TVNEWSCHECK ANNUAL FORECAST

Spot TV 2017: Total Down 8%; Core Up 1.3%

That's the consensus of station groups and industry watchers surveyed by TVNewsCheck. The downturn is fully expected as political advertising dries up as it always does in odd-numbered years. However, the reforecast for 2016 is down from the last fall's original prediction because political spending has not been as strong as expected.

After months of TV spots praising one candidate or damning another, most Americans will be happy to see them go away after the Nov. 8 elections.

But not TV broadcasters.

Without the heavy spending from political advertisers, total spot revenue will fall almost 8% next year, according to TVNewsCheck’s annual survey of stations and industry analysts and researchers. This year, 17 participated in the survey during the first three weeks of September.

The drop off comes as no surprise. The local broadcasting business is locked into a two-year cycle — up in even-numbered years and down in odd-numbered years — because most elections come in even years and political advertisers have emerged as broadcasters’ second-largest customers.

What may come as a surprise — and a concern to some — is that the revenue from all other categories — so-called core revenue — will rise just 1.3% next year, the survey says.

Because of political advertising, broadcasting is currently enjoying an up year. According to this year’s survey, total revenue will rise 11.5% in 2016, while core inches up less than 1%. (In political years, core is depressed to some extent because non-political advertisers are often displaced by political advertisers.)

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A year ago, surveyed station groups and analysts were more optimistic about 2016, anticipating a boost from both record election spending as well as the Olympics in Rio. At that time, they forecast a 13.5% increase for total spot and 2% growth for core in 2016.

The more modest outlook for 2016 reflects uncertainty about the year’s final tabulation of political — an uncertainty that was heightened last week by news that Sinclair and Gray were cutting their revenue guidance because of anticipated shortfalls in political.

“There’s nothing similar to 2012,” says Marci Ryvicker, managing director of equity research, media and cable, at Wells Fargo Securities. “You have a presidential nominee [Donald Trump] that doesn’t believe in traditional advertising.

“You have a Senate that is not supporting the [presidential nominee]. You have races that are hotter than they should be because of this. You have PACs that aren’t spending because they don’t support the Republican candidate.”

Wells Fargo has been projecting $3.3 billion in spot political spending, but Ryvicker said this morning she’s lowering that number to $2.65 billion.

SNL Kagan also put election spending at $3.3 billion in its May forecast. “That may be a little on the high side, based on some of the comments coming out of the station owners,” says Justin Nielson, senior research analyst, media and communications, SNL Kagan.  “We still think the spending will be ahead of 2012, but how much is open to debate.”

TVB President Steve Lanzano told TVNewsCheck last week that political spot would be “at least $3 billion” this year, about 10% less than he and the experts had been figuring.

Because most election spending is conducted at the national spot level, that segment of broadcasting revenue has the most to lose next year. And, the survey says, it will, indeed, lose the most. It will swing from a plus 27.9% in 2016 to a minus 13.2% in 2017.

[Editor’s note: When this story was originally posted, it included growth percentages for national and local core. The national figure was removed because there were insufficient responses to support it.]

That the core numbers are holding up reflects the belief of just about everyone surveyed that auto spending will continue at its current pace. That’s crucial since it accounts for about a quarter of stations’ revenue in any given year.

The optimism comes despite moderating auto sales. LMC Automotive has downgraded its expectations for light vehicle sales in the U.S. in 2016 to 17.4 million, off 0.3% from 2015. “We expect a slight uptick in 2017, but growth will be sluggish, to 17.45 million vehicles,” says Bill Rinna, senior manager, North American forecasts at LMC.

“Auto sales have remained robust this year, and our stations continue to grow local dealer spending,” says an executive at a large station group, requesting anonymity.

“Ford came back with a vengeance. And imports were up substantially in our markets,” says Terry Hurley, president of Cordillera Communications.

Ford had leaned more heavily on digital spending in recent years, and its swing back to spot is part of a larger trend. “There’s been a rebalancing of the budgets,” adds Andy Donchin, chief investment officer of the Dentsu Aegis Network.

“It’s not that digital doesn’t work; it’s that it doesn’t drive the mass awareness — and the accountability isn’t as high [as TV],” Donchin adds.  That works more to the advantage of national TV networks than spot, because of efficiencies. “But spot is still an important part of our media mix.”

A little shrinkage in auto sales might work to spot’s advantage, says TVB’s Lanzano. “Now everyone’s going to be fighting for those individual units. So they’ll be more incentives and promotions — and more advertising.”

Other categories expected to hold their own next year include telecommunications and heath care. “We think they are going to move faster than any other category,” says Ray Mirabella, director of sales for Hubbard TV’s stations in Minneapolis-St. Paul.

For Mirabella’s stations, health care ranks as about the seventh or eighth largest ad category, and it includes “body beautiful” businesses, such as those focused on weight loss and cosmetic enhancements.

On the negative side of the ledger are retail (with the possible exception of the home improvement subcategory), fast food and insurance.

And this year’s downturn in the education category is expected to continue into 2017. “Schools have been hard hit due to precipitous declines in enrollment, heavier government regulations and less governmental funding,” says an executive at a large TV station group who asked for anonymity.

The analysts agree that core will be driven by the health of the national economy more than anything else. And while some believe the country is  heading for a downturn, most are somewhat optimistic.

Mark Fratrik of BIA/Kelsey foresees continued, gradual improvement in the economy, which generated a GNP of just 1.2% in the second quarter of this year. “I think the monetary policy of the Fed won’t be dramatic or drastic, so I don’t think that will negatively affect the economy. It should chug along.”

Fratrik adds that government regulations have been a drag on the economy, singling out Obamacare as having “a negative impact on business formation and expansion” as well as the “animosity” toward for-profit schools and environmental rules.

The broadcasters and analysts had no idea of what economic impact would be if Donald Trump were elected president, because he has been unclear about he would he would do as president.

There are other overarching negative factors to consider. “Advertisers who have a local orientation in their budgeting take a diminishing share of the economy. That’s a really significant head wind on an ongoing basis,” says Brian Wieser, the senior research analyst of advertising, Pivotal Research Group.

Linear TV is not particularly “growthy,” he says.

And spot is more difficult to buy than other TV media, some of the analysts point out.

“If you are a restaurant franchise or a retail company and have a near-national footprint, it’s more cost-effective to buy on a national [network] basis, as opposed to buying locally — which you can do. But it’s more complicated and can be more expensive,” says Vincent Letang, EVP and global research lead at Magna.

On the flip side, Jack Myers, an advertising analyst with MyersBizNet, sees an upside for spot. “Local TV has yet to be as integrated into the multiplatform considerations at the agencies in the same way that they’ve integrated across broadcast [networks], cable, syndication, digital video, digital out of home video and cinema.”

That’s also true for media companies, he adds. “NBCU is a perfect example. They’ve integrated across all their national video platforms, but separate out local into a separate sales organization at the national spot level. So much of the business is still driven at the local level, and you’re not getting the same benefit at the national marketplace level.”


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