How's Local TV Biz Looking?

Most broadcasters have reported financial results for the first three months of 2003(or will do so shortly), and it's becoming clear just how unclear the advertising outlook is for the station business for the next couple of quarters.

Broadcasters reported much slower growth and even declines in many of the top ad categories for the first quarter, including automobile, fast food, telecommunications, travel, beer and wine, and gas and oil. The movie and retail categories were mixed, with some groups reporting gains, others declines.

Discussing his company's first-quarter results last week, LIN TV Chairman and CEO Gary Chapman described the advertising business during that period as "challenging," adding that the near-term outlook is virtually unpredictable. Pro forma ad revenue at the LIN stations was basically flat, while "visibility is quite low," he said. He indicated that the group's same-station ad sales were down about 3% in March, due in part to the Iraq war but also due to comparisons with last year, when the group had millions more in political revenue.

April was up "slightly," and Chapman is hopeful that succeeding months will show improvement, "but it is difficult to say how fast and how far this marketplace will recover."

Similarly, Belo Chief Financial Officer Dunia Shive told analysts and investors during a first-quarter-earnings teleconference April 25 that it is too early to predict second-quarter TV ad sales (or newspaper ad sales for that matter).

Bear Stearns broadcasting analyst Victor Miller issued a report last week that concludes that the advertising recovery for stations is taking longer than originally expected. As a result, he reduced second-quarter operating-cash-flow estimates for seven of the eight TV companies he follows.

"There was an expectation that ad revenue would snap back" after the war wound down in mid April, Miller said in his report. But it hasn't. He estimates that local TV revenue was up a very modest 1% in April.

And pacings for May, so far, are "generally poorer" than expected. Tough comparisons with last year are partly to blame. But, says Miller, "advertisers are sitting on the sidelines longer," unsure of when to reenter the market.

Belo Executive Vice President, Media Operations, Jack Sander conveyed a similar opinion in discussing first quarter results with analysts and investors. After discussions with advertisers, he said, he believes that a number of product introductions and accompanying ad campaigns are in the works. "People do have money in queue to get back to the normal ad pace. Now they're just kind of waiting to pull the trigger to see how consumers are reacting on a week to week basis."

He believes that "the question is when," not if, "advertisers will implement their original advertising plans."

LIN TV Executive Vice President Paul Karpowicz said much the same thing to analysts and investors last week. It hasn't shown up in the actual results yet, he said, but "there's anecdotal evidence" that advertisers will be spending more aggressively in the coming months. "We feel cautiously optimistic, given what they're telling us."

Bishop Cheen, broadcast analyst for Wachovia Securities, sees the current ad market this way: "It is fragile. Handle with care. It's showing signs of recovery, but, at the same time, it's very spookable."

But, he said, with all that the economy has been through since the dotcom bubble burst followed in short order by 9/11, TV broadcasters have performed "remarkably given the circumstances. This is kind of not unexpected, and nobody should be crying in angst" because the underlying fundamentals of the business are still sound, he said.

In his Bear Stearns report last week, Miller wrote, "Regional and local advertisers are not stepping into the market as much as they have in the past."

On the plus side, WB stations seem to be faring better than affiliates of the Big Four. That was the case for Granite Broadcasting, which owns stations in both categories and reported first-quarter results last week. Granite CEO Don Cornwell told analysts that the group's WB affiliates had "double-digit top-line [revenue] growth in the first quarter" compared with low- to mid-single-digit growth at its other affiliates. And, while LIN reported that its movie business was down a little in the quarter, Granite's WB stations showed huge growth in the category: "something like 30%," said Cornwell.