Positive 2024 Predictions From Gray

While broadcast stations’ national advertising revenue has been challenged for quite some time, Gray Television’s was actually up in first quarter 2024. Together with growth in several ad categories, including auto, the company’s core advertising rose 4% to $372 million, up $15 million, versus same period last year. Total revenue was $823 million, up 3%.

Although the company expects strong political advertising this year, the majority of it is likely to break later than it did in 2020, the last presidential election cycle. In the second quarter, now in progress, Gray anticipates political will be between 55% and 72% higher than it was in 2020, on a pro forma basis.

There are considered to be seven swing states this cycle, and Gray’s stations cover all the markets in three of them: Arizona, Georgia and Nevada. “We have a very strong presence in three of the four remaining states, North Carolina, Michigan and Wisconsin,” said Hilton Howell, Gray’s executive chairman and CEO. The company’s stations also have coverage in nine of the 11 states with governor races as well as 26 of the 34 states with Senate races.

Gray’s sales team is also keeping its eye on the local ad ball, said Pat LaPlatney, president and co-CEO. “During the first quarter our new local direct business — which is our local sales force finding a customer that’s new to Gray — continues to break records set just a year earlier. In the first quarter of ’24, our new local direct business brought in 18% more revenue than the first quarter of ’23, which itself was 8% higher than the first quarter of ’22. These strong results continued in April ’24, which delivered 14% higher new local direct business than April of ’23.”

LaPlatney added that digital revenue growth for the quarter was up double digits. “In fact, our station CTV FAST revenue more than tripled over the same period last year.”

The addition of Phoenix Suns, New Orleans Pelicans and Atlanta Hawks games to the broadcast stations’ lineups increased both audiences and revenue as well. “We’re excited about the Summer Olympics broadcasts appearing on our NBC affiliates that cover about 11% of U.S. TV households. We currently anticipate generating $15 million to $20 million in advertising revenue related to those broadcasts in the third quarter of this year,” LaPlatney said.

He noted that despite auto’s long decline in past quarters, it came out strong in the first quarter. Today, it makes up about an 18% or 19% share of Gray’s ad revenue, versus about 30% six years ago. The services category, which is another big one, is extremely strong right now.  “We had a bump with the gambling category. And now that’s a little sort of lumpy; some quarters it’s up, some quarters, it’s down.”

Gray’s COO, Sandy Breland, added that the legal category is also performing well, as are furniture and restaurants.

Gray’s revenue from retransmission consent showed a dip, from $395 million in the first quarter last year to $381 million in first quarter 2024, off 4%. No big surprise, given the overall trend of cord cutting.

Jim Ryan, Gray’s outgoing EVP and CFO, noted: “We have about 18 months where we don’t have any retrans agreements up for renewal. So I think that retrans is going to be more stable in ’25. And then, we get past ’25 and into ’26 [and] ’27, we have an opportunity again to grow.”

Kevin Latek, EVP, chief legal and development officer, laid out the schedule for network affiliate agreement renewals: ABC comes at the end of 2024. Then “we have CBS and Fox up in the second half of ’25. We have NBC up at the very end of ’25.”

Latek added: “The fixed-fee network contracts were set at a time when we all anticipated that retrans would be in a different position, or I should say that traditional MVPD sub numbers would be higher than they are today. And we fully expect that we will be resetting those prices, and when we renew in 2025 that should allow us to return to net retrans growth going forward.”

Howell also discussed Gray’s Assembly studio business. “As of the end of the first quarter of 2024, approximately 95% of our projected total of capital expenditures for Assembly Studios and Assembly Atlanta, net of reimbursements, are now behind us.”

The studio’s anchor tenant, NBCUniversal, provides a 70% occupancy rate for both Assembly and Third Rail Studios, which are operated together. There’s been a lag in getting tenants for the remaining 30% due to the difficulties potential clients have had securing productions greenlit, most recently due to a potential IATSE strike. “By the end of the month of May, it is my understanding that the issue will either fully matriculate or it’ll go away,” Howell said.

LaPlatney also discussed Gray’s large amount of broadcast spectrum with the continued rollout of ATSC 3.0, and when the company will start to monetize it. “I would say that we’ll start seeing revenues probably first quarter of next year. In terms of material revenues, it’s a little bit difficult to forecast. It will be a matter of years. I’m not certain it’ll be the end of the decade though. I think it’ll be sooner than that,” he said. “I think in a few years the money will be meaningful.”