The Broadcast Revenue Rebound

As I step into my new role as president and CEO of The Media Financial Management Association (MFM) and its BCCA subsidiary, the media industry’s credit association, I’m already in awe at the resilience and creativity I’ve witnessed within the media industry. I have also noticed some incredible similarities between the challenges facing the media industry and those of other industries — particularly financial services — with which I’ve been engaged. These challenges (and I like to view them as opportunities) include consolidation, technological advances, and competition from upstarts and startups that redefine the industry itself.

As I learn more about the ins and outs of this fast-paced business, I’m happy to tap the brains of experts along the way. MFM is fortunate to have an expert such as Justin Nielson, a senior research analyst at S&P’s Global Market Intelligence’s Kagan research group, available to walk us through the firm’s recent conclusion that broadcasters are poised for a healthy revenue rebound in 2022. In the current issue of The Financial Manager, the publication for MFM members, Nielson presents Kagan’s findings, which are based on 2021 data from a variety of sources, including proprietary surveys and analyst estimates, publicly listed company reports, and third-party providers.

Kagan’s exhaustive research yielded these topline conclusions:  Between advertising spend around expanded legalized sports betting and the return of a midterm political ad season in 2022, TV broadcasters should rebound nicely from the pandemic. Radio broadcasters, while expected to return to pre-pandemic levels over time, will see increased revenue as well, but will likely do so at a slower pace, due to several factors. While I encourage you to read Nielson’s article to get the full details, let’s take a look at how Kagan expects broadcasting revenue to play out in 2022.

Starting with U.S. TV broadcasters, political ad spending in the 2022 midterm elections is expected to net a significant revenue bump of $3.25 billion, a 7% increase over the last midterm elections in 2018. The spend will likely be driven by the 50/50 split between Democrats and Republicans in the U.S. Senate, and enhanced by Republicans’ efforts to overturn the House Democratic majority.

Not surprisingly, political advertising will be most heavily purchased in swing-state markets such as Arizona, Florida, Georgia, Nevada, North Carolina and Texas. Kagan notes that also not unexpectedly, regions in three of those states — Arizona, Florida and North Carolina — are among the top five markets currently growing most quickly, according to ad revenue growth forecasts for 2021-26.

Sports — in the forms of televised games and legalized sports betting — also represents a major revenue increase for TV broadcasters. Examples such as Nexstar Media Group’s new SportsGrid Network and Sinclair Broadcast Group’s sports betting app (created in partnership with Bally’s) in combination with its upcoming streaming service, have spurred newfound hope in sports as a catalyst for revenue.

There are other ad categories that Kagan expects to accelerate, including health care, telecom, banking, professional services and home improvement. As might be expected, auto, retail and travel are likely to remain soft.

Other revenue factors include virtual subscriber growth, ATSC 3.0 (NextGen TV) streams and retransmission revenue. Kagan states that between virtual sub growth and retransmission renewals, which are still outpacing the cord-cutting trend, those fees should increase by 3% in 2022, to $13.92 billion.

All told, for 2022 Kagan projects TV station industry revenue, including gross advertising and retrans fees, will climb to $38.22 billion, up from the $34.06 billion estimated in 2021. Total spot ad revenues should continue to rebound from the pandemic, increasing 20% to $21.2 billion (including the estimate of $3.25 billion in political ad spend).

Kagan expects digital revenues of $3.1 billion, up 5% year over year, and also estimates that through 2026, TV stations will rely less on spot ad revenue, betting more on digital and retrans fees to offset the rise and fall of political ad spending.

Now on to radio revenue. The pandemic has affected U.S. radio stations differently than TV, and while revenue will grow overall in 2022, it will do so more slowly, and will need to overcome more obstacles. Nielson calls it a “partial recovery,” and attributes it to covid. Because radio ads are primarily local and target the auto, retail, travel and entertainment sectors — the first to be devastated by the pandemic — they’ll be challenged to compensate for the steep 23% decline in ad sales in 2020.

Both local spot advertising and national ad revenues are forecast to improve in 2021 — by 10% to $8.41 billion and 8% to 2.05 billion, respectively. Kagan estimates, though, that between 2023 and 2026, national ad sales will drop from 4.5% to 1.3% annual growth.

There’s cause for optimism, however, and it’s all around digital. As radio stations continue to invest in streaming, podcast and digital marketing, Kagan expects the digital revenue stream to climb to $1.52 billion by the end of 2026. As live events continue their return, off-air should rise by 5%, with the promise of longer-term growth of $2.38 billion by the end of 2026.

Kagan tempers that optimism with a reminder that radio is already competing with multiple streaming and on-demand options for music and talk — a phenomenon that will likely grow — and is hindered by the new hybrid (or permanent work from home) economy, which has reduced commuting hours during prime in-car radio time significantly. But Kagan also reminds us that radio’s advantages of lower ad cost, local audience, and high ROI compared to other media should allow it to sustain its share of the overall U.S. advertising market.

Radio’s total revenue, including national and local spot, digital, off-air, and network revenue, should increase at a five-year CAGR of 3.39%, from an estimated $14.84 billion in 2021 to $17.53 billion by the end of 2026, according to Kagan. Slow and steady seems to be the word, but the radio industry likely welcomes this report.

I’m incredibly impressed with the depth and breadth of research Kagan put into these remarkably relevant findings, and I think Nielson did a masterful job of presenting them in his article. I feel like I got a crash course in broadcasting revenues for 2022 and beyond, and it only makes me want to delve deeper into this fascinating industry. I’m thrilled to now be leading the premiere association that the media industry’s financial experts look to for information, support, and guidance.

One of the benefits of my organization is the events, seminars, and webinars we hold for our members to learn, network, and grow. One of the signature events of the year is our CFO Summit, an annual retreat for senior financial professionals in the media industry, held in person on March 3-4 in Ft. Lauderdale, Fla. During these two days, numerous high-level CFOs and other executives will address critical and timely issues facing CFOs and other senior media executives in frank and useful discussions. This yearly event is one of MFM’s most popular, and is particularly relevant in this rapidly changing business environment. I hope to meet you there.

Joe Annotti is president and CEO of the Media Financial Management Association and its BCCA subsidiary, the media industry’s credit association. He can be reached at [email protected] and via the association’s LinkedIn, Facebook, Instagram and Twitter accounts.