Local TV

B&C's 2009 Second-Half Forecast: The Station Business

Despite their best efforts, stations’ hopes for a business turnaround in 2009 are ebbing fast 7/13/2009 01:00:00 PM Eastern

General Motors has raced through Chapter 11 bankruptcy protection like an ’09 Corvette. The company will likely launch a substantial campaign to show a skeptical country that it’s still a vital part of the American fabric. The car dealerships that haven’t been shuttered are stepping up their marketing efforts.

Meanwhile, stations’ digital business continues to grow.

Promising developments, all of them. But if a panel of top-level broadcast executives is to be believed, such pinpricks of light are not quite enough to signal the end of the gloomy tunnel. As they forge into the second half of 2009 amidst continued economic murkiness, station group executives are losing hope that they’ll see a true renewal this year.

“I’ve heard some reports of business picking up, but I’m not seeing the lift now,” says LIN TV President/CEO Vincent Sadusky. “I just don’t know what there is to point to it.”

Conventional wisdom holds that typical recessions last three or four quarters, but this is no typical recession. Many felt in the dark days of fall 2008 that the broadcast business would be back on its feet in a year, but that’s increasingly sounding like wishful thinking. “I think we’ll see some sequential acceleration, but I don’t think we’re looking at recovery in the back half of 2009,” says RBC Capital Markets analyst David Bank. “The good news is, [business] is less bad. But 2009 is kind of a write-off.”

Indeed, the second half of 2009 looks to be not as bad as the first. The Television Bureau of Advertising (TVB) is forecasting station revenue to be down 10%-15% in the third quarter compared to last year, and flat in the fourth. Flat might sound downright rosy these days, but it merely means keeping pace with last year’s dismal minus-10 fourth quarter.

Station executives say forecasting has never been more of a fool’s game. With marketers well aware of what a buyer’s market TV is, ad requests come in later and later. One chief executive mentions an automotive order landing on a Friday and running the following Tuesday—a far cry from the quarterly scheduling in days of yore. “Visibility is so low with business coming in so late,” says Gray Television Regional Manager Charlie Peterson. “You just can’t see very far ahead.”

Executives can’t bank on a solid national turnaround indication in the short term. In the meantime, they’re doing their best to stem the tide with local initiatives.

A range of big-picture variables could swing the broadcast economy in either direction. Media chiefs are looking at diplomatic challenges in North Korea and Iran, the price of oil and employment indexes as business wild cards. Even the fate of President Obama’s health-care plan figures into how consumers feel about spending on trips, appliances and cars. “It speaks to our confidence in the system,” says TVB President Chris Rohrs.

Other issues are the network upfront and, with automotive advertising down some 50% in the first half of the year, car sales. Rohrs has his eye on the Car Allowance Rebate System—a.k.a. “cash for clunkers”—which starts this month and will attempt to spur new-car sales by encouraging consumers to trade in old models. In recent years, annual U.S. automobile sales tallied around 16 million units, but the figure has hovered near 10 million of late.

Several broadcast chiefs mention “pent-up demand” when it comes to consumers and cars. “There’s a huge amount of old vehicles on the road,” says Frank Comerford, NBC Local Media president of platform development and commercial operations. “Eventually sales have to go up to 16-17 million again.”

Most agree that the heavy contraction of auto dealers tied to Chrysler and GM doesn’t have a major impact on business, as the disbanded dealers weren’t big spenders on local TV anyway. If anything, some believe it will spark the remaining outlets to spend more. “These dealers need to go after customers and let them know they’re still in business,” says Meredith Broadcasting President Paul Karpowicz. “[They] realize that perhaps this is an opportunity.”

CAMPAIGNS’ PROMISES

While the financial services and retail categories sputter, local television is already seeing some political advertising. New York City Mayor Michael Bloomberg is attempting to cement another reelection with an early TV presence in the No. 1 DMA, while California’s ever-present ballot measures keep funds trickling into stations there. Rohrs says 36 governor seats will be in play in 2010, including all the most-populous states, and Congressional mid-term elections on the heels of new presidents are extra hot. “That’s going to be a massive political year—the biggest ever,” he says.

Until then, station group leaders will continue to fill the inventory gaps with new business. Stations have stepped up efforts to court local advertisers that until recently had not spent with stations. LIN, for one, welcomed around 750 new advertisers to TV or the Web in the first half of 2009. Ferreting out mom-and-pop revenue is labor-intensive and hardly fills the national account void, but executives suggest it’s one of the few places where they can proactively drive revenue. “Our local initiative is really the one thing we can make a difference on these days,” says Media General Executive VP/COO Reid Ashe.

Stations are viewing their digital business the same way. Sadusky mentions hard-fought retransmission consent battles bolstering the bottom line at LIN. Borrell Associates had initially forecast the local interactive market (station Websites, newspaper sites, pure-plays, etc.) to be up 6% in revenue for the year. But CEO Gordon Borrell says it may turn out to be more than 20%, with station site revenue growing some 25% for the year—representing around $1.3 billion in revenue.

Local TV may be on the ropes, but station branding packs clout. “TV still holds an awful lot of power,” Borrell says.

THE GREAT RECESSION

That’s something to cling to in these darkest of days. Broadcasters—and much of America—simply can’t wait to close the books on 2009. Comerford says this recession has been “precedent-shattering.” Several of his peers agree that 2008-2009 represents uncharted waters for the formerly fat business known as broadcasting.

And it ain’t over till it’s over. Analyst Bank foresees a double-digit revenue drop for third quarter 2009, and perhaps the same for the fourth. Karpowicz predicts a low-double-digit drop in Q3, and is hopeful for a flat Q4. NBC Universal President/CEO Jeff Zucker told CNBC late last week he thinks the economy has at least bottomed out. “It’s still quite uncertain and we don’t really see the full recovery we are all hoping for,” said Zucker, who did mention improvement at the NBC stations.

Surprising no one, revenue for 2009 will finish considerably down from 2008. BIA Financial reports that station revenue was $20.1 billion in 2008 and forecasts $16.6 billion for 2009, which it describes as “a level not seen since 1995.”

Station execs hope they’re well positioned for when the recovery does occur, with cost-cutting measures in place and new advertisers on board. But even 2010 might not hold the promise many are waiting for. BIA, for one, forecasts station revenue of $16.7 billion in 2010—not all that much better than 2009. Few expect automakers to ever spend on TV the way they once did.

But even the more pessimistic out there agree that the dark days will end eventually. “We’re closer to recovery today than we were yesterday,” Sadusky says. “Every day we’re closer to the finish line.”

March