Broadcast SVP Brian Lawlor: “We did make some conscious decisions about cramping some core advertisers in favor of political [in the first quarter]. We look at it terms of what’s the total revenue we can drive and we have a heck of a quarter, up over 13%, and we’re looking at second quarter in the same way.”
Scripps Swaps Some Local For Political
The E.W. Scripps Co. was willing to throw some core advertising income under the campaign bus during the first quarter of 2016, and said it will do so throughout the election year to take advantage of bigger-bang political cash opportunities.
The company’s first quarter political take amounted to $9.3 million, comprising the tip of what it expects will be a $150 million political iceberg by year’s end.
Speaking generally during its earnings call this morning following release of its first quarter numbers, President-CEO Rich Boehne said: “Television remains the best way for candidates in federal, state and local races to reach a wide swath of highly likely voters. Broadcast is able to target the most valuable audiences in specific geographies that closely match the geographic structure of the elections themselves.”
As to Scripps in particular, Boehne continued, “We also build the value of the local TV through in-depth news coverage. Scripps has committed to providing at least 100 minutes of election coverage every week in each of our 24 network affiliate markets.”
The battle for the Senate has provided early benefits for Scripps. Both Boehne and SVP of Broadcast Brian Lawlor cited earlier-than-expected income tied to races in Ohio, Nevada, Colorado and Wisconsin.
Lawlor thinks that on the presidential side, his company is well-positioned with assets in Florida, Ohio, Nevada, Colorado and Wisconsin, and added that perhaps Michigan and Arizona would come into play. He did note it’s also possible some other unspecified states would shrink in importance.
He also believes that the timing of presidential spending will be shifted back from April to June due to the presence of presumptive nominees on both sides.
Describing the company’s inventory management, Lawlor said: “We focus on maximizing revenue by taking the highest margin dollars, and that’s exactly what we did this quarter. We were pleased to have such strong political advertising demand, which drove our performance to the top of our guidance.”
The upshot of that strategy was core displacement. Core was down low-single-digits during the quarter. “We did make some conscious decisions about cramping some core advertisers in favor of political,” explained Lawlor. “We look at it terms of what’s the total revenue we can drive and we have a heck of a quarter, up over 13%, and we’re looking at second quarter in the same way.”
He added: “We could have taken less political and had core plus one. I don’t know, maybe then people would be more excited. At the end of the day, we did as a public company what we think is best, which is to maximize revenue.”
As for the impact of Donald Trump’s emergence on the Republican side of the presidential contest, Lawlor noted that Trump has spent when and where he needed to thus far in the primaries, and in fact was the company’s leading Republican customer, and therefore expects no dampening whatsoever on total political spending.
Boehne gave an overview of the company’s digital side. “At Scripps, our digital business and investments fall into two buckets: Local brands and national brands, targeting somewhat different audiences and both supported by evolving advertising formats and platforms.”
Local is composed of dot-com and mobile assets tied to local broadcast assets, while national comprises assets such as podcast service Midroll, OTT service Newsey and the recently acquired Cracked brand.
SVP of Digital Adam Symson noted that Midroll and Cracked appeal to younger audiences, and that Cracked was expected to provide valuable content for Midroll. Cracked is also expected to contribute immediately to the company’s financial profile, bringing in 20 million unique monthly viewers and $7 million plus in revenue this year.
“Cracked distributes its content through a very high-traffic website,” said Symson. The best part, he explained, is that “…50% of that audience comes directly to the site and then spends an average of eight minutes engaging with stories and video. That’s a strong proxy for loyalty in the digital world and an important reason why we think it’s well-positioned to make a move into the emerging content marketplaces of digital video, over-the-top broadcasting and podcasting.”
Newsy’s strategy is to be on as many OTT platforms as possible, and most recently added Sling to its list of partners. Symson said it reaches 300 million viewers across all platforms.
Scripps is maintaining an enviable balance sheet. According to SVP-CFO Tim Wesolowski, it has $95 million cash on hand and $400 million debt for a net debt total of $305 million resulting in 2x in leverage. “We continue to have the best balance sheet in the industry,” he said.
The balance sheet leave Scripps well-positioned to consider M&A opportunities. Boehne noted that the company’s recent acquisitions of Journal and Cracked demonstrate its willingness to spend, and he went so far as to quantify it.
Boehne said: “If you look our uses of cash over let’s say four years across our revenue cycle, we’ve used about 50% of our cash to buy TV stations, a little less than 20% or about 20% to make digital investments, and the other third of our cash we used to return capital.”
He added that the company’s excellent financial profile gives it the ability to move on an acquisition when it wishes. However, he said, there is little to be had on the TV side as the spectrum auction moves forward, and the company currently has nothing on the front burner.
The company’s $209 million in operating revenue was largely created by its increased mass generated by its acquisition of Journal Communications. According to the company’s financial spreadsheet, the overall revenue gain when treating Journal stations as Scripps’ own a year prior would have been up 13.6%, including a 4.9% increase in advertising revenue and a 38.1% increase in retransmission income. Other revenue sources increased by 57.4%.
Lawlor noted that retrans income benefitted from getting full market rates from Time Warner Cable. Looking forward, Wesolowski said that most of the company’s major retrans and reverse compensation contracts are in place and no major impacts are expected through the rest of the year.
Scripps had five NBC affiliates carrying the Super Bowl in 2015, and was reduced to only two CBS stations this year. The revenue hit, according to Lawlor, was about $750,000.