Core Puts A Drag On Sinclair’s 1Q Revenue

Sinclair Broadcast Group had plenty of positives to talk about on its earning conference call this morning: its ATSC 3.0 project in Dallas, affiliation renewals with ABC and NBC, the coming of Thursday Night Football to Fox and the expanded CW primetime schedule.

But then there was spot TV.

Steven Marks, EVP-COO of the Sinclair Television Group, said that core advertising, which factors out political, will be down mid-single digits in this year’s first quarter.

“This is primarily due to the Super Bowl and Olympics, both of which aired on NBC affiliates, which is our smallest affiliate group.

“In addition, it’s typical for advertisers not to spend as much during the Olympics on non-NBC stations, knowing that the audience is watching the Olympics and that the other networks pause their primetime original schedules.

Making the comps especially tough, he said, was that Fox aired the Super Bowl last year and “our exposure on Fox is enormous. So, going into the first quarter, we knew we were up against it.”

Like other station groups, Marks reported that auto advertising is soft. Although the key category was “positive” for 2017, it was flat in 4Q 2017 and will be down in 1Q 2018.

“But as we speak today with quite a bit of money already booked in the second quarter, there is an aggressive, positive pace so …we think this bounces back.”

Given’s Sinclair’s Fox exposure, Marks said, the network’s coverage of the World Cup this summer should make the “cash register ring a little bit more than normal,” but not as much if a U.S. team was participating.

Overall, TV ad revenue should be up strongly this year because of the biennial political spending.

However, the Sinclair executives were not expecting an unusually big political year. CFO Lucy Rutishauser said it would grow in the low single-digits over 2014 (the comparable political year).

The growth is modest, she said, because the group enjoyed a windfall from governors races in 2014 that will not be repeated.

Marks said political will finish the year at between $140 million and $150 million.

Even with the decline in core, Marks said, total pro forma (presumably same station) revenue will grow 2% in the first quarter compared to 1Q 2017 due to higher political ($8 million vs. $2 million) and retrans revenue.

Rutishauser said net retrans — retrans revenue minus reverse comp to the networks — should grow in the low single digits this year and “in the low teens” next year.

Marks said that Sinclair is “thrilled” that Fox stepped up and outbid NBC and CBS for the rights to Thursday Night Football, agreeing to pay $3.3 billion for 11 games in each of the next five seasons.

“Given the fact that Fox has been struggling in scripted primetime shows, putting in football should be a huge plus for the Fox network and for Sinclair in particular because of our huge exposure,” he said.

Sinclair CEO Chris Ripley added that taking the games away from CBS and NBC is also a positive because it “reduces payments we made to one of those networks related to Thursday night.

“It’s a win-win from our perspective,” he said. “I am very excited about what I am seeing at Fox in general in terms of their aggressiveness with the network post the Disney deal.”

Ripley said the Sinclair is excited — “the sky’s the limit” — by its ATSC 3.0 project in Dallas, which will not only test a single frequency network and various 3.0 features, but also the ability to get broadcasters in a market to cooperate. In some respect, he said, the business arrangement is “the most complicated part.”

The single-frequency network, which will involve three additional towers, is aimed at provding blanket coverage of the entire market, he said.

Features and services to be tested include targeted advertising, over-the-air subscription TV, mobile reception, multicasting and datacasting.

None of the Sinclair executives would comment much on the pending $3.9 billion acquisition of Tribune Media.

However, Ripley conceded that Sinclair has not had its way with the Justice Department, which, along with the FCC, has to approve the deal before it can close.

Last week, Sinclair told the FCC it planned to divest stations in several markets to comply with concerns raised by either Justice of the FCC.

“If anyone thought the DOJ would play favorites with Sinclair, I can tell you unequivocally that is not true, Ripley said. “They scrutinized this transaction very closely, more than any transaction we have done in our history.”

But Justice’s review has not been out of the ordinary in how it views the local television market, Ripley said. “They’ve done their work, they’ve been very diligent and we are just awaiting the final answer of their process.”