Political Cushions Other Spot Woes In TV Earnings
As inflation soars and talk of a recession swirls, television is enjoying a banner year for election-related ad sales. Political has been so hot that some TV groups are starting to say that their political revenues will set a record this year — beating not just the previous mid-term election in 2018, but the 2020 presidential election year as well.
“We are now moving into the heart of the political spending season, when we expect to meet or exceed our 2020 presidential year level,” Adam Symson, president-CEO of The E.W. Scripps Co., told analysts in the company’s quarterly conference call. “With well over $8 billion in the nationwide spending arena season, it should be clear that political revenue defies economic trends.”
Political revenue for the Scripps Local Media (TV stations) division was $24 million in the second quarter, dwarfing the $3.2 million booked a year earlier. That more than offset a 2% decline in core advertising at $158 million. And retrans rose 9.4% to $171 million.
Lisa Knutson, president of Scripps Networks, revealed on the call that her team has begun selling local political ads on some of the large footprint of Ion Network stations. Ion is normally managed as a national network, but the local political sports are being inserted over direct-response national spots to avoid any loss of national ad income.
Symson said: “Thanks to the strength of our political office and its presence in Washington, D.C., and some really significant technological innovation that Lisa and her team have executed, we are able to generate upside in Networks that we think will add on somewhere between $15 and 20 million in political revenue on top of the $270 million we’re already talking about in local. Political advertising results for the first half of the year continued to confirm our expectations that this mid-term election will match the 2020 presidential election cycle.”
Brian Lawlor, Scripps’ president of local media, added, “Nationwide, fundraising continues at a record pace. Recent U.S. Supreme Court rulings have only increased our inbound calls.”
Gangbusters Political At Gray
After reporting second quarter political ad sales that shot past the company’s own forecast, Gray Television is also telling investors to expect it to equal or exceed its political advertising record of $652 million (pro forma for acquisitions) set in 2020.
“While we see some challenging environments for our clients and slowing retrans growth … and interest expenses, Gray Television is set for an exceptional year,” said Gray Television Chairman-CEO Hilton Howell.
“Normally, we would expect core advertising revenue to decline when political advertising rises substantially and takes advertising inventory normally utilized by local, regional and national advertisers,” added Pat LaPlatney, president and co-CEO. “The reason our core advertising held up in the face of skyrocketing demand from political is the scale that Gray has achieved in the television industry.”
Political advertising for the current quarter is projected at $193 million to $195 million. That compares to a combined $190 million for the current Gray station portfolio in the third quarter of 2020.
Some Spot Picking Up At Nexstar
“While Q3 core advertising at the station level is pacing slightly behind 2021, primarily due to political squeeze-out, softness in national advertising and a comp to Q3 in 2021, which included the Tokyo Olympics, there are several bright spots among our advertising categories,” said Nexstar Media Group Chairman-CEO Perry Sook.
“Based on what we’re seeing, there’s little to suggest that the current macro-economic uncertainty will have a material impact on our business,” he told analysts in the company’s quarterly conference call.
Sook said about half of Nexstar’s TV advertising categories are pacing up this quarter, led by attorneys, drug stores, home repair, manufacturing, telecom and entertainment. “The categories that are pacing down the most in Q3 include sports betting, insurance and government services, most of which is unrelated to the economy,” he said.
Nexstar’s political ad sales are also pacing ahead of 2020 levels — and well ahead of the 2018 mid-term — but Sook is not yet willing to predict a new record.
Disney, Tegna, TelavisaUnivision All Climb
Disney CFO Christine McCarthy told analysts that although much has been written lately about ad trends, “I just want to start off by saying pacing in our scatter market continues to be solid across streaming, sports, as well as our broadcast network.”
Disney reported Domestic Channels (broadcast and cable combined) revenues up 2% to $5.7 billion for its fiscal third quarter (ended July 2). Operating income rose 15% to $2.1 billion.
“The increase at broadcasting was due to higher results at ABC and, to a lesser extent, at the owned television stations,” the company said.
