Sinclair: Auto Rebounding, Second Quarter Still Down

After reporting advertising and media revenues down for the first quarter, Sinclair Broadcast Group is guiding investors to another soft quarter.

“We expect 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. 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,” said EVP-CFO Lucy Rutishauser in the company’s quarterly conference call Wednesday morning.

While some ad categories are strengthening, she noted that there continues to be softness in services, which is 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 COO and Broadcasting President 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,” he added.

“Our success in selling high-profile time periods, such as Super Bowl and March Madness, resulted in advertising in the first quarter achieving the high end of our guidance. Core advertising decreased slightly in the first quarter compared to the same period a year ago,” Weisbord said.

“The automotive category has been steadily rebounding since the beginning of the year and we are seeing low-single-digit percent increases in Q2 pace, along with the strength in legal and retail categories. These positives are offset by softness in the insurance category,” the COO told analysts. During Q&A, Weisbord noted that local advertising is outperforming national.

With the majority of its MVPD carriage agreements coming up for renewal negotiations in the second half of this year and into 2024, Sinclair is guiding to a net retrans decline this year. But the company heralded some important deals with virtual MVPDs in the first quarter. YouTube TV is adding the Tennis Channel on June 1, just in time for the French Open, and has added or extended some other Sinclair channels, including its CBS and MyNetworkTV affiliates. An agreement has been struck which returned ABC affiliates to Hulu+ Live TV, although Sinclair President-CEO Chris Ripley declined to get into details until the deal is finalized. And the CBS affiliates of Sinclair and other major groups returned to Fubo last month after the network’s affiliate board came to terms with CBS-owner Paramount over the streaming rights terms.

Analyst Barton Crockett of Rosenblatt Securities asked whether the TV group owners have achieved their objective of being able to negotiate directly with the vMVPDs.

“No, we are not able to negotiate directly, as of now,” Ripley answered. “And, as I stated in last quarter — and you probably heard from many in the industry — we believe that is a wrong that needs to be righted. I feel that there is change afoot when it comes to looking at this sector, which was sort of, at least in the beginning, viewed as an upstart small area that has now grown into a pretty significant part of the ecosystem, and the rules of the road need to be conformed to the change and maturity of the size and scope of what virtuals are. We’re very much focused on that—both from a regulatory perspective, but also just how our relationships work with the networks. We’re working on getting that right-sized.”

Sinclair is expecting its reorganization into a holding company structure to take place next month. After that, financial results for Sinclair Broadcast Group — the TV station group — and Sinclair Ventures — including real estate, venture capital and other investments — will be broken out separately. That is expected to provide more information about the non-TV operations. The holding company will be known as Sinclair Inc.