Local TV

Local News at 11: A Second-Half Rebound?

The historic—and historically confusing—overhaul of the U.S. health care system may hold back some marketing budgets, but the ad spending behind it may save local TV in 2013 7/08/2013 12:01:00 AM Eastern

Meredith Stations Chief: Future Is Bright, If a Bit Cloudy

PAUL KARPOWICZ, president of Meredith Local Media, has seen just about everything during his decades in local television. The B&C Hall of Famer spoke, shortly before last week’s Tribune-Local TV deal, on what’s going on in the station world, and what’s coming up.

Have you seen this degree of M&A activity in your career?

There have been other times in history where we’ve seen a lot of activity, but maybe not as concentrated as it is right now. There’s a tremendous amount of big deals going on. Obviously the Gannett-Belo deal is a very substantial one. Over the course of the past two years, all the acquisitions Sinclair has been part of have amounted to a very big deal. I don’t want to say it’s unprecedented, but certainly there is a lot of activity going on.

Where does Meredith stand in all of this?

We continue to want to acquire. We’ve been involved in a number of auctions over the past couple years but unfortunately have not been successful. But we continue to be on the lookout, not only for auctions but for individual discussions with people who may have an interest in selling stations. We are very much in an acquisitive state.

And not a selling state…

Correct.

What is the big story for local TV in the second half?

I think there will continue to be acquisitions. When [Nexstar CEO] Perry Sook predicted the super-group concept, I think he was able to look into future. There’s the feeling that in order to maximize your opportunities with the MSOs and make sure you’re making the best deals possible with the networks, scale is going to be critically important.

What does revenue look like in the second half for you?

I think it’s going to be OK, probably [an increase of] low single-digits in the next quarter. I definitely think it will be a plus, and then it’s a question of how big a plus. The quarter after that, I don’t know—I think we just have to play it by ear. Pretty much one quarter at a time is as good as it gets. —MM

Everyone said 2013, lacking the Olympics and a political spending
windfall, would be a downer of a year for local TV—the Advilresistant
hangover to 2012’s ebullient record revenue. The
first half, for the most part, confirmed those glum predictions.
But the back half—catalyzed by a stabilizing economy and what looks like the emergence of a new and increasingly
signi!cant ad category, appears more
favorable. While some industry observers
(among many others) retain deep suspicion
about the direction of the U.S. economy, most
local broadcast leaders are forecasting positive
numbers for their core business in the second
half of the year.

The year 2013 has a “different feel” than other
odd-numbered years, said Leo MacCourtney,
copresident of Katz Television Group, and in a
good way. Advertising related to the continued
rollout of the White House’s landmark Affordable
Care law will help local TV to an 8%-9%
growth in revenue in the second half, he believes.
“I think health care will explode in terms
of needing to educate the public, state by state,
about what their choices are as Obamacare
kicks in,” MacCourtney said. “We think it’s a
huge spot play, as every state is different.”

Local broadcasters in general said the first quarter was soft, the second quarter a
little healthier, and the next two appear to
continue the modest momentum. If there
was a story line for the first half, it was the
M&A bacchanalia that saw Sinclair Broadcast
Group continue its acquisitive ways, Media
General and Young Broadcasting plan a major
merger, and Gannett agree to gobble up Belo
in a $2.2 billion deal—only to be outdone
by last week’s Tribune’s $2.7 billion grab of
Local TV. The acquisitions activity is likely to
continue in the second half, with Allbritton—
and a number of smaller groups doing it on the down low—on the block. “I think there’s
definitely more to come,” said Robin Flynn,
senior analyst at SNL Kagan. “The energy is
not out of this trend yet.”

The vibrant stock prices of publicly traded
TV station groups reflect this energy, with
Wall Street placing bets on which group will
move next. Most telling, say industry watchers,
isn’t that private equity firms are cashing
out on local broadcast, but that traditional
broadcasters are plotting, or executing, their
exit strategies. “The first rash were private
equity deals, which we know are not long-term
players,” Vincent Sadusky, president and CEO
of LIN Media, said prior to the Local TV sale.
“But Allbritton and Belo are quality broadcasters.
To see them say, ‘Get big or get out’—I think
we’re going to see this trend continue.”

