Gray, TelevisaUnivision Buck Broadcast’s Downward Trend To Post Gains

While total revenues were down so far in this political off-year, Gray Television topped its general-market peers with a 4% year-over-year increase in 2Q core advertising. Spanish specialist TelevisaUnivision did even better in the second quarter, posting an overall increase in advertising.

During Gray’s Aug. 4 Wall Street conference call, analyst Craig Huber of Huber Research Partners asked why Gray is outperforming its peers on core advertising.

“I’m not going to comment on the peers, only to acknowledge the results that we published today seem to lead the peer group in core advertising, both for the quarter and year-to-date,” said Gray CFO Jim Ryan. “We have the preeminent portfolio with asset quality in the television business — and we have had that for decades. We have always had a focus on strong local operations. We’ve been exceedingly laser-focused on strong local news operations.

“When you have a strong local news operation wrapped around these strong, larger overall television operations in most of the 113 markets you operate in, you have a chance to consistently perform well, to exceedingly well, to outperforming the peer group,” Ryan said.

Looking ahead, the CFO had told analysts to expect core local revenue to be up in a low-single-digit range for the third quarter. He added that local will continue to do a bit better than national.

TelevisaUnivision CEO Wade Davis also noted that the company’s ad sales outperformed the market in the U.S. “Our national business, which accounts for the majority of our U.S. advertising revenue, was strong this quarter, growing 7%, while the local business was roughly flat, excluding political and advocacy,” he said.

Overall, ad revenues were up 1% in the U.S. and 29% in Mexico for TelevisaUnivision.

CFO Carlos Ferreiro noted that the company benefitted from the strong peso, since most of its costs are in Mexico, while most of the revenue is in the U.S.

“The growth was driven by streaming, while linear revenues were roughly flat,” Ferreiro said. The scatter market remains challenged, reflecting macro-driven softness that has proceeded for a few quarters now.”

Auto Resurgent

Broadcasters across the board applauded the continued recovery of automotive advertising.

Nexstar COO Tom Carter told analysts: “We’re extremely pleased to see automotive, our largest advertising category in terms of dollars spent, maintain its growth trajectory for the fourth quarter, increasing 10% over Q2 of 2022. While overall automotive spend remains below 2019 levels, we are encouraged by the continued rebound in the category and recent reports indicate that manufacturers now have millions of vehicles in inventory, which suggests that the category can continue to improve.”

In his last earnings call before retirement, Carter said categories most responsible for the core advertising revenue decline were radio/TV/cable and newspaper; medical/health care; gaming/sports betting; banks/savings and investments; and fast food and restaurants, with about three-quarters of Nexstar’s categories declining in the quarter.

E.W. Scripps, too, saw positive signs in automotive. “We were pleased to realize for the fourth consecutive quarter growth in automotive, which was up 13% in Q2 and made up 17% of our core revenue,” said  Scripps COO Lisa Knutson of the company’s TV group.

Knutson also noted home improvement was up 8%, and the company benefitted from the Denver Nuggets appearance in the NBA Finals this year. She said average unit rates for premier sports in Scripps markets can be more than 10 times the average unit rate when it doesn’t have a local team competing. “This dynamic is an important driver in our Scripps Sports strategy,” Knutson said.

Sinclair noted auto was up in its earnings. “Auto continues to be a strong performer for us, with that category up 6.5% year-over-year,” COO and President of Local Media Robert Weisbord said in the Sinclair conference call.

“Overall, legal services continued to perform well for the quarter, but most other service categories, led by insurance, continued to record year-over-year declines,” he added. “As we begin to look at early third quarter trends, core advertising trends appear to be largely unchanged from second quarter trends, with a notable exception of national advertising, which is improving over the last month.”

Asked for more color on ad trends, Weisbord said, “It’s still a month-to-month basis, but we’re encouraged that we’re not seeing any significant cancellations.”

Auto gains were noted at Tegna as well. CEO Dave Lougee hailed the fourth straight quarter of auto category growth. He added that it “is doing it again and is strong in Q3 as well.”

Tegna SVP of Financial Planning Julie Heskett added,:“We, too, are seeing improvement in national. National is still weaker than local. Local continues to hold in there and is doing good. National is improving sequentially quarter-over-quarter and I would expect that to continue into Q3 as well.”

Tegna also used its earnings call to announce that Heskett will become CFO of Tegna at the end of this year as Victoria Harker retires.

In her parting remarks, Harker observed, “We continue to see year-over-year strength in home improvement, services, and travel and tourism,” while “categories facing headwinds in the current macro-economic environment include media, telcom, restaurants, health care and retail.”

Linear Anxieties?

Fox Corp. Executive Chairman-CEO Lachlan Murdoch is also upbeat about the current quarter. “While it is early in the quarter, underlying ad trends have shown signs of improvement over last quarter. We are seeing an uptick in scatter, driven largely by sports, and national news is solid,” he said.

Cable advertising was down 11% in the April to June quarter, primarily due to direct response weakness on Fox News, explained CFO Steve Tomsic.

“Our television segment reported 4% growth in quarterly revenues. This was led by 9% growth in affiliate fee revenues,” he told analysts, noting television advertising revenues fell 1% as growth in Tubi was offset by lower off-cycle political revenues and a slower rebound in the base market at the Fox Television Stations and lower ratings at Fox Entertainment.”

“Linear is not going anywhere,” Nexstar Media Group Chairman-CEO Perry Sook declared, after noting that some big media companies are reevaluating their linear TV holdings — an obvious reference to Disney and CEO Bob Iger’s CNBC interview comments questioning broadcast’s future role in the company.

Indeed, the linear networks business was down in the past quarter at The Walt Disney Co., although Interim CFO Kevin Lansberry noted that ESPN’s ad sales rose.

