Auto Revs Up As Political Cycle Ends

Television got the expected big haul from political advertising this quarter, although some station groups came up short of their hopes of setting all-time records. Instead, they had to settle for mid-term election records. And it’s not quite over. The Georgia Secretary of State’s office announced that a run-off election for the U.S. Senate is set for Dec. 6. Heavy ad spending is expected for the next few weeks in the Peach State.

Auto’s Resurgence

But as the political bonanza fades for this cycle, there’s long-awaited good news in another ad category: automotive.

“Locally, automotive remains very strong,” Fox Corp. Executive Chairman-CEO Lachlan Murdoch told analysts in his quarterly conference call. “It’s the first time in a couple of years that we’ve seen local automotive advertising as strong as it is now.

“It’s still too early to gauge how much impact macro-uncertainty will have on base local market advertising in the December quarter, but we are encouraged by the continued positive growth we are seeing in the automotive category,” Murdoch said.

Gray Television President and Co-CEO Pat LaPlatney also saw an upturn in auto. “We saw the auto category turn positive in the third quarter relative to Q3 ’21 and for the first time in a number of years as a percentage of our core revenues relative to the second quarter of ’22,” LaPlatney told investors.

Asked in a Q&A for more detail on the auto sector, Gray CFO Jim Ryan said auto ad revenues rose 6% in the third quarter from a year earlier. On a quarter-by-quarter basis, auto accounted for 15% of core in the first quarter, 16% in the second quarter and increased to 18% of core in the third quarter.

E.W. Scripps also reported good news in the auto category.

“Automotive was down 12% in July, up 4% in August, up 25% in September,” said Brian Lawlor, the company’s president of local media. “I’ll tell you, through October and November we continue to see 20% growth in automotive. That’s one key category that’s now coming back fairly strongly.”

Lawlor said auto’s comeback connected with other supply chain knots loosening.

“We’re starting to feel like the greatest pressure from supply chain [problems] is behind us,” he said. “Not only do we see automotive now gaining momentum, but other categories or subcategories that last year were held back by supply chain issues — like appliances, hot tubs — all those categories are up. They’re up double digits. So, we feel like finally the supply is catching up and providing an opportunity.”

Nexstar also saw auto growth. “We’re extremely pleased to see automotive, our largest advertising category in terms of dollars spent, return to growth in the quarter — increasing in a mid-single-digit percentage over Q3 of 2021,” said Nexstar President-COO Tom Carter.

“There is still pent-up demand,” added Nexstar President, Chairman and CEO Perry Sook of the auto sector. As more vehicles are delivered as supply chain issues are resolved, he said auto ad demand could be a tailwind in 2023 for core advertising.

And Sinclair, too, attested to the resurgence. “From the auto perspective, we’re now comped against the chip shortage and COVID, so we did actually see a year-over-year increase in auto spending,” said Sinclair Broadcast Group COO Robert Weisbord.

That said, Weisbord noted “a couple of things that keep me awake at night and keep us looking at that sector.” While the chip shortage is starting to be solved, Weisbord pointed to a sheet metal shortage, noting Toyota has announced that minivans won’t go into production for at least 18 months.

“And, obviously, interest rates on car loans have increased,” Weisbord noted. “That could be good or bad. It will mean that the inventories start to stockpile, based on the interest rates going up. And the tier three dealerships will need to start advertising those vehicles vs. the shortage that they had on the lots.”

Political’s Relative Success

Gray is one of the broadcasters that stands to benefit from the Georgia run-off, at its flagship station in Atlanta and outlets in other Georgia markets as well.

As of Nov. 4, Gray was guiding to full-year political revenues of $495 million to $505 million. That’s a mid-term election record, but Gray had projected in August that the company would hit its all-time record of $652 million from the 2020 presidential election year.

“Political revenue did not meet our very high expectations this year,” E.W. Scripps President-CEO Adam Symson said in its earnings call.

“Early on, things were lining up in a way that led us to believe our portfolio for the mid-term would attract spending that would beat our record revenue in 2020’s presidential election,” Symson said. “But despite a very strong start to the year, with record spending for the first half, dynamics suddenly changed.”

Executives from both Scripps and Gray said the shifting political landscape changed spending patterns during the quarter. Some competitive races became runaways, while some other races became competitive outside their station footprints.

The political shortfall was not universal.

Nexstar’s Sook told Wall Street analysts that his company’s political advertising is at an all-time record pace — with political revenues as of Election Day at slightly over $500 million, or 103% of what was on the books on Election Day 2020. Nexstar also has Georgia stations that stand to benefit from the run-off, although not in the biggest market, Atlanta.

Network Apprehensions

Executives of the TV station groups seemed more confident in the advertising marketplace during their conference calls than those at the network level.

“Looking to the fourth quarter, we expect media growth, ex-Peacock, to be impacted by a gradual acceleration in pay-TV cord-cutting, as well as some deterioration in the ad market, reflecting broader economic uncertainty,” said Comcast President Mike Cavanagh.

Cavanagh said a difficult macro-economic environment is impacting ad sales in the quarter, a function of what the company is seeing in a soft scatter market and more on the digital side vs. television.

On his earnings call, Paramount Global President-CEO Bob Bakish said: “It is worth noting, TV has the additional benefit of a large upfront base and our audience share growth — the performance of our brands, notably CBS, in the broadcast year — allowed us to take more volume in the upfront. That’s something I’m very happy about sitting here today.”

Disney CFO Christine McCarthy observed that the advertising landscape remains fluid.