A Strong Economy—Hopefully

The economy is harder to read than Ulysses.
A survey of local broadcast leaders reveals a
degree of optimism, albeit of the guarded variety,
on the state of the U.S.’ financial situation.
“The housing market is better, the job
market is better, unemployment is supposed
to drop,” said Steve Lanzano, president and
CEO of the trade association TVB. “These are
all good, positive things.”

Yet Lanzano acknowledged the still sensitive
nature of the economy, and how Fed chief
Ben Bernanke’s talk of “tapering” the Fed’s asset
purchases crushed the stock market and
could be a blow to consumer confidence.

Some cite the adage about the continued
disconnect between Wall Street and Main
Street. Paul McTear, president and CEO of
Raycom, said generally robust national economic
indicators, including the stock market
and interest rates, have not yet trickled down
to Joe Six-Pack. “The guy who lives across the
street from you, the guy who rides the train
to work with you, lacks [consumer] confidence,” said McTear. “That’s what is hurting
retail spending and advertising.”

Local broadcasters are up against challenges
on all fronts, including increasingly ambitious
digital disruptors such as Netflix and Amazon,
and slates of highly competitive original programming
on the cable side. The broadcast
upfronts shed some light on how the business
will fare later in the year. Upfront sales appear
to be down from last year, with most networks
getting smaller price increases—a reflection that
ratings have eroded to where advertisers choose
to shift marketing dollars to cable rather than pay the broadcasters’ price increases.

Fox, for example, closed the bulk of its advance
sales with about 10% lower dollar volume
than last year, selling about 80% of its
inventory at price increases of 5% to 7%—a
point or so lower than a year ago. Ever-bullish
CBS got price increases of 7.5% to 8.5%,
while volume was estimated at $2.65 billion,
about the same as last year.

While it is difficult to quantify, MacCourtney
said he saw more “saleable” shows in the networks’
upfront presentations in May—and
more emphasis on 12-month scheduling instead
of just the traditional broadcast television
season. “That helps stations with strong
news in all four quarters, not just sweeps,”
MacCourtney said.

On the local front, TV has its challenges,
with news viewership declining. Some 48%
of those surveyed in a 2013 Pew Research
study called “Local TV: Audience Declines As
Revenue Bounces Back,” said they watch local
news regularly—down 2% from 2010 and 6%
from 2006. News viewers under 30 dropped
from 42% in 2006 to 28% in 2012.

Local weekday news output declined by six
minutes in 2012 on the heels of four years of
new records, according to an annual survey from RTDNA/Hofstra University, which also
noted that weekend news grew.

Obama-Rama

A range of factors can push revenue one
way or the other in the second half, including
gun-control spending from highly motivated,
and moneyed, New York City mayor Michael
Bloomberg and various elections around the
nation, including those in top 10 markets Boston
and New York. Some sales chiefs said NFL
spots are pacing ahead of last year. “They’re
buying as we speak,” said one major-market
general manager. “The NFL is hot and heavy.
It’s live events—people want to buy sports.”

But several sources said it will be health
care-related spending that drives second-half
revenue. Wrapping one’s head around the
974-page Affordable Care Act is challenging,
even for policy wonks. Consumers and business
leaders alike will hope to get up to speed
on it as the legislation’s rollout continues. That
means advertising money from state and federal
outfits, explaining the nuances of the individual
mandate, among other aspects of the
law, along with the health care providers vying
to get consumers into their plans.

Scott Roskowski, senior VP of marketing
at TVB, said insurance companies will likely
generate about $100 billion in new revenue
due to the health care overhaul. If they allocate
1% of that to advertising, he !gures about
70% would go to TV stations—a $700 million
windfall that he thinks may be conservative.

Lanzano said to look for the spending to
start in August. “It’s a new category, and we
think it could be significant,” he said.

Kevin Cuddihy, Univision Television Group
president, said stations will bene!t, and Spanishlanguage
outlets in particular. “A disproportionate
number of Hispanics need health care,” he
said. “That helps state-by-state spot television in
general, but Univision even more so.”

