Political Kicks Off Early In Sluggish Ad Market

The 2024 federal election is still 18 months away, but the campaign spending is already underway.

“In April we experienced the earliest spending from a presidential race in the company’s history, with early bookings from the Trump, DeSantis and Biden PACs,” Nexstar Media Group CFO Tom Carter told analysts in the company’s quarterly conference call. “As a result, we remain very optimistic about our growth prospects for political advertising revenue in the ’23-’24 election cycle,”

Carter also reported that Nexstar posted $8 million of political revenues in the first quarter. And it wasn’t the only TV group to book political revenues already.

“We’re seeing political revenue earlier than we’ve ever seen before,” said Fox Corp. Executive Chairman-CEO Lachlan Murdoch. “It’s still small, but it’s sort of unheard of to have it this early in the political cycles. We think that bodes well for the fall as we enter the more significant part of the political cycle.”

Gray Television saw the early spending, too. “For the first time ever in the year before a presidential election we are receiving significant presidential ad buys from all major candidates and parties. This is a great sign for this year and for next year,” said Chairman-CEO Hilton Howell.

Headwinds Blow Strongly

The early political spending points to a big haul for TV next year, and it helps now to battle headwinds in the advertising marketplace.

“The country’s economic malaise continues to put pressure on our businesses,” said E.W. Scripps COO Lisa Knutson. “Local advertising remains relatively stronger than national, largely due to the return of automotive spending. But we do feel pressure across the whole advertising marketplace.”

Knutson said the company continues to see softness in local media in its largest core advertising category, services, which was down 14% in the quarter, with banks and insurance companies showing the largest declines. Scripps’ two strongest performing categories were home improvement and automotive, while auto had its third consecutive quarter of year-over-year growth, driven by local dealers and domestic dealer groups.

“We see local dealers as the best opportunity for continued growth within auto this year,” Knutson said. “In addition, the chip shortage is about half of what it was at this time last year, which is another good sign of spending to come.”

Sinclair Inc. told analysts it expects media revenues to decline compared to second quarter of 2022 due to the absence of political spending and continued year-over-year mid-single-digits subscriber churn. Sinclair CFO Lucy Rutishauser said second quarter core advertising is expected to be down by a low-single-digit percent versus the second quarter of last year, with the decline in core primarily driven by macro-economic weakness.

While some ad categories are strengthening, she noted that there continues to be softness in services, Sinclair’s largest category.

“Coming off the record mid-term election year in 2022, political spending has started off strong, with over three million booked in Q1, which is double the spending of Q1 2019,” noted Sinclair COO Robert Weisbord. “We’re excited to see the strength in political candidate and interest spending this early in the year and we are projecting political spend to continue and set us up nicely for our highly contested presidential race in 2024, which we expect to be record-breaking once again.”

Promising Signs

Gray President-Co-CEO Pat LaPlatney told analysts in his company’s call that auto continued its recovery in 1Q and is pacing to continue improving throughout the year, while other strong categories included services and home improvement.

“Our local direct ad business has been a big priority for us for the past few years and continues to produce new leads and new contract,” LaPlatney said.

In Q&A on the Gray call analyst Dan Kurnos of The Benchmark Co. noted that while other TV groups had reported services as a soft category, Gray had it as a leader. Why the difference?

“Services for us have been moving right along, so I think we have team sales focused on some of these categories,” LaPlatney said. “I think that helps us. So, that’s one of the reasons I think we could be doing a little better than the other guys.”

Spanish-language TelevisaUnivision outperformed the general advertising market in the first quarter, CEO Wade Davis told Wall Street analysts. “According to Magnum, the overall U.S. advertising market declined 6% in the quarter. Our 2% growth amounted to outperformance of 800 basis points, which is on par with the ratings we over-delivered relative to the market last quarter,” he said.

Fox’s Murdoch said auto was continuing its rebound with strong growth, noting growth in the entertainment and restaurant categories, too. “But this is offset by weakness across other categories, such as retail, health and, obviously, sports wagering and betting,” he said. “So, the local ad market does feel soft overall. But for our businesses, particularly in sports and news, we look forward to a decent summer and a strong fall season.”

Fallout Felt

Of course, analysts and investors were keenly interested in Fox Corp.’s agreement to pay Dominion Voting Services $787.5 million to settle a federal court lawsuit in Delaware that had alleged that Fox News Channel defamed the company following the 2020 presidential election. The legal settlement pushed Fox Corp. to a $50 million loss for the quarter.

“We made the business decision to resolve this dispute and avoid the acrimony of a divisive trial and a multi-year appeal process,” Murdoch said. “Our decision was clearly in the best interest of the company and its shareholders. The settlement in no way alters Fox’s commitment to the highest journalistic standards across our company or our passion for unabashedly reporting the news of the day.”

There was also interest in the sudden departure of NBCUniversal CEO Jeff Shell after he admitted to an inappropriate relationship with a female employee.

With Comcast President Mike Cavanagh now directly overseeing NBCU, Bank of America analyst Jessica Reif Ehrlich asked during Q&A whether his dual role should be viewed as a permanent solution.