Tegna, which has suspended quarterly conference calls while its buyout is pending, reported record second quarter revenues of $785 million, up 7%. Political revenues shot up 53% to $51 million.
Merged and reconfigured Spanish-language TV giant TelevisaUnivision reported U.S. ad revenues up 10% in the second quarter to $447.7 million. CFO Carlos Ferreiro said the company is “firing on all cylinders” going into the third quarter and should perform better than its peers if there is an economic downturn.
“The U.S. Hispanic audience is increasingly the swing vote for both Republicans and Democrats,” said TelevisaUnivision CEO Wade Davis. “We have said before that we expect political to be significantly more than double what we achieved in the 2018 mid-term election and we’re just as bullish, if not more bullish, the closer we get to the election.”
Sinclair’s Political Cushion
In its earnings call, Sinclair Broadcast Group President-CEO Chris Ripley told Wall Street analysts, “We expect political revenue to drive total ad sales for the remainder of the year, resulting in growth over last year. It is important to note that while we’re not in a position to forecast the state of the economy through the end of the year or in 2023, we expect that a strong year of political advertising helps cushion against any possible downturn.”
Sinclair’s second quarter political advertising was a second quarter record of $54 million. “I think it is fair to say at this juncture that political revenue for 2022 could possibly approach the level we had in 2020,” said COO and Broadcasting President Robert Weisbord.
Not surprisingly, analysts wanted to know if there is a light at the end of the tunnel for automotive — once television’s most important category.
Nexstar’s Sook said that automotive for the third quarter is pacing down a low single digit to the prior year, but qualified that change.
“Automotive spend is now down to about 15% of our core ad spend, which is where it was in 2008 and 2009, during the recession and credit crisis,” he said. “Quite frankly, we don’t see it going any lower as a percent of our ad spend and think that it’s on the upside from here. We think the current conditions of supply chain and lack of inventory probably persist through the end of the year, but we think this will be a tailwind for us in 2023.”
Fox Corp. closed the books on its its fiscal year with television segment ad revenues up 4% in the final quarter (ended June 30), with political ads at the O&Os a big contributor. Notably, the auto sector is up at the Fox Stations group.
“One of the most pleasing things that we’re seeing, actually in the local stations, our base markets — ex-political — the base market is very stable,” said Executive Chairman-CEO Lachlan Murdoch. “The return to growth in the auto category is a very strong indicator of things to come.”
Lawlor at Scripps said auto was down again for the second quarter, but up 20% in June after improving each month of the quarter. “I’m not expecting auto to continue every month with year-to-year growth, but I do believe we’re starting to see improvement in the auto category,” he said.
Not All Political Benefits Equal
The biggest multiplatform media companies, anchored by TV networks, stand to get less benefit from political advertising.
NBCUniversal CEO Jeff Shell said: “The advertising market’s choppy. It continues to be choppy, down year-on-year in the scatter market. It’s really segment-by-segment based. Still, some segments are doing better. Some segments are doing worse.”
Shell noted that auto is down due to inventory constraints. “Pharma, in the upfront, was up significantly,” he said. “You have a backlog of drugs that weren’t approved in the past couple of years but are expected to be approved [post-pandemic] … there’s no kind of macro overall ups and downs.”
He did note that the NBC O&O stations and other parts of the company will claim political dollars. “We don’t want to count our chickens before they’re hatched, but we expect a pretty strong political season coming up,” Shell told analysts.
Paramount Global CEO Bob Bakish said: “We see both headwinds and tailwinds in advertising. It’s true that there are some challenges in the scatter market in digital — and that really is driven by the state of the macro-economic environment. That’s showing up in certain categories. Auto continues to be impacted by the supply chain. Package goods is managing through inflation issues, which have really impacted their ad spending as they look to protect margin. But these aren’t long-term issues. They’re short-term challenges we’ve got to just work through.”
Bakish also pointed to a big political haul for the CBS O&O stations, but noted that with targeting, Pluto TV and EyeQ will also be taking political dollars.
A Rougher Quarter For Tech
While television was cushioned from the economic downturn, some of its biggest digital advertising competitors were not so lucky.
