Local Ad Spend Buoys Softer National Spend In Local TV’s 4Q
One theme of this quarter’s Wall Street conference calls by television group owners is that there are currently two different trends in TV advertising.
“Local was strong in January and February,” said Sinclair Broadcast Group COO Robert Weisbord. “The weakness we’re seeing is really on the national side.”
Weisbord said he expects that dynamic to continue. “We’re not seeing any cancellations at all,” he said. “What we’re seeing is close in [orders] and that’s why March is lagging right now.”
In his earnings call, Nexstar Media Group CEO, President and Chairman Perry Sook painted a similar picture. “Obviously we spend a lot of time with local business owners and local advertisers,” Sook said. “The consumer is still spending and local spending for us is hanging in there just fine in the first quarter.
“The weakness we see is in national, where national advertisers — who obviously aren’t as close to the end-user and customer — have paused or reduced spending due to a potential weakness in consumers going forward,” he said.
Gray Television was also bullish on local. “We’re seeing a lot of good things in our local markets,” said Gray Television COO Bob Smith, adding the company has seen “a ton of new business development — those are local direct accounts that are coming onto TV — we’ve had a lot of success with that.”
Smith noted automotive has been resurgent in many markets, and legal continues to perform well. Sports gambling, recently approved in Ohio, has been a boon to Gray’s markets there. “We’re optimistic that North Carolina will pass gambling in time for the football season,” he added. “Overall, despite the headwinds, despite all of the chatter … there’s a lot of good things happening in our local markets right now.”
E.W. Scripps noted those same headwinds. “The current macro-economic climate continues to put pressure on TV advertising—and you’ll see that reflected in our outlook,” said Scripps COO Lisa Knutson in its call.
“The first quarter already tends to be the lowest revenue quarter of the year and the pressure on the ad market didn’t start until the end of the first quarter last year,” she said. “In addition, in the local media segment we have a tougher comp in core advertising because our first quarter of last year included nearly $9 million in Winter Olympics advertising, as well as the Super Bowl on our 11 NBC stations. This year, with no Olympics and the Super Bowl on four Fox stations, we missed out on about $7 million. Excluding the Olympics and the Super Bowl, Q1 core advertising is expected to be down mid-single-digits year-over year.”
Knutson noted that Scripps’ top local media core advertising categories by total dollars for the first quarter are likely to be services, automotive, retail, home improvement and gambling. Only two of the five, automotive and home improvement, were up in January, she said.
Auto was also up for Nexstar, Carter noted. “We’re extremely pleased to see auto, our largest advertising category in terms of dollars spent, maintain its growth trajectory for the second consecutive quarter, increasing 23.5% over Q4 of ’21,” he said.
But when asked if auto’s recovery still has room to run, Sook pumped the brakes. “We’re not back to 2019,” he said. “We are seeing some sustained, healthy increases off of that lower base. I think we have another couple of years of these kinds of increases before we begin to approach 2019 levels. It is certainly a tailwind in core advertising revenue. Auto is up double-digits, and we see that continuing throughout the year.”
Sinclair’s Weisbord also spoke to auto’s comeback. “Automotive has rebounded — off of a lower basis point,” he said. “There is inventory on the lots — the tier three lots. That bodes well for us.”
Mixed Signals From Networks
While auto is recovering for local TV, it was one of the categories mentioned as soft on the network side by NBCUniversal CEO Jeff Shell during the Comcast call.
“There’s parts of the market that feels uncertain — tech, auto, financial services all are weak,” Shell said. “It feels like the weakness is due less to businesses not doing well, and more to macro uncertainty. None of us really know where the economy is headed, and I think some advertisers in those segments are really holding back — and when they do advertise, they’re coming in later than usual.”
Shell offered tempered optimism. “The ad market feels to me like it has stabilized a bit,” he said. “We’re assuming it’s going to stay weak for the first half of this year and then recover, but who really knows, based on the macro economy.”
