In Strong 1Q, Inflation Picks Up, But So Does Political

Prices are moving higher for most products. But is inflation a good thing or a bad thing for advertising? While analysts and broadcasters try to figure that out, one thing is certain: political advertising is on fire.

E.W. Scripps President-CEO Adam Symson told analysts that inflation is one of the factors making this a good time for the company’s advertising campaign for free, over-the air television. The major drive for the campaign will be in the third quarter, including yet-to-be announced retail partnerships to drive consumer activation.

“We really expect to take advantage of this moment when consumers are frustrated with the increases they’re seeing by subscription video-on-demand services,” Symson said. “They’re frustrated by the content flood. And they’re experiencing a level of ‘plus fatigue’.”

As TelevisaUnivision reported double-digit advertising and total revenue gains for its first quarter as a merged company, Deutsche Bank analyst Aaron Watts wanted to know whether the Spanish-language TV giant is seeing any advertiser hesitation because of economic worries.

“No, to the extent that there’s any categories that are soft it’s not really macro-economic driven,” CEO Wade Davis replied. “It’s really supply chain driven.”

Davis said soft categories in addition to auto include food and CPG. “Other than that, we’re seeing huge strength across the board. Pharma is up 34%. Finance is up almost 50%. Retail is up 40%,” Davis said.

Steady Growth At Scripps, Nexstar, Gray

Scripps reported revenue from its Local Media segment up 4.5% in the first quarter, with core advertising up 3.4%. And its Network group — with nine networks delivered via digital OTA channels and connected TV —p roduced revenue growth of 8.5%.

Brian Lawlor, president of Local Media, proudly noted that it was the fifth consecutive quarter of growth in core advertising for the TV station group and exceeded the company’s guidance for the quarter.

“The growth in core was driven by two categories in particular: services, which was up 11%, and home improvement, which was up 12%,” Lawlor said. “Five of our top seven categories showed year-to-year growth in the first quarter.”

This quarter is continuing to show strength, said Nexstar Media Group Chairman-CEO Perry Sook in his quarterly call.

“We actually saw a slight acceleration in April results as far as increases over the prior year versus our Q1 finish,” Sook said. “Broadcast and digital and networks were all up for their percentage increase versus the prior year in Q1. Thematically, the quarter from a core and category perspective looks a lot like the first quarter.”

Sook said automotive is trending slightly down from prior year, “but not as much as maybe some others have reported.” And other categories that have been driving growth — entertainment, gaming and services — continue to do so, he said.

Pat LaPlatney, president and Co-CEO of Gray Television said the company is continuing to focus on adding new local advertisers, with a run rate of $9 million to $10 million in new local direct business being added each month.

“Although the automotive category is struggling, other categories are growing,” LaPlatney said. “In fact, the health category is pacing just slight behind auto. While that is good news and bad news to some degree, it’s a clear victory for in-house health and political sales teams.” He added that the gambling, home improvement and legal categories also continue to grow.

Change Of Booking Pace

During the Scripps call, analyst Michael Kupinski of Noble Capital Markets wanted to know if local advertisers are booking closer to air date because of the economic climate.

Lawlor said there has been a change in the pace of how people are booking business. “Clients that would normally book a quarter at a time are in a month-to-month,” he said. “They’re definitely holding back and booking two weeks out or a week out. They’re really waiting due to supply chain issues, to determine if they’re going to have enough product to sell and then they’ve also got to look at do they have the employees.

“Think of the service categories—do I have enough employees to go install a fence, or put on a roof, or deliver a hot tub? Do I have the hot tub? Or are they backordered? All of those things are factors now,” Lawlor said.

Political’s Dominance

Political continues to beat expectations even so early in this off-year election. The big question is just how big can it be?

“It’s going to be a gargantuan year in this mid-year election,” said Gray Television Chairman-CEO Hilton Howell. “I think it will likely rival, if not exceed, any previous presidential election.”

Howell later clarified that beating the 2020 presidential year record of $652 million is “aspirational,” and not reflected in Gray’s financial projections.

Kevin Latek, chief legal and development officer at Gray, noted that the target of $575 million is already 25% ahead of 2020 after excluding the spending for the presidential race and two Senate runoffs in Georgia, which won’t exist this year.

Nexstar’s Sook continues to be optimistic about political advertising, with revenue of $23.7 million up more than 40% from the first quarter of 2018, the previous non-presidential election year.

