Political, Olympics Mute Tribune 3Q Results

The third quarter of a presidential election year is usually a time to brag about a double-digit revenue growth, but Tribune Media was limited to a single digit due to lower-than-expected political income and a lack of Olympics exposure.

Political was nevertheless a plus, and gains in political, retrans and carriage fees were largely responsible for the 7% increase in revenue, offsetting a 6% decrease in core advertising. The disappointing single-digit gain, modest for a heavy political quarter, was laid at the doorstep of political and a tiny NBC footprint which made the Rio Olympics a net negative, as well as a lengthy contract dispute with Dish Network.

President-CEO Peter Liguori opened his conference call remarks to analysts and investors this morning by addressing the uncertainty in the aftermath of the election of Donald Trump. He said it was discussed by Tribune execs last night and change is expected, but what that change will be is unknown, concluding: “But do know this — we feel quite confident … that this company is in very, very strong financial shape, operational shape, we have tremendous flexibility, and that will help us if the waters get choppier and harder to predict and navigate in the next coming months and quarters.”

While Trump’s impact on the future is an unknown, his impact of the recent past is totally clear — it was his campaign that caused the political miss, by Trump’s own lack of spending, lack of PAC spending on Trump’s behalf and even by dampening the amount of money the Clinton campaign felt it needed to spend.

Liguori summed up: “This cost us about $20 million in gross political ad revenue in the quarter versus historic spending patterns in our markets. In other words, but for the one-time phenomenon of Trump we would have hit our mark.”

Although political displacement was said to be a factor, the Summer Olympics took the lion’s share of the blame for Tribune’s 6% loss in local core. The company has but two small-market NBC affiliates in its portfolio of 33 markets, and they picked up $4 million, but that represented only about 1% of total Olympic spending. Liguori pegged Olympic displacement as a $17 million-$18 million hit and said that without it, core results would have been flat.

A third negative event for the quarter noted by Liguori was the group’s two-month absence from Dish Network in a carriage dispute, Liguori said that despite a positive ending, it cost Tribune $5 million in retrans fees and addition unspecified loss of advertising dollars.

On the plus side, Tribune is a 5% owner of the World Champion Chicago Cubs, a fact that elated Liguori and inflated the results of the group’s Chicago- and Cleveland-based television properties. WJW Cleveland more than doubled its late evening news ratings and WGN Chicago and WGN America cable network generated $3 million in World Series-related income.

Political spending in the fourth quarter amounted to $90 million, and included ramped-up spending from both major presidential campaigns during the final two weeks. However, what Liguori termed “the Trump effect” will result in achieving only 97% of what the company made in political during the 2012 election year.

Liguori expects that core spending will gradually bounce back, and he noted that while pacing is down low single digits, November and December are showing improvement over October results. He said: “People have budgets to meet, goals to meet, there’s pent up inventory out there, and we have expectations and we’re seeing signs that November and December will return to normal.”

Automotive results were a mirror image of the company’s overall 6% drop in core, but Liguori expects that to change. “Everything we’re hearing is spending will be bouncing back in November and December, especially as car manufacturers at a factory level are looking at putting out incentives and getting inventory off their lots, so we’re starting to see some sunshine through the clouds.”

Liguori discussed an unexpected $5 million hit related to the Charter/TWC merger. “As you’ve seen in the lawsuits brought by Univision, Fox News and Showtime, Charter is implausibly interpreting its retrans and carriage contracts as though Time Warner bought Charter instead of exactly the opposite. Consolidation is hard enough without this kind of brinksmanship, and we’re fully prepared to defend the agreed upon terms of our contract if necessary.” Resolution of the matter is pending.

Liguori confirmed that the Charter contract was not up for renewal and said the situation came as a complete surprise.

Liguori had some color on the much-discussed situation with the NFL. He said Tribune’s results have mirrored overall results and confirmed what others have been saying about weakness in the nationally-broadcast games, pegging the percentage audience shortfall in the high teens.

Locally, the loss is not nearly as dramatic, with CBS losing 5%-7% and Fox losing 3%-5%.

He also seemed unconcerned on the whole. “I think Les [Moonves] said it all. This is the best game in town, this is live, this attracts big advertisers, and these games are still events … I also agree with what Steve Burke said. Last year was a record year with unbelievable story lines, Payton Manning, etcetera, and when you look at the ratings … we’re in line with ’15, which was a record year.”

He added that the trio of London games may be having a deleterious effect, dampening ratings in places like Los Angeles where they are on the air at 6 a.m.

Discussing the group’s local programming strategy, Liguori touted the value of local news, both in generating ratings and income, the latter due to the fact that the programmig is owned 100%.

For Tribune, that idea applies to all local programming. He explained, “When we look at local station programming we are mindful in asking each and every one of our GMs, each and every one of or programmers, to basically create a schedule on a time-slot-by-time-slot basis that is EBITDA-driven, not just ratings-driven.”

EVP-CFO Chandler Bigelow said that retransmission consent income is on a growth trajectory. 2016 income will be higher than 2015, and 2017 will be higher than 2016. Liguori said that the Charter situation has blurred the outlook of the category, but that revenue will not “fall off the table.”

Tribune struck a new affiliation agreement for half of its Fox stations during 2016, with the remaining half coming due in 2018. It will have stable reverse compensation expense for the next two years.

Liguori sees OTT as a positive. Virtual MVPDs need local programming, and for Tribune OTT provides additional exposure for its stations and programs, so it has entered into discussions with all interested parties.