TV’s Ad Bounceback Stronger Than Expected

The advertising recovery seen in the first quarter accelerated in the second. In their quarterly conference calls, many TV executives told Wall Street analysts that core ad revenues are back to pre-pandemic 2019 levels in the current third quarter. And that’s despite continued inventory problems in the auto category, which historically had been the most important one for television.

In his conference call with Wall Street analysts, Nexstar Media Group Chairman-CEO Perry Sook quoted one of Nexstar’s national reps (whom he didn’t identify) as saying, “we see advertisers coming out of the woodwork.”

“Looking ahead, we’re encouraged by the overall acceleration in economic activity and the improved trajectory of ad spending across our footprint as market conditions continue to improve,” Sook said.

“With a rise in consumer confidence and discretionary spending, we saw year-to-year in our 10 largest advertising categories,” reported Brian Lawlor, resident of local media for The E.W. Scripps Co. “Our largest category, services, saw a 35% jump in year-to-year spending. Our automotive category was up 64%, compared to a big drop in Q2 of 2020, but also despite the chip shortages that are causing inventory issues. Our retail category was up 66% in Q2. And our fourth-largest category, travel & leisure, aided by both sports betting and Americans’ return to both travel and entertainment, was up more than 600%,” Lawler told analysts. Overall, same-station core advertising was up 48% for Scripps.

Records And Robustness

Tegna reported record second quarter revenues for advertising and marketing services (AMS), which includes its Premion OTT/digital ad sales business. AMS grew 49% in the second quarter over 2020, and was just slightly behind the same quarter of 2019.

“All categories were up over last year, including auto; services; retail; healthcare; home improvement; entertainment & gambling; insurance, banking & finance; packaged goods; and education,” said Tegna EVP-CFO Victoria Harker.

“Even categories that continued to face some pressure this quarter — including entertainment, travel & tourism — were up substantially compared to the second quarter of last year,” she added.

Looking ahead, Tegna President-CEO Dave Lougee told Wall Street analysts that the growth is continuing in the current third quarter. Overall, Tegna is telling investors to expect total revenues (AMS plus subscription revenues and everything else) to be up in the single digits this quarter. Excluding political, the gain would be in the mid-teens.

“Advertising in the back half of the year will continue to benefit from a robust market, though year-on-year trends will be compared to the return of demand in Q3 2020 as we ramped out of COVID and benefitted from record political spend. Advertising growth will improve when new upfront pricing kicks in for Q4,” said ViacomCBS CFO Naveen Chopra.

“Excluding the impact of political ad revenue, third quarter core advertising is expected to be up approximately high-teens percent versus third quarter of last year and flat to up low-single-digit percents versus third quarter of 2019,” Sinclair Broadcast Group CFO Lucy Rutishauser told analysts.

Auto Languishes, Services Surge

Gray Television President-Co-CEO Pat LaPlatney reported strength in nearly all advertising categories. “The outlier, relative to ’19, remains the auto category, which was down and continues to face chip shortages and supply constraints that are depressing auto advertising,” he noted.

“The fact that other categories — especially legal, home improvement, financial, health and gambling — effectively backfilled a big hole left by the challenged auto advertisers, illustrates the underlying strength of our local television stations and the revenue diversification that has taken place over the last few years,” LaPlatney said. Also, if the supply chain gets back on track, he’s expecting the auto category to rebound in the fourth quarter of this year and into 2022.

Sinclair Broadcast Group President Rob Weisbord provided more color on the auto category during the Q&A period with analysts on the broadcaster’s conference call. “Versus 2019 second quarter it was low-teens down. We have a strategy of working with the Tier 3 auto dealers to promote services, used cars, as well as drilling into what available inventories they have. And we’re segmenting where the buyers are for omni-channel solutions that we provide for the dealers. It’s obviously been in the news with the semiconductor chip shortage that dealers are having a tough time getting vehicles, but that means that their grosses are at an all-time high. So, we’re working through it,” he said.

“Our service category is our largest category,” Weisbord added. “It’s been led by financial, insurance. And the new category that broke — and we’ve been asked about for a couple of years — is sports betting, where we’re three times up versus ’20, when we first started seeing the money. So, we’re in a healthy position from a core advertising position.”

Gray’s LaPlatney was asked by an analyst if he foresees auto’s return as the out-front category leader.

“You’re looking at a much more even split,” LaPlatney said. “Auto used to be a huge category. I think diversification is a huge benefit to the industry and to Gray. I don’t see auto ever being, probably not back to 20% even. We’ll see, but certainly not 25 or 30.”

Likewise, Scripps isn’t expecting auto to return to being local TV’s No. 1 ad category.

“Services is 35% of our business,” Lawlor said. “It’s been a growing category, even when auto was healthy. Services replaced auto as our top category several years ago and just continues to build.”

“Auto right now is about 15%-17% of our business,” he continued. “In the past couple of years, it’s been about 20% — and I think that’s where it settles back in when it hits momentum again. I don’t ever see an opportunity where auto has enough momentum, or enough dollars, to get back to the strength of our services category.”

Sports Betting Still Winning

Sports betting is still a hot growth category for television stations, as more and more states legalize (and tax) online betting. “From an overall growth standpoint, the lottery and sports betting category had the biggest percentage increase, growing by 282% over last year,” Nexstar’s Sook said. And this category remains super-hot across all of our platforms.”

Asked later by an analyst just how big the sports betting category is going to be, Sook said the rapid growth will continue as more and more states legalize online sports betting. It quickly became a top 10 category, Sook said, and he expects to see it become a top 5 category.