After the company reported TV media advertising down 7% in the fourth quarter, Paramount Global CEO Bob Bakish qualified: “There are some bright spots for sure. Categories that are really working at the moment are food and beverage, pharma, travel and, increasingly, auto,” he said. “The strength really is much more so on the direct side of the business, and that’s the place where Paramount has a real advantage.”
“The underlying local ad business is also improving, but lower political spend will be a headwind in Q1 relative to Q4,” Paramount CFO Naveen Chopra added in discussing ad trends.
Fox Corp. Executive Chairman-CEO Lachlan Murdoch said his company is not seeing the softness that some other media companies have reported.
“We’re seeing advertising being fluid and money coming late,” Murdoch said. “It is a different environment than we were in a year ago, or even a couple of quarters ago, but at the end of the day, we’re still hitting our goals and our revenue targets. It’s just coming in late. I think that goes to the strength of our portfolio.”
Murdoch also provided some details about strength in the O&O local TV group. “We’re really happy to see a lot of categories back to robust growth,” he said. “Auto is pacing up almost 30%. Health up 30%. Pharmaceuticals up 45%. Travel up 60%. And, of course, this is offset with categories like crypto, down 97%. We’re still trying to find out who the three percent is who is left advertising.”
Disney Focuses On Reorg
Rather than ad trends, the conference call at The Walt Disney Co. was focused on a major reorganization designed to save $5.5 billion and reduce headcount by 7,000. Just where those job cuts will take place has not been spelled out.
“We are going to take a really hard look at the cost for everything that we make — both across television and film, because things in a very competitive world have just suddenly gotten more expensive,” said Bob Iger in his first quarterly call since returning to the Disney helm. “And that is something that is already underway here.”
In its financial release, Disney said broadcasting results were comparable to the prior-year quarter as growth at the owned television stations from higher advertising revenue was largely offset by lower results at ABC. The decrease at ABC was due to lower advertising revenue, partially offset by higher affiliate revenue from contractual rate increases.
vMVPDs In Focus
The current impasse between Paramount Global and the CBS affiliates board over Fubo TV carriage rates got attention in each of the calls by groups who own CBS local affiliates. And there was unanimity that the framework for negotiating retrans terms with virtual MVPDs has to change.
“No other company has a right to negotiate on behalf of my company without our consent,” said Gray Chairman-CEO Hilton Howell. “I have no intention of negotiating in public, or criticizing anyone anywhere. The negotiations in the past had been agreed to, so they were handled that way. The affiliate groups feel that times change.”
Howell noted in Gray’s call that he was standing shoulder to shoulder on the matter with Sinclair CEO Chris Ripley.
With most CBS affiliates dropped from Fubo and replaced by a national feed, an analyst asked if a similar outcome is likely for YouTube TV when its agreement comes up for renewal this year.
“I think this will actually get resolved, in terms of Fubo, and YouTube we’ll have to see,” Ripley said in Sinclair’s call. “My take on it is that it will be resolved at some point between us and the networks in the next couple of months. The bigger issue that we’re highlighting is one of equity in terms of how virtuals are dealt with versus traditionals. That is something that there’s a growing consensus in the industry and within D.C that that needs to change.”
Nexstar’s Carter reaffirmed the industry’s solidarity on vMVPDs. “We firmly believe that we should control our own destiny with regard to the virtual MVPDs instead of allowing networks to negotiate on our behalf,” he said, calling the terms negotiated by Paramount Global with Fubo for local CBS affiliates “below market.” He noted, however, that the outcome with Fubo TV may not be indicative of what may happen elsewhere as other vMVPD contracts come up for renewal.
Sook added that Nexstar “will go dark if we have to” to be properly compensated by the vMVPDs for its local stations.
Mixed Bag For TV’s Tech Competitors
It was a mixed quarter for television’s main competitors in the digital advertising marketplace. Amazon, which is still a relative newcomer to large-scale ad sales, showed growth. Meanwhile, the established giants — Google and Facebook — had a tough time.