“Quarter-to-date ESPN domestic linear cash ad sales are pacing down, reflecting in part the absence of the Big 10 this year,” Lansberry said. “It’s worth noting, however, that the absence of the Big 10 is expected to drive overall operating income favorability in [fiscal] Q4 versus the prior year. The fourth quarter will also hold an additional Monday Night Football game versus the prior year.”

He said linear advertising continues to see impacts from market softness, and while sports is healthy, entertainment continues to face headwinds.

Analysts were most interested, though, in how Disney might sell or restructure its ABC, ESPN and other cable networks.

“Clearly if we are to do anything significant in what I’ll call strategic direction with the linear nets, we have to keep in mind the need for content ultimately to fuel our D2C businesses, notably, as you mentioned, Hulu,” CEO Bob Iger said in response to a question from J.P. Morgan’s Phil Cusick.

“Anything that is to be done would be done with an eye toward maintaining a rich flow of content to fuel our growth business—and that would be streaming,” he said.

Streaming’s Key Role

Streaming once again got a lot of attention from the large media companies in their quarterly calls.

“As we roll forward through the year, in Q3 we expect to see a slight improvement overall on a year-to-year basis, but that will be driven by D2C,” said Paramount Global CEO Bob Bakish. “But as we get to Q4, there sports are going to be the key driver, frankly the NFL, The Big 10 — that timing has turned out to be great for us — as well as our modified CBS slate, which is strong and has plenty of scripted programming.”

At Comcast, CFO Jason Armstrong noted that the dual revenue streams at Peacock, subscription and advertising, are offsetting weakness at the linear networks. He said domestic advertising was down 5% overall for the NBCU media businesses, while advertising revenues for Peacock were up 75%.

Comcast President Mike Cavanagh echoed a comment by Armstrong that the ad marketplace is looking much the same for the third quarter.

“I think we feel good about our upfronts,” Cavanaugh said. “Despite those headwinds our total cash and pricing levels were roughly in line with last year — and really strong related to Peacock in particular. A lot of that comes from the strength of our portfolio.”

Upshot Of Strikes For Linear?

E.W. Scripps CEO Adam Symson suggested that the ongoing writers and actors strikes could eventually benefit the linear TV business.

“Ultimately, the strike is going to lead to higher costs for streamers,” Symson said. “There’s clearly going to be progress made with respect to residuals on streaming platforms,” he said. “With higher expense structures, even more than they have today, [the streaming companies] will continue to look for new ways to offset that expense, or to monetize their own costs. And I think that will open up additional programming opportunities for linear broadcasters like us.”

Tegna’s Lougee noted a favorable impact for broadcasters from cord cutting, with audience reach shifting from cable to broadcast.

“While many of the traditional cable and satellite homes we lose are replaced by virtual MVPDs as well as over-the-air antenna homes, the local cable interconnects in our many markets don’t have that subscriber and viewer replacement mechanism. And their reach in any local market is down dramatically in recent years,” Lougee said.

Stronger Quarter For Tech, Buoyed By AI

Television’s major digital competitors welcomed a bounce-back in the second quarter after some tough times.

Alphabet, the parent of Google and YouTube, delivered financial results that beat expectations. Total revenues of $74.8 billion were a couple of billion more than the Wall Street consensus.

Google ad revenues grew 5% from a year ago to $58.1 billion. YouTube ad revenues were up 4% to $7.3 billion.

Company executives pointed to the company’s long involvement in artificial intelligence as driving ad growth in search—with the learning there helping across all sorts of advertising. “AI has been at the core of our ads business for years,” said Philipp Schindler, SVP and CBO, Google. “In fact, today, nearly 80% of advertisers already use at least one AI-powered search ads product.”

Speaking to YouTube, Schindler added, “As we think about growth, we’re focused on shorts, connected TV and our subscription offerings, all of which grew nicely this quarter.”

Alphabet CFO Ruth Porat, who is moving to a new position of president and chief investment officer, said there was an acceleration of search advertising revenue growth in the second quarter.

“In YouTube, we saw ongoing signs of stabilization in advertiser spending,” she said. “We are prioritizing product focus on increasing quality consumption of video content with both shorts and in the living room, which is translating into improved monetization.”

Facebook parent Meta Platforms saw revenues rise 11% to $32 billion, also beating Wall Street expectations and its best growth rate since 2021. Ad revenues, which account for most of that, rose 12% to $31.5 billion.

Meta CEO Mark Zuckerberg is also singing the praises of AI.

“AI is driving results across our monetization tools through our automated ads products, which we call Meta Advantage,” Zuckerberg said in Meta’s earnings call. “Almost all our advertisers are using at least one of our AI-driven products. We’ve also deployed Meta Lattice, a new model architecture that learns to predict an ad’s performance across a variety of datasets and optimization goals. And we introduced AI Sandbox, a testing playground for generative AI-powered tools like automatic text variation, background generation and image outcropping.”

CFO Susan Li spelled out three things that accounted for the advertising growth: lapping a weaker demand period; increased supply and improvements to ad performance, including improved Reels monetization; and lower FX headwinds for us this quarter.

Amazon also had a good second quarter, with revenues up 11% to $134.4 billion. Within that, advertising rose 22% to $10.7 billion.

“Our performance-based advertising offerings continue to be the largest contributor to our growth,” said CFO Brian Olsavsky in Amazon’s Wall Street conference call. “Our teams worked to increase the relevancy of the ads we show to our customers by leveraging machine learning and improve our ability to measure the return on advertising spend for brands.”

As he noted, Amazon was also touting its AI achievements. The company said it introduced new, more advanced machine learning models to help advertisers reach previously unaddressable audiences with Amazon Ads.