“We see fundraising, which is a key indicator for political ad spend, increased 91% over Q1 of 2018, according to the Federal Election Commission,” Sook said. “We expect fundraising levels to accelerate as we move through the year, given these positive trends and recent events.”

Even so, Sook stuck with his forecast that this will be a record political advertising year for an off-year election and isn’t yet saying it could beat the last presidential year, 2020.

Pro forma core was up 3% and total advertising was up 7% at Sinclair Broadcast Group.

“Political is tracking above our expectations and we look forward to 2022 having the record mid-term election spend,” COO and Broadcasting President Robert Weisbord told analysts.

On second quarter guidance, Weisbord said Sinclair expects another strong quarter for political, which is the main driver for media revenues increasing approximately four to seven percent versus pro forma second quarter last year.

Second quarter total advertising revenue is expected to be up high single digits or low teens percent versus last year’s Q2, according to Sinclair EVP and CFO Lucy Rutishauser.

During Q&A, Weisbord was asked for an update on which advertising categories are up and down.

“Our reliance on auto has been mitigated by our focuses in the service, retail and food categories,” he said. “Those remain strong. That bodes well for when auto returns—and we expect it to return. We’ve spoken to many large tier-three auto groups and they’re holding onto their coop money to spend when the chip shortage is resolved. The expectations are now towards the end of 2022 or into 2023. With the political crowd-out, it increases our viability going even to 2023.”

Growth At NBC And Fox

With both the Olympics and the Super Bowl, the NBCUniversal division of Comcast had a huge first quarter.

“Media revenues increased 36% to $6.9 billion, including Peacock revenue, which grew more than five times year-over-year to $472 million in the quarter,” said Comcast Corporation CFO Mike Cavanagh in the company’s quarterly conference call with Wall Street analysts.

“Advertising revenue, excluding contributions from the Olympics and Super Bowl, increased 4%, reflecting higher pricing and a growing contribution from Peacock, which was partially offset by linear ratings declines,” Cavanagh said. All in, including those big sports events, advertising was up 59.2% for the quarter.

At Fox Corp., the television segment delivered 6% advertising revenue growth, credited to strong linear pricing at the Fox Network and continued growth in Tubi, partially offset by lower impressions at Fox Entertainment.

“At the Fox Television Stations, notwithstanding the ongoing supply chain related challenges to the auto category, we continued to grow advertising revenues supported by gains in our digital efforts and continued demand from the sports betting category,” CFO Steve Tomsic said.

Executive Chairman-CEO Lachlan Murdoch was upbeat when asked about Upfront expectations.

“We’re seeing really solid demand across our businesses,” Murdoch said. “In pricing, entertainment seems in the mid-to-high single digits range above last year. But in sports/news — we’re very well positioned — and we’re seeing pricing up mid-double digits, so the mid-to-high teens pricing rate increases, driven by demand across live sports and live news

Paramount And Disney Gains

While Paramount Global President-CEO Bob Bakish focused on growth for the company’s streaming platforms in his call with analysts, he also tied that into the legacy TV business.

“Many of the cornerstones of our CBS lineup — fan favorites like Ghosts, NCIS and FBI — are also among the strongest performers in streaming,” Bakish said. “To date this season, CBS has been the source of 17 of the top 30 titles on Paramount+. And on Pluto TV, CBS content accounts for 10 of the top 30 series in the quarter.”

Bakish also bragged that CBS continues to be the most watched network, despite not having either the Super Bowl or Olympics this season.

Streaming was also top of mind for Disney CEO Bob Chapek, as he announced plans for an advertising-supported tier on Disney+. That comes just in time to pitch the new outlet in the upfront with ABC and the linear cable networks, along with other digital properties. Chapek said advertisers “have been asking for this for years.”

Meanwhile, Disney’s domestic TV channels grew revenues 8% in the quarter and operating income gained 3%, with higher operating income at broadcasting partially offset by lower operating income at cable.

“The increase at Broadcasting was due to higher results at the owned television stations and, to a lesser extent, at ABC,” the company said it its press release.

Tech Competitors Soften

The first quarter produced some soft results for television’s biggest digital advertising competitors.

YouTube’s ad revenue growth from a year earlier was only 14% to $6.9 billion. That was down sharply from 49% a year earlier and well short of Wall Street expectations.

