Affiliates Reap ’Net Profits

After a decade of largely throwing online ads into deals as a value added, TV stations are increasingly looking to the other small screen as a source of revenue.

A dramatic increase in online spending is catching station managers’ attention. According to a study released last week, TV stations are poised to take in an estimated $410 million from their Web sites in 2006 and have more than doubled their take over the last three years.

After a slow start, the medium is burgeoning. Last year, TV-station Web sites produced $283 million, up from $119 million in 2004, according to research firm Borrell Associates. This year, the company is forecasting 45% growth for TV Web-site revenue.

Of course, compared with a station’s overall profits—an affiliate in a midsize market might gross $20 million a year—Internet money is small. But as local broadcast wards off competition, station managers are desperate to cultivate new revenue streams. “This is not a product extension or just a TV station online,” says Borrell President/CEO Gordon Borrell. “This is a new medium to go after new advertisers.”

Despite the uptick, some advertisers remain hesitant. Minneapolis-based local-media buyer Colleen Ryan of Cash Plus Media Services says that, in the past five years, clients have expressed interest in online ads but most have not taken the plunge. “The main obstacle to success is, our clients don’t want to pay for it and TV stations want to make it a new revenue stream,” she says.

TV stations have to make up a lot of ground online. Newspapers, which more easily converted text-based product to the Web, earn much more online. Last year, print media grabbed $2 billion in online- ad revenue. Further competition comes from “pure-play” Internet companies, which raked in $1.3 billion last year from local ads.

TV stations’ fortunes are improving as corporate parents put more emphasis on new media, Borrell says. Indeed, station owners like Gannett, Belo Corp. and Liberty Corp. have made the Internet a top priority. “Traditional media is declining. Are you going to be a part of it or watch?” Gannett Senior VP Paul Trelstad said at a recent Television Bureau of Advertising meeting in New York. “We are a part of it.”

Fueling the stations’ online growth, Borrell says, is that advertisers that can’t afford TV, such as real estate brokers and doctors, are attracted to Internet ads. TV stations can tempt them with video ads and interactive features.

Indianapolis media buyer Bill Perkins recalls one such ad last summer for a local air show that featured an animated plane zooming across the station’s home page. “It was very attractive,” he says, “and they sold a lot of tickets.”

Still, clients are taking a wait-and-see approach. Says Perkins, “Online advertising is not what people are blowing it out to be—yet.”