“The short answer to the question is me stepping in to oversee NBC is quite sustainable,” Cavanagh said.  “Why I say that is as president [of Comcast] I was already overseeing all of this and close to the people that run the NBC businesses and the cable businesses in the corporate areas .… So, while I’ll have to work a little harder, and frankly I’m energized to do so, I look forward actually to spending time getting closer to the NBCU businesses and spending more time deeper in them, and with the leaders there, frankly, since I’m gonna be here a long time.”

For Paramount Global, the big news for its quarterly call was the company slashing its quarterly dividend payment to five cents per share from the previous 24 cents.

President-CEO Bob Bakish spoke of the ad market stabilizing and predicted a return to earnings growth in 2024. Why then, asked Michael Morris of Guggenheim Securities, is this the time for such a large dividend cut?

“The changes we’ve made to our capital allocation policy are totally appropriate for a company that has both the compelling growth opportunity you’ve seen today, but operating in the current macro environment,” said CFO Naveen Chopra. “There’s no debate that our streaming momentum has obviously continued to build, but the macro environment has not gotten less complex. So, it’s prudent really for all companies to optimize their balance sheet for flexibility. That’s exactly what we’re doing by reducing the quarterly dividend to five cents.”

Disney has been cutting costs and headcount. “We’re seeing both sub declines and advertising weakness — and its created some worrisome circumstances for us because it’s obviously having such a negative impact on the economics of that business — and that’s forcing us to look at the cost structure of those channels, which also really comes down more than anything to spending on programming,” said Disney CEO Bob Iger.

He is upbeat on the upfront, but it’s no longer primarily about TV and cable networks. “We see that there’s going to be a substantial growth in digital advertising in this upfront — I mean quite substantial,” Iger said.

A strike by TV and movie writers began during the conference call cycle. For the companies whose TV holdings include a network, executives insisted that they were positioned to deal with the strike — either because they already have programming in the can, are able to focus on live sports and reality programming or a combination of both. The actual impact will depend on just how long the strike lasts.

Rough Quarter For Tech

As one would expect, most of television’s major digital competitors are also dealing with a soft ad market.

Google parent Alphabet saw first quarter total revenues grow 3% to $69.8 billion — a modest gain for a tech company used to much faster growth.

Google’s Advertising, Search & Other category saw revenues grew 2% year-over-year, reflecting an increase in the travel and retail verticals and offset partially by a decline in Finance as well as in media and entertainment, Google SVP-Chief Business Officer Philipp Schindler told analysts.

“In YouTube ads, we saw signs of stabilization in performance, while in Network, there was an incremental pullback in advertiser spend,” Schindler said. “Google Other revenues were up 9% year-over-year, led by strong growth in YouTube subscriptions revenues.”

Ruth Porat, CFO Alphabet and Google, provided some more detail in the Q&A with analysts.

“In Network, really it’s a continuation of what we talked about last quarter,” she said. “We saw the ongoing pullback in advertiser spend. I would contrast that—last quarter, we talked about both pullback in YouTube and Network. And we were pleased that we saw the stabilization in ads spend on a sequential basis in YouTube. We still saw ongoing pullback in Network, which tends to be a mix of businesses.”

Facebook parent Meta reported first quarter revenue up 3% to $28.7 billion. “Had foreign exchange rates remained constant with Q1 of last year, total revenue would have been about $816 million higher,” noted CFO Susan Li in the company’s Wall Street conference call.

“We ended the first quarter with over 77,100 employees, down 11% from the fourth quarter as our reported headcount no longer includes substantially all of the employees impacted by the November layoff,” she noted.

Li said Q1 Total Family of Apps revenue was $28.3 billion, up 4% year over year. Q1 Family of Apps ad revenue was $28.1 billion, up 4% or 7% on a constant currency basis. Within ad revenue, the online commerce vertical was the largest contributor to year-over-year growth, followed by healthcare and entertainment and media. Online commerce benefited from strong spend among advertisers in China reaching customers in other markets.

Other verticals remain challenged, meanwhile, with financial services and technology verticals being the largest negative contributors to year-over-year growth, the CFO reported.

CEO Mark Zuckerberg stepped up to take an analyst’s question about the impact of artificial intelligence on Meta’s businesses. And while not providing details yet, he indicated that some AI products will hit the market over the coming months.

“I do think that there’s a big opportunity here,” Zuckerberg said. “It’s going to also help create more engaging experiences which should create more engagement and that by itself creates more opportunities for advertisers.

There’s a bunch of opportunities on the visual side to help advertisers create different creative,” he continued. “We don’t have the tools to do that, over time [we’ll be] eventually making it. So, we’ve always strived to just have an advertiser just be able to tell us what their objective is and then have us be able to do as much of the work as possible for them.

The quarter was more upbeat for Amazon.com, where net revenues increased 9% to $127.4 billion, and advertising rose 23% to $9.5 billion.

“On the advertising side, we’re continuing to buck wider advertising trends and deliver robust growth,” said CEO Andy Jassy in his call with analysts. “I think there are a few reasons for it. First, even in difficult economies, most people still shop. And with the largest e-commerce shopping venue, we have a lot of customers that companies seek to reach.”

Jassy said that, coupled with the company’s substantial investment in machine learning to make sure customers see relevant ads when they’re looking for various items, has meant that advertisements have performed unusually well for brands. “It’s also worth noting that we’re still very early in our efforts to find a way to thoughtfully place ads in our broader video, live sports, audio, and grocery properties,” he said. “We have a lot of upside still in advertising.”