Overall, Alphabet, the parent company of Google and YouTube, reported revenues up 23% to $68 billion and net income down 8% at S16.5 billion, disappointing investors all around.

YouTube’s Woes

In the company’s quarterly conference, Sundar Pichai, CEO of Alphabet and Google, insisted that YouTube Shorts — which is not yet being monetized with advertising — is on target. The short-form videos are now averaging 30 billion daily views. But is that diverting eyeballs from ad-supported videos?

“As we’ve always done with products, we focus on building a great user experience first, and we will work to build monetization over time,” Pichai told analysts.

“The living room is another area of opportunity,” he said. “On average, viewers are watching over 700 million hours of YouTube content on televisions every day. And in the year ahead, we’ll give YouTube’s Connected TV viewers new smartphone-controlled navigation and interactivity features, allowing people to comment and share content they’re watching on television directly from their devices.”

Asked specifically whether YouTube Shorts is cannibalizing the main ad-supported product, Ruth Porat, CFO of Alphabet and Google, insisted that was not the reason for slowing ad growth.

“In terms of the deceleration in the year-on-year revenue growth rate relative to the first quarter, the largest factor was lapping an exceptionally strong quarter in direct response, as we noted last year,” she said. “In addition to that direct response lapping, there were a couple of other items worth noting. First, the war. That did have an outsized impact on YouTube ads relative to the rest of Google, and that was both from suspending the vast majority of our commercial activities in Russia as well as… the related reduction in spend primarily by brand advertisers in Europe.”

Meta’s Tempered Performance

Meta Platforms, the parent of Facebook, managed to report higher earnings than analysts had expected, even as revenues came up short of expectations. Total revenues were up 7% to $27.9 billion. Earnings per share were down, but not as much as expected, declining 18% to $2.72 per share.

CEO Mark Zuckerberg outlined near-term challenges bedeviling the tech giant.

“Some are specific to Meta, like our transition to short-form video, which doesn’t monetize as well for now, but which we’re quite optimistic about over the long term,” Zuckerberg said. “Some are specific to our industry, like signal loss resulting from Apple’s iOS changes, which is a meaningful headwind, but we also expect that with the right technology investments we’ll navigate okay over time.”

Zuckerberg said other challenges are broader macro trends, like the softness in ecommerce after the pandemic acceleration. The war in Ukraine has also had an impact on business, he noted.

“We’ve been blocked in Russia, and we decided to stop accepting ads from Russian advertisers globally,” Zuckerberg said. “We’ve also seen effects on business globally following the start of the war.”

COO Sheryl Sandberg noted total ad revenue in 1Q was $27 billion, up 6% year-over-year

“On a user geography basis, year-over-year ad revenue growth was strongest in Rest of World and AsiaPacific at 21% and 20%, respectively,” Sandberg said. “North America grew 1% and Europe was flat year-over-year. Europe advertising revenue was disproportionately challenged by the factors related to the war in Ukraine.”

Sandberg said changes to the ad landscape over the last year have caused significant disruptions businesses’ online advertising. “Our teams are working closely with our partners to help them navigate this new environment so they can continue to get great return-on-investment,” she said. “And we’re focused on building products and tools that grow their businesses and ours over the long term.”

Sandberg said the company has accelerated its efforts to improve the Reels ads format. “We’re leveraging what we learned with Stories ads to create ads for Reels that have a native format, perform well, and are easy for advertisers to create,” she said.

Amazon Disappoints

Advertising was a double-digit percentage gainer for Amazon, even as the company disappointed investors with its overall results.

Advertising revenues rose 23% year-over-year to $7.9 billion. Still, CNBC reported that analysts had expected $8.2 billion.

Total company revenues increased 7% during the first quarter to $116.4 billion, compared with 44% expansion in the year-ago period. That was the slowest growth rate for any quarter since the dot-com bust in 2001 and the second straight period of single-digit growth.

During the company’s conference call, CFO Brian Olsavsky noted that the advertising run rate was strong, compared to the rate for the overall company.

“We’re still very happy and pleased with the way the advertising team is performing and how advertising has been valued by both sellers and vendors and others who use it to reach our customer base at the point where they’re considering purchases,” Olsavsky said. “We continue to roll out new and new products for sellers to manage their advertising and increase the ability to analyze and calculate the payback on marketing investments with us.”