” said Tegna President-CEO Dave Lougee as he reported on the company’s record $395 million in 2020 political advertising sales through the Nov. 3. That’s because two U.S. Senate seats in Georgia are going to runoff elections on Jan. 5, 2021. And with Republicans holding 50 Senate seats and Democrats 48, incoming President Joe Biden needs to have Democrats pick up both to produce a 50-50 tie where Vice President-Elect Kamala Harris could cast the tie-breaking vote to pass tax/spending legislation and confirm Biden nominees to government and judicial posts.

“The spending has already begun,” Lougee said. “We’re trying to size it now. We don’t have, frankly, a good answer, other than we know it will be very, very large.”

Most large TV groups have stations in one or more of the 11 Nielsen DMAs which are within Georgia or include counties in Georgia. Tegna, for example, has two stations in Atlanta and one in Macon. Lougee noted that until now Georgia hadn’t even been Tegna’s hottest state for political spending. That has changed, with control of the Senate at stake.

Post-election, Lougee says core advertising is “looking pretty good — the best all year since first quarter.” That optimism was heard from other company executives as well.

Improvements In Core

At Nexstar Media Group, Chairman-CEO Perry Sook noted that sequential monthly improvement in core has been seen since the “low-ebb” of April, with the exception of October, due to political crowd-out. “Our fourth quarter auto pacing is better than 20 points from where we exited auto for Q3,” he said.

“Total core revenue for Q4 we expect to see decline again in the 10% to 15% range,” Gray Television CFO Jim Ryan told analysts. “But as we saw in Q2 and Q3, total core seems to be sequentially improving each month in Q4.

“October core is decreasing in a low-20% range because of massive political displacement,” Ryan added. “November is very encouraging. We’re seeing mid-single-digit declines in core at the present time. The December core decline is showing high-single to low-double-digits declines, but we believe there is an opportunity for momentum to pick up in December.”

“At the beginning of COVID, the [Fox O&O] stations were pacing down nearly 50% compared to the prior year,” Fox Corp. Executive Chairman-CEO Lachlan Murdoch told analysts. “Today, they are pacing ahead. This is a tremendous return to strength in a remarkably short period of time.” That tally includes political and acquisitions, Murdoch noted.

“Auto is having its best month since February,” said Scripps’ Lawlor. “Service, which is our No. 1 category — represents more than 30% of our total — it’s up mid-single-digits for November versus prior year. Home improvement — a little bit smaller, but growing category — is also up mid-single. So, the categories that we can control, especially with our new business [sales efforts], are strong.”

Robert Weisbord, president of local news and marketing services at Sinclair Broadcast Group, was equally upbeat. “Every month has picked up, which is encouraging. Especially with record political spending and crowd-out, the core has been able to strengthen. It’s too early to tell in the fourth quarter, as we come down from this record political spending,”

Unusual Times Remain

“From our vantage point, we think things will return to normal when COVID goes away,” said Sinclair President-CEO Chris Ripley. He noted that the quarter saw advertising revenues rise mid-single-digits for the company’s regional sports networks, which had been hit earlier in the year by game cancellations and postponements.

At the Walt Disney Co., where ESPN is a key component, CEO Bob Chapek warned an analyst against any assumption that COVID-19 has reset sports viewing at a lower level.

“The best comp we probably have is the NFL, which has been relatively flat,” Chapek said. “Our Monday Night Football viewership has been down 4%. That’s relatively modest, despite all of the headwinds.”

What headwinds? “We’ve got the risk of seasons not finishing,” Chapek said. “We don’t have fans in the stands. We really can’t have our fans doing what they like best, which is watching in a communal setting. They’re pretty much watching by themselves.”

With regular programming returning to networks’ schedules after pandemic-related production delays, the Big 4 network owners are upbeat on the delayed season.

Jeff Shell, CEO of Comcast-owned NBCU, said the upfront ad deals for the company’s broadcast and cable networks were “slightly up on price” when they’d expected to be “way down.” One caveat, he noted, were the deals were “slightly down on volume.”

But all things considered, a bigger crisis was averted. “We didn’t think a couple of months ago there was even going to be an upfront this year,” Shell said. “The fact that there was one and it ended up being relatively normal — and stronger than we’d expected — was really good news.”

ViacomCBS President-CEO Bob Bakish sounded a similar note. “Doing an a virtual upfront in the middle of COVID-19 was something no one had ever experienced before, but I’m really happy with where we ended up,” he said. “The team did a phenomenal job, really benefitting from our asset base. We were up low-single-digits on price, and we were very careful with volume, holding back inventory so that we had inventory to sell in scatter.

“We’re seeing scatter in broadcast [up] double-digits and in cable in high-singles,” Bakish added. “So that market’s robust. You want to have inventory to play there, and we will.”

Fox’s Murdoch had previously called upfront activity “very active.”

Tech’s Haul

Broadcasting’s new media rivals also cashed in big on campaign advertising. But with social media sites under scrutiny for attempting to fact check some political posts and suspending certain accounts, they didn’t crow publicly about their financial take.

Facebook reported third quarter revenues of $21.5 billion, up 22% from a year ago. “The acceleration in advertising revenue growth from Q2 to Q3 was largely driven by strong advertiser demand resulting from the accelerated shift from offline to online commerce that we saw in connection with the pandemic,” said CFO Dave Wehner. “We are seeing particular strength among small and medium-size businesses.”

COO Sheryl Sandberg added: “In Q3, combined political ads and government spending, altogether, was still low single-digit percentages of ad revenue in the U.S. and globally. It’s not a top 10 vertical in the U.S. or globally as well.”

Twitter had actually banned political ads, although it made an exception for certain types of ads and content promoting causes. Did that help it steer clear of controversy? Not at all. Twitter was at the center of a left-right battle when it suspended the New York Post’s account over a problematic story. And the platform seemed to be constantly under attack from one of its most active users — President Trump.

“Our revenue product improvements are driving better ROI as businesses accelerate their digital spend and the online delivery of products and services,” said Twitter CFO Ned Segal. “In the last three weeks of Q3, ad revenue was up 19% year-over-year with fairly consistent daily growth rates during that period. That’s a significant improvement from the 15% year-over-year decrease that we saw in the last three weeks of Q2 and perhaps a good demonstration of how we can perform when so many events and product launches, not all of which typically fall in that window, are driving more people and advertisers to Twitter.”

The word “political” wasn’t even mentioned in the quarterly conference call for Alphabet Corp., parent of Google. Nor did it appear in the company’s third quarter earnings press release.

“Total Google revenues were $46 billion, up 14% year-over-year,” said Alphabet and Google CFO Ruth Porat in her call with analysts. “Google search and other advertising revenues were $26.3 billion in the quarter, up 6% year-over-year as advertiser spend began to pick up in August.

“YouTube advertising revenues were $5 billion, up 32% year-on-year, driven by ongoing substantial growth in direct response, followed by a rebound in brand advertising from increased spending by advertisers,” she added. “Network advertising revenues were $5.7 billion, up 9% year-on-year.”

Amazon has never broken out advertising sales, but says it accounts for most of the “other” category. Other revenues shot up 49% in the third quarter to $5.4 billion. The growth rate accelerated from 45%, 41%, 44% and 41% in the previous four quarters.

Total revenues for Amazon were up 37% to $96.1 billion in the third quarter. The company told investors to expect net sales of between $112 billion and $121 billion in the current quarter, which would be growth of 28%-38%.