“The sports marketplace in particular is delivering strong audiences across our platforms, with marketers looking to take advantage of live events. And several categories, including political, pharma, insurance, and restaurants, have continued to show relatively stable demand, while others remain cautious in anticipation of potential economic softness,” she told investors.

TelevisaUnivision CEO Wade Davis told analysts that everybody in U.S. advertising is feeling some impact from current macro-economic challenges.

“We’re not immune to that,” he said. “However, we have been able to continue to grow our business at a very, very healthy level. Although there was a modest deceleration sequentially from Q2 to Q3, from a growth rate standpoint that was mostly driven by the comparison with last year’s third quarter that came from soccer.”

While TelevisaUnivision doesn’t provide forward guidance, he said to expect acceleration going into the current quarter.

Tech Competitors’ Woes

With less benefit from political advertising and macro-economic stresses on all parts of their businesses, the digital advertising challengers to television had a tough time in the third quarter.

Scripps’ Lawlor suggested that the big digital platforms actually lost political share. “As we think about digital, specifically what we’re seeing is Google and Facebook. From some people we’ve talked to, it looks like they may have been down as much as 50% in the money that was allocated to those platforms,” he said.

Tech companies’ earnings calls made clear it was a tough quarter. Philipp Schindler, Google SVP and chief business officer, told investors during parent company Alphabet’s conference call that across advertising revenues, the year-over-year deceleration in growth rates versus the third quarter of last year was largely driven by lapping very strong performance, most notably in search and other revenue.”

“Additionally, the year-on-year deceleration on YouTube and [Google] Network reflects a pullback in spend by some advertisers, as we first noted last quarter,” Schindler said. “In terms of the revenue lines, Google Search and Other advertising revenues of $39.5 billion in the quarter were up 4%. YouTube advertising revenues of $7.1 billion were down 2%. Network advertising revenues of $7.9 billion were down 2%.”

Asked about the advertiser pullback in Q&A, Ruth Porat, CFO Alphabet and Google, noted tough comps.

“I want to make sure that one of the comments that we made in the opening comments was very clear, which is the year-on-year story in ads was really lapping the very strong third quarter,” she said.

Facebook parent Meta Platforms had a similar story to tell.

“It is a challenging time for advertisers,” said Marne Levine, chief business officer at Meta Platforms, parent of Facebook. “What they are focused on given the economic uncertainty is getting a strong return on investment. Going back to the family of apps and services, Reels continues to be the fastest-growing format on Instagram and Facebook, and it is a great way for people to discover new interests, creators and connect with businesses.”

Dave Wehner, CFO, added: “Q3 family of apps ad revenue was $27.2 billion, down 4% but up 3% on a constant currency basis.”

Wehner said consistent with expectations, the headwind to year-over-year growth from Apple’s ATT [App Tracking Transparency] changes diminished in Q3 as the company lapped the first full quarter post the launch of iOS 14.5.

“However, this was offset by weak advertising demand, which we believe continues to be impacted by the uncertain and volatile macro-economic landscape,” he said. “As a result, our Q3 constant currency growth rate was in-line with our Q2 rate. The health care and travel verticals were the largest positive contributors to growth in Q3. However, this was offset by continued softness in other verticals, including online commerce, gaming, financial services and CPG.”

Third quarter ad sales for Amazon beat analysts’ expectations at $9.55 billion, but investors were disappointed in the company’s fourth quarter guidance to total revenues of $140 to $148 billion.

The continuing impacts of broad-scale inflation, heightened fuel prices and rising energy costs have impacted our sales growth as consumers assess their purchasing power and organizations of all sizes evaluate their technology and advertising spend,” said CFO Brian Olsavsky.

“As the third quarter progressed, we saw moderating sales growth across many of our businesses, as well as the increased foreign currency headwinds, and we expect these impacts to persist throughout the fourth quarter,” he said. “As we’ve done at similar times in our history, we’re also taking actions to tighten our belt, including pausing hiring in certain businesses and winding down products and services where we believe our resources are better spent elsewhere.”

And while advertising can’t overcome the headwinds the company’s traditional businesses are facing, Olsavsky was upbeat about the growing video ad business. He noted that the premier of NFL Thursday Night Football drew 15 million viewers and drove the three biggest hours ever of U.S. sign-ups for Amazon Prime.

“We also saw good growth in our advertising offerings where sales grew 30% year-over-year, excluding the impact of foreign exchange as vendors and sellers have embraced our portfolio of products, which allow advertisers to build general awareness and/or drive sales of a specific product” he noted.

New to the advertising competition is Netflix, which launched its $7 per month ad supported SVOD tier on Nov. 3, more than a month after the third quarter ended. So, there are no ad sale numbers yet, but company Reed Hastings, co-founder, chairman, president and co-CEO, got in some digs at broadcasters during his third quarter conference call.

“What we — or what I underappreciated — was just the impact on advertisers,” Hastings said. “They’re just being able to reach fewer people. And then the 18-49 demographic is even faster than the decline in pay TV. So, this is what is really fueling the cycle is that collapse of linear TV as an advertising vehicle outside of a few properties like sports.”

Gregory Peters, Netflix COO- chief product officer, added, “I’m not going to comment on any specific pricing, but I would just say that I think we’ve got a very attractive offering. And that’s a combination of the audience that we have, that we’re delivering to, that oftentimes it’s hard to access in other ways, certainly harder to access in traditional TV in many cases. And it’s a result of the incredible content that we’ve got.”