LIN Sees Growth Ahead In Digital

Digital revenues were the bright spot in an otherwise flat first quarter for LIN Media, but how much was actual digital and how much was retransmission revenue?

No telling because LIN wraps both numbers into the same package and doesn’t disclose, at least publicly, the retrans component.

Although core ad revenues declined 2 percent, overall revenues did exceed expectations — LIN’s and Wall Street’s — aided primarily by digital/retrans.

LIN’s RMM subsidiary, which targets clients unlikely to buy television time, was responsible for much of the 31% growth in the digital category, Richard Schmaeling, LIN’s CFO, told analysts during a conference call Wednesday.

“We compete very well with local newspaper sites,” he said. “The percentage of markets where we’re number one or two versus all websites is around 50%.”

Digital’s the fastest growing segment of LIN’s business but that has to be balanced with associated costs, Schmaeling noted. The company projects sales, general and administrative expenses, which increased just under 6% in the first quarter, to rise 7%-9% in the second quarter. Digital, and closing on the Acme acquisition, accounts for about 5 of those percentage points, according to Wells Fargo Securities analyst Marci Ryvicker.

“What we try to play out in our guidance is that a big driver in the expense increase is the cost of sales in digital growth,” Schmaeling said. “We expect digital revenues to grow rapidly and that’s going to drive expense along with it.”

Mobile DTV is another big push for the company, said Vincent Sadusky, president-CEO, noting that mobile impressions increased 111% to nearly 89 million.

That prompted Gabelli & Co. analyst Barry Lucas to ask if that translated into LIN getting closer to an actual business model for mobile.

Sadusky, who’s also chairman of the Open Mobile Video Coalition, answered indirectly: “We’re moving at a very good pace right now,” he said. “There seems to be momentum from device manufacturers.” For many members of Mobile Content Ventures and Mobile500, two ventures aimed at turning mobile video into a business, “It’s definitely a goal … to announce service up and running in many markets by end of year,” Sadusky said.

LIN’s encouraged by signs of improvement in the economy: core ad sales, which exclude political, are pacing 5% ahead of last year with auto pacing 12% ahead of last year. Auto accounts for about 23% of LIN’s overall advertising revenues.

On the balance sheet side, LIN continues to focus, like many station groups, on using free cash flow to pay down debt. At the end of the first quarter, LIN’s total debt stood at $619.6 million, down $18.9 million from year end. That translates into a multiple of 4.4 times cash flow, up slightly from 4.3 times at year end but below the covenant ceiling of 6 times.