Alphabet, parent company of Google and YouTube, came up about $3 billion short of Wall Street expectations on second quarter revenue at $69.7 billion. And for YouTube, ad revenues were $7.3 billion — a miss of about $200 million. Total advertising revenue for Alphabet grew only 12% to $56.3 billion.
“As we continue to help advertisers manage through uncertainty, I would point out three key highlights for YouTube,” Google SVP-Chief Business Officer Philipp Schindler told Wall Street analysts.
“First, Brandcast joined the upfronts in New York in May for the first time ever — a reflection of how digital and linear TV worlds are converging for both viewers and advertisers,” Schindler said. “As the No. 1 streaming video platform to reach viewers across all devices, with billions of hours of video watched every day, YouTube remains well positioned to deliver the reach, results, and relevance that advertisers need.
Schindler said even in TV’s biggest moments, YouTube is still delivering “huge incremental reach,” noting that according to Comscore, 49.9% of adults that saw a Super Bowl ad on YouTube on the day of the Super Bowl did not see the ad on TV.
“And as more advertisers tap into connected TV, they’re also driving results,” he said. “According to a Google-commissioned Nielsen meta-analysis of MMMs that measured YouTube CTV and TV across U.S. consumer packaged goods, on average, YouTube CTV effectiveness was 3.1 times greater than TV.”
Alphabet and Google CFO Ruth Porat noted the pull-back by advertisers due to macro-economic concerns as she detailed the company’s ad revenue numbers.
“Google Search and other advertising revenues of $40.7 billion in the quarter were up 14%, driven by both travel and retail,” she said. “YouTube advertising revenues of $7.3 billion were up 5%. The modest year-on-year growth rate primarily reflects lapping the uniquely strong performance in the second quarter of 2021.
“Network advertising revenues of $8.3 billion were up 9%, driven by AdSense,” Porat added. “The quarter-on-quarter deceleration in both YouTube and Network advertising revenues primarily reflects pullbacks in spend by some advertisers.
“Going forward, the very strong revenue performance last year continues to create tough comps that will weigh on year-on-year growth rates of advertising revenues for the remainder of the year,” she said.
Meta Platforms, the parent of Facebook, also came up short of Wall Street expectations with its second quarter results — and forecast a weaker third quarter as well, citing a “continuation of the weak advertising demand environment we experienced throughout the second quarter, which we believe is being driven by broader macroeconomic uncertainty,” the company said in a statement.
Second quarter revenue declined 1% to $28.8 billion, and the company told investors to expect a drop of 2%-11% in the current third quarter.
CEO Mark Zuckerberg told analysts “we seem to have entered an economic downturn that will have a broad impact on the digital advertising business. It’s always hard to predict how deep or how long these cycles will be, but I’d say that the situation seems worse than it did a quarter ago.”
CFO David Wehner added: “Advertising revenue growth slowed throughout the second quarter as advertiser demand softened.
“The deceleration has been broad-based across verticals, and we believe businesses are lowering their advertising spend in response to the increased economic uncertainty,” he said. “Foreign currency headwinds also increased throughout the second quarter. While it wasn’t a factor contributing to the deceleration in Q2, we’re also continuing to face targeting and measurement headwinds such as Apple’s iOS changes, which we believe are contributing to the growth challenges across the digital advertising industry.”
Rosier Picture At Amazon
The story was better for Amazon.com, which beat expectations for the second quarter and provided up guidance for the third quarter.
Revenue growth of 7% to $121.2 billion topped Wall Street estimates. Advertising was up 18% to $8.8 billion and also beat expectations. Amazon said it expects to post third quarter revenue between $125 billion and $130 billion, representing growth of 13% to 17%.
During the company’s conference call, Dave Fildes, director of investor relations, said Amazon’s video advertising is becoming increasingly mainstream, “and I think viewing behaviors have really shifted away from some of the more traditional cable or kind of traditional viewing and advertisers are using our ad-supported content to reach those viewers,” he said.
Fildes pointed analysts to Freevee, the company’s new ad-supported video-on-demand service, Twitch gaming and Thursday Night Football as examples of Amazon’s growing advertising footprint.