Short NBA Series Shorts Scripps 2Q Results

It wasn’t so much that the NBA Cleveland Cavaliers failed to repeat as NBA champions for the 2016-2017 season. It’s that they lost so quickly, erasing two entire games and two entire golden advertising revenue opportunities from the E.W. Scripps Co.’s second quarter earnings.

First, some housekeeping: For President-CEO Rich Boehne, it was his final earnings conference call with analysts. He will turn over CEO duties to current COO Adam Symson next week

The impact of the NBA playoffs was so big a factor on the company’s ABC affiliate WEWS Cleveland that it affected results for the entire station group.

The good news was that the Cleveland Cavaliers made the NBA finals. The bad news was that they lost to the Golden State Warriors. The worse news is that they lost quickly, in just five games.

The previous year, Cleveland defeated Golden State in the maximum seven games. According to SVP, Broadcast Brian Lawlor, the lack of advertising revenue from those two games imposed a $2 million hit on 2Q 2017 core advertising results.

Otherwise during the quarter, strong gains in retransmission consent income mitigated the loss of political advertising, according to SVP-CFO Tim Wesolowski. Lawlor said an apples-to-apples comparison of 2Q core results produced a 2% drop in revenue.

And Lawlor cited an unusually healthy 2Q off-year political total of $2.5 million tied to spending on health care reform and a controversial ballot initiative in Ohio.

According to Lawlor, the outlook for 3Q is choppy. Overall television revenue is expected to be down high single digits due to the usual odd year factors. The hole in comps is being created by third quarter 2016’s $27 million of political income and $10 million in Olympics income.

Nevertheless, core is expected to be up in this year’s 3Q, said Lawlor, despite headwinds in the form of weak spending from cable companies, retail firms and banks.

Lawlor noted: “We continue to see weakness in our retail and media categories. Cable companies are holding back money right now as they prepare to spend on promotion of their launch of their new over-the-top services, and the banks are spending less at the moment in the face of rising interest rates that is slowing lending.”

Automotive is also facing a downturn. Lawlor said decreased factory spending is pulling down the No. 1 ad category by 5%.

Lawlor said auto was roughly flat in 2Q, and that a lot of the lost NBA revenue was in that category. In 3Q, the damage is coming from lost automotive revenue that was tied to last year’s Summer Olympics, and he said he expects the category to bounce back in September.

The retail hit is coming from nearly $1 million in unrepeated business from just four or five advertisers. Amazon and eBay are two of them — they were engaged in an advertising slugfest last year, and are now both absent. Lawlor also noted the loss of large pharmaceutical accounts.

The topic of which categories were performing strongly was not addressed during the conference call.

In general, Lawlor echoed the early observation of many of the companies that have thus far reported 2Q results, which is that core spending has been improving steadily as the year progresses and is expected to continue to do so. This is despite the company’s special case dip in 2Q tied to the NBA.

Core numbers figure should improve if for no other reason than they will benefit by comparison to core displacement that resulted from last year’s elections, Lawlor pointed out.

On the expense side, Lawlor said the company does its very best to contain costs, and that the increases it is experiencing come from network affiliation fees (commonly called reverse compensation), which are up 10%.

Boehne touted this week’s Katz Networks acquisition, which consists of four multicast networks primarily available on over-the-air subchannels.

“The Katz team smartly identified an opportunity for themselves, much like those who launched cable networks back in the early days. Their content strategies focus on specific audience segments.”

Included are Bounce (African-American), Grit (men), Escape (women) and Laff (“anyone with a sense of humor,” as Boehne put it.)

“In its short history it already has been successful in achieving national reach through over the air distribution and turning that distribution into revenue and cash flow…. This is not a traditional broadcast TV business and it’s not a digital business. It falls into a new forward-looking fast-growing category which we believe is just terrific upside.”

Wesolowski said that the Katz acquisition is expected to close early in the fourth quarter of this year.

On the M&A front, Lawlor said that visibility was limited when it comes to relaxation of the 39% national cap, but that relaxation of in-market rules seems likely. Between that and reinstatement of the UHF discount, he expects station trading to heat up.

Sympson added that the company’s debt level will do nothing to hamper its ability to participate, and said its primary interest is in markets where it already has a presence.

According to Lawlor, OTT fees are coming in along the same lines as traditional MVPD retransmission consent fees and deals are in place with ABC, NBC and CBS.

Symson said the company was happy with the progress at its two digital platforms. He said OTT news platform Newsy enjoyed a 25% increase in views to 130 million, and said Midroll had more than a billion podcast downloads.