“We saw good growth in advertising revenues in Q4, up 23% year-over-year, excluding the impact of foreign exchange,” said Amazon CFO Brian Olsavsky in the company’s quarterly conference call. “We also finished our inaugural season as the exclusive home of Thursday Night Football, reaching the youngest median age audience of any NFL broadcast package since 2013 and increasing viewership by 11% from last year among hard-to-reach 18- to 34-year-olds.”
Overall, Amazon reported that net sales increased 9% to $149.2 billion in the fourth quarter. Sales in North America grew 13% year-over-year to $93.4 billion.
Despite its growth, advertising is still a relatively small segment of Amazon’s business. Without adjusting for foreign exchange, ad revenues in the fourth quarter were up 19% to $11.6 billion.
Google parent Alphabet had an up quarter for revenues, but only barely. Total revenues rose only 1% to $76.05 billion.
“Google advertising, search and other revenues were down 2% year-over-year, and YouTube ads and network had high single-digit revenue declines,” said Philipp Schindler, SVP and chief business officer, Google, in Alphabet’s conference call.
Search advertising dropped to $42.60 billion from $43.30 billion a year earlier. YouTube ads fell to $7.96 billion from $8.63 billion. And Google network ads were $8.48 billion, down from $9.31 billion in the fourth quarter of 2021. Total Google advertising slipped to $59.04 billion from $61.24 billion.
“Despite ongoing revenue headwinds in Q4, we’re confident in YouTube’s long-term trajectory,” Schindler said. “It all starts with the creator ecosystem. Creators are the lifeblood of YouTube. In 2022, more people created content on YouTube than ever before. Long-form, short-form, audio, podcasts, music, livestreams — what sets YouTube apart is we give creators more ways to create content and connect with fans and more ways to earn money than any other platform. More creators means more content, means more viewers, which leads to more opportunities for advertisers.”
He went on to hail connected TV as a future growth area. “According to Nielsen, YouTube is the leader in U.S. streaming watch time,” he said. “Advertisers are leaning in. With AI-powered solutions, we’re helping brands deliver efficient reach and ROI and address pain points like frequency and measurement.”
YouTube is making a big move into sports streaming with the NFL’s Sunday Ticket rights. To that, analyst Michael Nathanson of MoffettNathanson asked, “Why is it so critical to have the NFL? And is this the first of many sports rights deals you have?”
“It basically means that every YouTube viewer who is interested in the NFL can now have one-click access to the full offering of Sunday Ticket as an add-on package on a YouTube TV subscription, and as a standalone offering on primetime channels,” Schindler said. “This will be the first time Sunday Ticket is actually available a la carte for fans. On YouTube TV we are building the ability for subscribers to, for example, watch multiple screens at once. And on YouTube CTV, we will be adding new features specific to the Sunday Ticket experience, like comments, chats, polls, and so on.
“On the creator side, imagine all the innovative ways they can create with exclusive NFL content, behind-the-scenes event access and so on,” he continued, “And we are really excited to see what they’ll do across long form, shorts, live streams and more.”
Meanwhile, Meta Platforms, the parent of Facebook, had a tough fourth quarter.
“Q4 family of apps ad revenue was $31.3 billion, down 4% but up 2% on a constant currency basis,” said CFO Susan Li in the company’s conference call with analysts. “Consistent with our expectations, Q4 revenue remained under pressure from weak advertising demand, which we believe continues to be impacted by the uncertain and volatile macroeconomic landscape. The financial services and technology verticals were the largest negative contributors to the year-over-year decline in Q4, but both have relatively smaller shares of our revenue.”
She noted that growth remained negative in the company’s largest verticals, online commerce and CPG, though the pace of year-over-year decline in online commerce slowed compared to last quarter. “The largest positive contributors to year-over-year growth in Q4 were the travel and health care verticals, though both are relatively smaller verticals in absolute share,” Li added.