Gray Television remains on track to close on its $2.825 billion acquisition of Meredith Corp.’s TV group in the fourth quarter, and Meredith had only good news in its quarterly report.

“Looking more closely at our broadcasting portfolio, we delivered 50% growth in non-political spot advertising revenues, compared to the prior year period, driven by the professional services, automotive and gaming categories,” said Meredith President-CEO Tom Harty. “We also benefited from continued growth in retransmission revenues.”

Local is also strong for the Fox O&Os. “For our local TV stations, retail is up like 10%. Entertainment, which includes that really growing and exploding wagering category, is up 300% year-on-year,” said Fox Corp. Executive Chairman-CEO Lachlan Murdoch. “Media is up 43%. Pharmaceutical up 25%. Even travel, which is a much smaller category for us locally, up 76%. So, a lot of growth from the majority of categories, with the exceptions of auto and telco.”

Olympic Torch Still Shines Profitably

Despite the impact of COVID-19 restrictions on the just-finished Tokyo Olympics, NBCUniversal CEO Jeff Shell told analysts on parent company Comcast’s quarterly call that NBCU is still on track to have a profitable Olympics.

“It’s impossible to [overstate] the importance of the Olympics to NBCUniversal,” Shell said. “It’s not really financially, it’s more operationally across the company. We have 4,000 people literally working on it,” Shell said, recounting how he and Comcast Chairman-CEO Brian Roberts visited the Tokyo operation and marveled at the depth of expertise in the team involved on site and back in the U.S.

Advertising soared, with Comcast Cable advertising up 57% and the much larger NBCU ad pie growing by a third in the second quarter. And that growth continues for the O&Os. “If you exclude political advertising, our sales are pacing up about 8% locally,” Shell said.

Disney likewise reported growth in advertising, but also in costs. “At broadcasting, lower results from the ABC Television Network were only partially offset by growth at our owned television stations,” said CFO Christine McCarthy. “The decrease at ABC was largely due to higher programming and production costs, partially offset by higher advertising and affiliate revenue.”

Tech Companies Ride Recovery Wave

The robust advertising recovery has also been good to television’s digital-only competitors.

“Total Google services revenues were $57.1 billion, up 63%,” Alphabet/Google CFO Ruth Porat said in the company’s quarterly conference call. “Google search and other advertising revenues of $35.8 billion in the quarter were up 68%, with broad-based strength across our business, led again by strong growth in retail.

“YouTube advertising revenues of $7 billion were up 84%, driven by brand, followed by direct response,” she continued. “Network advertising revenues of $7.6 billion, were up 60%, driven by Ad Manager and AdMob.”

“YouTube is helping advertisers reach audiences they can’t find anywhere else,” Google SVP Philipp Schindler noted. “According to Nielsen’s Total Ad Ratings Reach reporting, from Q4 ’18 to Q4 ’20, on average, 70% of YouTube’s reach was delivered to an audience not reached by the advertiser’s TV media. In other words, YouTube’s reach is becoming increasingly incremental to TV, and this audience dynamic is a huge win for brands.”

Twitter racked up wins, too. “Q2 was a strong quarter, particularly for advertising,” said Twitter CFO Ned Segal. “We exited March with momentum across both brand and DR. In April trends continued to improve with ongoing strength throughout the quarter across all major products and geographies.”

“A growing audience, better ad products, strong sales execution, global events and advertiser product launches all had a big impact on our performance,” Segal added in the company’s call with analysts. “As a result, we exceeded the high end of our guidance range by 10% or approximately $110 million.”

Twitter CEO Jack Dorsey added: “Small businesses are really important to us. There’s a lot that we’re doing foundationally to make sure that we’re serving them better, including all of our focus on Topics. A big part of that focus is local as well. This is critical for any small business to be able to follow ‘like my neighborhood’ and also see the neighborhood businesses within it.”

At Facebook, ad revenue was $28.6 billion, up 56% or 51% on a constant currency basis.

“The macroeconomic environment for online advertising remains very strong,” said Facebook CFO Dave Wehner. “The growth in advertising revenue was largely driven by verticals that have performed well during the pandemic, such as online commerce and consumer packaged goods. In addition, we saw improved growth trends in verticals that were particularly challenged during the pandemic, such as travel, entertainment and media.”

On Facebook’s outlook, Wehner noted, “Similar to the second quarter, we expect that advertising revenue growth will be driven primarily by year-over-year advertising price increases during the rest of 2021. In the third and fourth quarters of 2021, we expect year-over-year total revenue growth rates to decelerate significantly on a sequential basis as we lap periods of increasingly strong growth.

“When viewing growth on a two-year basis to exclude the impacts from lapping the Covid recovery, we expect year-over-two-year total revenue growth rates to decelerate modestly in the second half compared to the second quarter rate,” he said.

For the second quarter at Amazon, “other” revenues, which Amazon says is primarily advertising sales, rose 87% to $7.914 billion. Excluding foreign exchange, the gain was 83%.

Amazon Advertising announced that Amazon streaming TV ads and Twitch now jointly reach an audience of 120 million monthly viewers across the U.S., creating more opportunities for brands to create engaging and interactive product discovery experiences across IMDb TV, Twitch, ad-supported apps on Fire TV and Thursday Night Football on Prime Video.

“Advertising is, again, another part of our flywheel,” said CFO Brian Olsavsky. “We have traffic coming in for the consumer business. And if we do a good job with advertising, we’ll make it an additive experience for our customers and our sellers and vendors.”