Tegna Sees Political As An Income Stabilizer

After hauling in a record-breaking political advertising windfall that fueled 16% growth in year-over-year revenue, Tegna President-CEO Dave Lougee told analysts Thursday that the category is destined to join subscription revenue as a reliable income stream that will inoculate the company from the ups and downs of the economy as a whole.

“Our expectation is for high margin subscription and political revenues to account for approximately half of our total two-year revenues beginning in 2019-20, and a higher percentage of our rolling two-year cycle going forward. We expect our growing subscription and political revenues to be relatively immune from secular or economic trends.”

Tegna says it’s on track to bank $238 million in political by year’s end — $60 million of that came in 3Q and another $144 million is expected in 4Q. One key driver was the battle for the House of Representatives, where according to Lougee spending more than doubled the 2014 total.

“The dramatic increase over the last midterms reflects a new normal for us,” said Lougee. “The political energy reflected in the country, and by the record turnout, and the record fundraising, are here to stay for the immediate future. Looking forward to 2020, adding a presidential race on top of the same number of congressional and state races, only means more revenue.”

He added that President Trump shows no sign of repeating his lack of spending which dampened 2016 political results.

Summing up on political, Lougee said, “We reach voters and TV ads work during elections.”

EVP-CFO Victoria Harker said that excluding political, the company’s revenue increased by 4% during the third quarter. But core advertising was down 5%-6% and figures to be down 6%-8% in 4Q, when total company revenue including political is expected to increase by 30%-32%.

However, Harker said that if the numbers are adjusted to account for political crowd-out, core advertising was flat during the quarter. She said that retail, services, medical, entertainment and home improvement were positive. On the flip side, automotive, banking and restaurants were lower but added that all three improved on 2Q results.

Lougee said that automotive was a “tale of two cities,” noting that foreign was doing pretty well while domestic was the “laggard.” He added that Jeep-Chrysler continues to be a drag on the category.

He said that overall core seems to be improving sequentially and expressed careful optimism regarding future performance, but said there was no creditable visibility into how well it will go in 1Q 2019.

Tegna’s subscriber count increased for the fifth consecutive month year over year, a significant statistic as traditional MVPDs continue to shed customers. Lougee said: “While this trend may not continue in a straight line, it’s clear that paid subscriber numbers for Tegna are very stable.”

Lougee said the virtual MVPDs are in many cases still learning and, in some cases, making mistakes, but in the end, “For us … they are an absolute more than one for one offput for traditional declines.”

The rate Tegna earns for those subs should increase shortly. Fifty percent of the company’s sub base is up for renewal during 4Q, and another 15% comes due during 2019.

Discussing reverse retrans, Lougee commented: “We frankly happily pay a fair amount to our networks because we want them to be reinvesting in the programming that’s so important to us,” mentioning the NFL as one example.

The biggest “piece of that pie” will be NBC, a contract not due for several years, said Lougee. He expects the negotiation, when it does happen, will be “tough but fair,” and said overall there will continue to be net retrans growth going forward.

Regarding M&A, Harker said: “We’re actively assessing M&A opportunities and fully intend to leverage our strong balance sheet and cashflow for these types of accretive investments. We have substantial capacity to pursue any and all opportunities.”

Lougee said its OTT advertising service Premion is on track. He said the company currently has 125 content partners, and effectively the service expands its reach from 39 to more than 200 markets. For now, the company is fostering an entrepreneurial spirit at the service and is not yet pressuring it to produce a profit.