Spot TV 2018: Total +12.8%; Core +0.53%

You can bet your bottom dollar that TV station ad sales revenue will spike up next year, given the heavy political spending that takes place during the midterm elections. But advertising in core categories — everything but political — will be hardly more than flat.

That’s according to a TVNewsCheck annual poll of broadcasters and industry analysts.

Factoring in political spending, total advertising is expected to increase 12.8% when compared with 2017 results.

But core will increase an average of less than 1% in 2018, weakened by diminishing auto spending that accounts for a quarter of all spot revenue and by the fact that some core advertising will be displaced by the political spots.

In recent years, core has chugged along at low single-digit percentage gains. But this year, it is expected to be worse than anticipated, moving into negative territory due not only to the erosion in the auto sector and a couple of other ad categories, along with some other troubling market trends — conditions that may continue next year.

Survey respondents anticipate that 2017 core will decline 1.4% over 2016 results. Widening the comparison to include political makes for a steep drop-off, which is not surprising, given the presidential-year spending last year. Total 2017 spot will be down an average 10.7%.

Fifteen TV broadcast groups and media analysts participated in TVNewsCheck’s latest annual poll, which was conducted in late August and early September. For their candor, the respondents were offered anonymity, although some of the analysts waived the privilege.

Respondents in the 2016 survey were more optimistic about 2017 than those surveyed this year. Back in August 2016, those polled thought 2017 core would increase 1.3% as the total fell 8%.

Behind The Numbers

Marci Ryvicker, Wells Fargo Security’s managing director of equity research in the media sector, says that the disappointing results for 2017 are due to a few factors.

“I think it’s auto; I think it’s the economy. There’s been no catalyst for change because there’s been political unrest. Things that Trump had promised would happen he’s not been able to get through. So, there’s infighting. There’s money still shifting to digital.”

“Every day there’s a new crazy thing in Washington,” says Mark Fratrik, SVP and chief economist at BIA/Kelsey. “That troubles me, not so much because it has a direct effect [on the economy], but how much confidence it takes out of consumers.”

Other trends may shape spot revenue in the coming year. For example, NBC O&Os and affiliate stations will kick off the year with a huge burst of advertising tied to the Winter Olympics in Pyeongchang, South Korea, and the Super Bowl.

More broadly, “the strong sellout at the TV network level during the upfront could push money into local. And the consolidation of Tribune and Sinclair could make for a more viable sales force that could push money into spot,” adds Jack Myers, chairman of MyersBizNet.

Graham Media CEO Emily Barr says to keep an eye on Nielsen. “It’s making significant changes, which will either take place later this year or before June of next year. This is going to impact what the ratings say about our audience, and that, in turn, could impact buying behavior.

“On top of that,” Barr adds, “you have automated buying really coming into its own in the coming year.”

Brian Wieser, senior research analyst, advertising at Pivotal Research Group, was among the most bearish respondents. “Local TV is suffering from the same thing it’s suffered from for decades, which is that the economy is increasingly oriented around national media.”

Wieser forecasts that core will drop 2.2% this year, 4% in 2018 and 4.2% in 2019.

Ups And Downs

According to the respondents, there are four standout ad categories for spot this year and next: telecoms, professional services, home improvement and that 10,000-pound gorilla, political.

But three other sectors are dragging the overall results down — most notably auto, but also retail and quick service restaurants (QSR).

First that gorilla: Kantar Media/CMAG’s projections come in below that percentage level. Its 2018 spot projection is $2.4 billion, a 14% rise over 2014’s $2.1 billion.

While it’s not an apples-to-apples comparison, it’s interesting to note that the estimate for next year falls below CMAG’s 2016 presidential year number for spot: $2.8 billion.

Another forecaster, Kagan Media Research, says that political will grow just 6.6% next year, but its dollar estimates are higher: $2.58 billion in 2018 compared to $2.42 billion in 2014.

In any case, expectations are high. “Fundraising is pacing ahead of prior like cycles,” notes one broadcasting executive requesting anonymity. While PAC spending was lighter than usual in 2016, it’s likely “to come back with a vengeance,” the broadcaster adds.

