Scripps Sees OTA Gaining From Inflation

With inflation running hot and a war against Ukraine by Russia, one analyst on The E.W. Scripps Co. conference call Friday morning wanted to know if there are any indications yet that the country is heading into a recession.

“I don’t think we’re feeling the effects of moving into a recession. I think we are feeling the effects of the challenges of supply chain and employment. And so, I think businesses are challenged to get product in some categories and in other categories they’re having a hard time getting employees. I think that is the bigger factor that is influencing our local business,” said Brian Lawlor, president of local media.

Inflation, though, is a reality and Scripps President-CEO Adam Symson said that 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. They’re frustrated by the content flood. And they’re experiencing a level of ‘plus fatigue.’

“I know you all know that, because you can see the impact on the other networks and the SVOD services’ stock prices. According to Nielsen, we have about a 25 to 30 share of OTA viewing at any one time. It’s a really formidable share in that marketplace — and that marketplace continues to grow. Nielsen just recently released some information demonstrating again another year of growth in the OTA marketplace,” the CEO said.

Symson continued: “We think there’s a lot of opportunity to solve the problems that consumers have had on the install side and the user experience. In any way we can, we expect to introduce Americans to the opportunity for them to add free over-the-air television to their bundle — not in a way that’s going to cannibalize the pay TV ecosystem, but in a way that’s going to be additive and is going to show people who’ve already cut the cord that if they’re subscription video-on-demand consumers, they should right now plug in a digital antenna so that they can get access to the entire buffet of premium content in the over-the-air marketplace, including, for example, all of the live sports that’s on the Big Four broadcast networks.”

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 — produced revenue growth of 8.5%.

Lawlor 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%. Five of our top seven categories showed year-to-year growth in the first quarter. The two categories showing declines were auto, which continues to be challenged with supply chain and inventory issues, and our new category, gambling, where we now report sports betting. Without gambling and auto, core was up 11%,” Lawlor said. He noted that sports betting starts with a big advertising push as it launches in each state, then the advertising spend moves to more moderate levels.

What about core in the current quarter?

“It’s still early in the quarter. We still have seven weeks of business to write. But right now we’re looking to be about flattish,” Lawlor replied to the question from Craig Huber of Huber Research Partners. The official guidance from Scripps, including political and retrans, is for Local Media revenue to be up 10% in the second quarter.

Huber also wanted to know if an auto recovery is still expected in the second half of this year.

“I think that’s still what we’re hoping. In talking to dealers, some dealers are starting to get more inventory made available to them. I don’t think we’ll be back to a normal inventory load in 2022. But we do expect improvement in the back half. The first quarter was still down double-digits — over 20% — and I think I would probably expect the same again in the second quarter,” Lawlor said.

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

“You’re spot on there,” Lawlor replied, reiterating the strength in Scripps’ reported results for the first quarter.

“That 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. 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 replied.