Gray Television today reported today that core advertising dropped 4.1% year-over-year in the second quarter, and conceded that the key source of revenue, which accounts for 57% of the group’s total revenue, is not looking any stronger in the third quarter.
It said it expected local core to fall as much as 3% in 3Q and national core to be down between 5% and 8%.
The core results spoiled the otherwise healthy financial profile for the group as it prepares to absorb Raycom Media in the fourth quarter. Gray and Raycom announced the $3.6 billion merger on June 25.
Total revenue for the company rose 10% in the quarter as political advertising exceeded guidance and came in at $18.1 million and retransmission consent fees grew 23% to $85.3 million. Gray claimed an “all-time record” for broadcast cash flow, up 16% in the quarter to $108.3 million.
On a call with analysts Tuesday morning, Gray CEO Hilton Howell said he was “slightly disappointed” with the core results, but he added that there was a “silver lining.”
“In markets where we have third-party revenue audits, we saw greater declines in total market revenue than our own stations in those same markets experienced.
“As such, the … audits showed nearly a full percentage point increase in Gray’s aggregate share of total television advertising revenue in our markets — from 39.9% to 40.7%.”
That share growth confirms Gray’s strategy of accumulating No. 1 and No. 2 stations, he said. Such stations do better than lower rated stations “when markets tighten up.”
Also on the call, CFO Jim Ryan address the core problem, saying the group experienced “continuing weakness in auto,” every broadcaster’s prime advertising category. It was down just over 10%, he said.
Like his peers elsewhere, he blamed Fiat Chrysler for the auto shortfall and said core was also hurt by the pull back of two large MVPDs.
Ryan said that he expected the weakness in core to continue, and possibly to be exacerbated by displacement by political advertising. “I only have so many units to sell in the third quarter,” he said.
The outlook for restaurants is also not good, he said. McDonalds went to network advertising in the first quarter, came back in the second and has disappeared again in the third, Ryan said. “So, it’s a little frustrating for us, but sometimes you just have to deal with it.”
Gray EVP Kevin Latek said that Gray has received “very strong interest” in the nine stations that Gray said it would spin off from the Raycom merger to comply with the FCC local ownership limits. The interest has come from established broadcasters and “new entrants.”
“We expect to finalize the divestiture agreements and get them to the FCC and the antitrust division for review by the end of this month. Consequently, we remain on track to receive the necessary approvals to close this important transaction in the fourth quarter of 2018.”
Latek said that Gray understands the importance of automating spot selling as a way of stemming the decline in the national spot revenue. To that end, he said, Gray is working with the three providers of automated selling systems.
He said that “tremendous progress” has been made and that he hoped implementation would occur in the “near term.”
He also said Gray has no interest in “programmatic” buying and selling, in which the human factor is completely removed from the process. “We take that as a race to the bottom. We are not interested in putting highly valued advertising inventory on programmatic systems that let computers bid the price down.”
And don’t look for Gray to be a leader on ATSC 3.0, he said. He said Gray was a pioneer in mobile DTV and, more recently, OTT streaming of local stations and has little to show for it.
“We don’t see a near-term opportunity to profit from ATSC 3.0. So … we decided this time around, we were going to let some folks in the larger markets who, frankly, have more dollars to spend and more ways to experiment with the technology, to go ahead and do that a little bit and prove a test case.”
He said Gray will convert stations to 3.0 on a market-by-market basis as it sees the return on investment in the market, regardless of market size. “We will be driven by return on investment.”
Latek added that Gray’s reticence about getting out front on 3.0 may soften once it absorbs Raycom’s stations in larger markets. They include Cleveland, Charlotte, Tampa, Cincinnati and West Palm Beach.
16 May 2024
23 May 2024
Comments (3)
Johnathan Williams says:
August 7, 2018 at 2:38 pm
Clueless….What they cannot adjust??? These three people quoted in this article have never sold a commercial in their lives..There is your problem!!!! They took their National spot in-house and thats a joke..This is like reading quotes from a broadcasting article in 1985..Not one word about their digital growth..that is growing +20% in most markets..You want to know why….Its not good..
A Gray employee says:
August 7, 2018 at 4:41 pm
Johnathan, you seem to have an ax to grind when it comes to Gray Television, commenting on most every Gray article. Your use of multiple punctuation and frequent insults suggest you might have been fired by Gray (are you a rep?) or by a Gray station. Those of us employed by Gray are quite happy to be with a company that is growing and taking care of their employees. Managers from other station groups are constantly contacting us wanting to come work for us. National media buyers have all been pleased by our customer service and quick response times. If you have sold a commercial in your life (as you imply) you would understand that when political spending goes up, those ad units take inventory that would have been utilized by local and national spot, so local and national revenue typically goes down during a political period. We’re not newspaper. We can’t just print another page.
Take a breath, man.
Joke Williams says:
August 7, 2018 at 4:27 pm
National spot is down big around the country, and Gray unfortunately is beating us in our market. Additionally, they don’t pay a commission of 4-6% to a rep firm.
I may not like the way the industry is going, but the traditional dinosaurs of our industry, that seem so beloved, waited to long to change with the times.