Keys To Unlocking Digital Media Revenues

In examining how the country’s largest station group operators are unlocking digital media revenues, media analyst Tracy Young, managing director at investment banking advisory firm Evercore ISI, found that they were a lot like snowflakes: “No two are identical. Each company is playing by its own set of rules in building out digital initiatives.”

A ‘Far Cry’ From The 2000s  

A market report prepared by Young also found that the industry has come a long way over the past decade. Back then, most digital offers were often packaged with on-air time as a value add, delivering little additional cash. As Young reminds readers, “Monetizing websites was too nascent, and it was difficult to ascribe a value for the additional opportunity.”

That’s not true anymore, and for good reason. Citing industry forecasts, Young reports that digital media revenues are now roughly 15% of total revenues and expected to grow at a “30%-plus” compound annual growth rate through 2020, representing 11% of all media ad spend.

Move Quickly

While many of the publicly traded station groups she researched have taken a very distinct path toward their digital media investments, Young says one common denominator involved forging relationships with third-party aggregators as well as search engine marketing (SEM) and search engine optimization (SEO) partners.

These capabilities have allowed stations to provide geo-fencing and contextual search as well as social media tools, enabling marketers to tailor their messages based on the strength of each platform. Also working in an individual station’s favor are its established local presence and reputation.

While these advantages have allowed stations to take market share from other traditional media providers, Young warns that broadcasters now face a host of new online competitors. They include companies like Reach Local, which connects local businesses with major online tech brands. In addition, larger companies — such as Facebook and Google — are looking to make moves into mid-size markets.

Young’s report goes on to detail how six of the country’s publicly traded station groups are taking advantage of their unique strengths in order to scale their offerings and maintain their leadership positions in digital. Her findings have also been published in the November-December issue of MFM’s The Financial Manager magazine. A digital copy will be available to members and non-members alike in a few weeks via our website. In the meantime, here’s a synopsis:

Gray Television’s Cluster Power

In Young’s opinion, Gray Television has taken one of the most straightforward approaches to digital. “The company sees digital as a natural extension of its focus on local presence and the relationships it has with local advertisers.”

These digital capabilities offer marketers a more directed advertising opportunity for reinforcing their brand with targeted consumers and Gray’s investments in digital are already beginning to pay off, with a 50% profit margin. The company is also building on its local and regional presences with other types of sites, including MomsEveryday.com, and marketing solutions company LocalXMarketing.com.

Scripps’ Genre Approach

E.W. Scripps’ investment in several digital businesses takes it well beyond using sites to augment its broadcast business. These include video news service Newsy.com that will be part of an OTT offering that takes advantage of the company’s relationships with Roku, Amazon Fire and Sling TV.

Scripps also owns Midroll.com, which features podcasts, and Cracked.com, which looks at the world with a sense of humor. The company’s digital initiatives are expected to contribute less than 10% of revenues in 2016 but are growing fast. Young reports that CPMs (cost per thousand ad rates) are in the $7-$10 range for local display ads and video CPMs are much higher, in the $25 to $45 range. The company is also exploring subscription-service models beginning with WCPO-TV Cincinnati’s site, which charges $19.99 a year for exclusive access to deals on local good and services.

Sinclair’s Many Plays

Sinclair Broadcast Group’s approach involves offering marketers several interrelated options, from website design to social media marketing, through its digital agency solutions group, Compulse Integrated Marketing. Leveraging its more than 2,200 hours of live local broadcast news each week and 24/7 digital news operations, Sinclair stations can sell dozens of digital verticals based on what works best for their clients.

Intent on reaching a wider and younger audience with its digital forays, Sinclair has also invested in Circa.com, a Millennial-focused news and entertainment site. The company expects its ability to broaden the reach and scope of the site’s content will help it to become as significant as Vice, Vox and Buzzfeed.

Nexstar’s Tech Slant

Nexstar Broadcasting Group is taking a technology-focused approach to digital by acquiring and rolling up several leading, locally focused, digital content management system businesses into a new technology company, Lakana. In addition to its in-house value, the platform is powering the digital publishing requirements of such media clients as Scripps, Fox TV Stations, Cox, Tegna and Graham Media Group.

In addition, Nexstar purchased Kixer, which focuses on optimizing ad performance and driving new mobile revenue streams for content publishers. The company also acquired the programmatic platform Yashi, which specializes in local video opportunities and has developed a technology stack that integrates data-driven targeting tools to support real-time bidding.

Nexstar’s acquisition of Media General, which had previously acquired LIN Media, adds more digital properties to its portfolio as well as broadens its ability to monetize these digital enterprise investments.

Tegna’s Big Advances

Although Tegna has a sizable TV station business, encompassing 46 outlets that cover one-third of all U.S. households, one half of the company’s revenues and 30% of its EBITDA (earnings before interest, tax, depreciation and amortization) comes from two sites: cars.com and CareerBuilder.com. The company also owns and operates Hatch, a centralized client solutions group designed to meet advertiser needs across the organization’s multiple video and digital platforms.

Other Tegna ventures include G/O Digital, a digital marketing firm that specializes in cross-platform and social marketing campaigns, and Cofactor (previously known as ShopLocal), a marketing firm that enables brands and retailers to engage shoppers with personalized ad content on a variety of devices.

Tribune’s Site Strength

While Tribune continues to derive most of its ad revenue from its 42 owned and operated stations and the cable network WGN America, the company offers local and national clients a range of digital content and marketing options, including native video advertising.

In total, the company operates approximately 50 websites and 125 mobile applications and has invested in Dose Media, which owns web properties Dose.com and OMGFacts.com. In addition to bolstering Tribune Media’s efforts to report on trending topics and to present stories with the most effective headlines and photos, Dose’s technology suite is helping brands optimize their messages with scientific effectiveness.

Unlocking The Right Solution

As these examples illustrate, companies are trying a variety of approaches in their quest to successfully participate in the rapidly growing digital media market. While there are any number of advisers who can provide advice on which one to choose, MFM members have found that the best source is those with first-hand experience.

You can be sure that digital opportunities will be among the topics discussed during MFM’s 2017 CFO Summit, which will be held in Fort Lauderdale, Fla., on March 2-3, 2017. Co-Chaired by Dave Bestler, CFO of Hubbard Radio, and Brett Fennell, CFO of Cox Media Group, media senior financial management executives attending the event will also engage in a no-holds-barred discussion of economic, consumer, and labor trends as well as how to capitalize on such developments as programmatic media buying, ATSC 3.0 and connected cars, to name just a few of the planned topics.

As with any new opportunity, the key to digital media success requires the willingness to consider different solutions. Our goal at MFM and BCCA, the media industry’s credit association, is to help members explore the options and discover the best answers for their unique situations.

Mary M. Collins is president and CEO of the Media Financial Management Association and itsBCCA subsidiary, the media industry’s credit association. She can be reached at[email protected] and via the association’s LinkedIn, Twitter, or Facebook sites.