While Democrats are intent on winning back majority leadership in the House and Senate, the most aggressive spending is likely to come from gubernatorial campaigns, according to Steve Passwaiter, VP and GM of Kantar Media/CMAG.

“We’ve got 36 governor races, and a lot of them are open seats. If you look at Florida, Ohio, Michigan, Nevada, New Mexico, California, and Scott Walker running for a third term in Michigan, and a fistfight going on in Illinois between [Gov. Bruce] Rauner and [Jay Robert] Pritzker, it could get very expensive,” he says.

Passwaiter also notes that today Republicans control two-thirds of all state assemblies, 67 out of 99. “I think the Democrats are going to start to fight back and change some of that.”

For an off-year, 2017 is pretty robust in the political category as well. There was a deluge of revenue flowing in for special elections in some areas, most strikingly in Georgia’s 6^th district, which partially covers Atlanta.

Another shining-star category in 2017 is professional services, and it is expected to continue to show strength next year. It includes attorneys, fitness centers and home security. The category is among spot’s top five revenue earners, accordng to Steve Lanzano, president-CEO of TVB.

“When I started here about eight years ago, I don’t think it was even in the top 15 or 20,” Lanzano says. “It’s a category that’s really exploded.”

Legal — which makes up the lion’s share of the sector — is up 8% so far this year, he says.

Home improvement is another upbeat category in 2017. In fact, it’s helping to “hold up the overall spot results,” Lanzano says.

“That’s where all the pent-up savings is going,” says another observer who expects the category to be up low single digits both this year and next.

An even stronger revenue category is cable and satellite. “We’ve seen several players in that category significantly increase their spending in 2017,” says Wayne Freedman, VP of sales at Raycom Media. “We’re hopeful it will continue to be one of our strongest categories in 2018.”

Freedman adds: “It makes a pretty big statement that these cable and satellite advertisers, who are also obviously competitors in our local markets, nevertheless recognize the power and effectiveness of local broadcast. With growing competition from over-the-top platforms and cord-cutting, they know they have to market effectively and be very aggressive.”

On The Other Hand

The Debbie Downer Prize for 2017 goes to automotive. The category’s performance is tied to how many light vehicles are sold. LMC Automotive raised its unit projections after Hurricanes Harvey and Irma, but automotive losses from the catastrophes won’t push overall unit sales above the 2016 watermark.

LMC projects that 2017 unit sales will be 17.06 million, and 2018 will come in at 17.09, both down from the 2016 level of 17.54 million.

If auto revenue increases in 2017 at all, it will only be a very slight uptick, some executives indicate.

“Automotive was down first quarter and the start of the second quarter. And we’re running flat now for the third quarter,” says David Bradley, chairman-CEO of News-Press & Gazette Co.

He expects the business to be stronger next year. “It’s coming back.”

Others agree. The auto industry will be “extremely competitive” to protect share next year, says Steve Sturm, TVB’s executive adviser on automotive. “There will be over 60 new vehicle launches next year. This year there will be about 50.”

That increase will drive a rise in spending among the manufacturers. And Sturm expects advertising with dealers and dealer groups to remain largely the same.

Meanwhile, QSR and retail are foundering, and they may not get better anytime soon. “Retail is struggling. Department store companies are closing stores across the country. They’re spending less on advertising, and what they spend is mostly digital,” says Vincent Letang, EVP, global market intelligence at MagnaGlobal.

Letang notes a long-term trend of retailers and chain restaurants favoring national media at the expense of local.

McDonalds, by far the largest fast-food spender, may be moving further out of spot. In July, the company announced that seven agencies would be buying media on its behalf, as opposed to about 60 before then. The whole QSR category’s revenue movement “is a big unknown,” says one broadcaster. “Optimistically, it’s flat.”

“Generally, it’s hard to get people interested,” says a station group executive, in speaking of the QSR category. “Some of this is just the general tenor of the country. The stock market is doing well, but no one feels good about anything.”

Read all of TVNewsCheck’s TVB Forward 2017 coverage here.