Yet others said Obamacare isn’t necessarily all
good news for local broadcasters. Numerous local
business owners are dissecting the legislation
and crunching their own numbers, and they
may be pulling back on their marketing budgets
until they see how the law impacts their
bottom lines. “In several markets, the answer
that comes up as to why there’s slower ad
spending is that business owners are taking
a wait-and-see attitude as they work through
[the new health care law],” Sadusky said.

0708 Cover Story Picking Up the Pace chart
Regardless, Obamacare-related spending
may just be the category that saves 2013’s
bacon, as political did last year and retransmission
consent fees did before that. “There’s
always one category that gets hot and helps us
through the year,” said the big-market station
chief. “It’s all about new business—you can’t
really rely on core.”

Ad buys are coming in late as marketers shop
for better deals later in the game, making it hard
to predict revenue. And comparing second-half
numbers to last year’s second half is tricky. Stations
started getting outrageous political spending
last summer, bumping countless core advertisers
as the elections heated up, and the total neared
$3 billion on local TV. “There was a fair amount
of displaced ads in the back half, so on the core
side, the hurdle is not especially high,” said a veteran
station analyst, who forecasted low-to-midsingle-
digit growth in the half.

Among the key categories, MacCourtney
notes telco and retail are up, while packaged
goods and !nancial services are down. The automotive advertising that drives
station revenue looks to be up around 6% this
year and next, noted Lanzano.

“There’s huge pent-up demand for cars,”
said Bob Prather, who was Gray Television
president and COO until he resigned June 21.
“And people feel more comfortable about their
jobs than they did a couple years ago.”

Put a Number on It

Lanzano sees second-half core business “muddling
along” with 1.5%-2% growth. Prather forecasts
the low single digits, while Cuddihy expects
high single digits for the second half. Averaging
the predictions of several broadcast chiefs interviewed
by B&C results in 4-5% revenue growth
for the second half—perhaps a little higher in
smaller markets, lower in larger ones. “We’re not
seeing the significant growth numbers we saw
before,” said Lanzano. “It’s kind of the way of the
world, and people have learned to live with it.”

It could be worse—especially with a much
rosier year ahead on the heels of 2013. The
Winter Olympics—a boon for NBC stations—
are set for Russia in February, and the midterm
election madness will start earlier than anyone
expects, as usual, and will involve more spending
than anyone has a right to expect, as usual.

“With the shenanigans in Washington, there
should be a veritable cornucopia of advertising,”
said Barry Lucas, senior VP of research at
Gabelli & Co. “I expect the political pot to simmer
pretty good in 2014, and good news stations
in competitive markets can pretty much
back up the armored car to the station.”

E-mail comments to
mmalone@nbmedia.com and follow him
on Twitter: @BCMikeMalone

Meredith Stations Chief: Future Is Bright, If a Bit Cloudy

PAUL KARPOWICZ, president of Meredith Local Media, has seen just about everything during his decades in local television. The B&C Hall of Famer spoke, shortly before last week’s Tribune-Local TV deal, on what’s going on in the station world, and what’s coming up.

Have you seen this degree of M&A activity in your career?

There have been other times in history where we’ve seen a lot of activity, but maybe not as concentrated as it is right now. There’s a tremendous amount of big deals going on. Obviously the Gannett-Belo deal is a very substantial one. Over the course of the past two years, all the acquisitions Sinclair has been part of have amounted to a very big deal. I don’t want to say it’s unprecedented, but certainly there is a lot of activity going on.

Where does Meredith stand in all of this?

We continue to want to acquire. We’ve been involved in a number of auctions over the past couple years but unfortunately have not been successful. But we continue to be on the lookout, not only for auctions but for individual discussions with people who may have an interest in selling stations. We are very much in an acquisitive state.

And not a selling state…

Correct.

What is the big story for local TV in the second half?

I think there will continue to be acquisitions. When [Nexstar CEO] Perry Sook predicted the super-group concept, I think he was able to look into future. There’s the feeling that in order to maximize your opportunities with the MSOs and make sure you’re making the best deals possible with the networks, scale is going to be critically important.

What does revenue look like in the second half for you?

I think it’s going to be OK, probably [an increase of] low single-digits in the next quarter. I definitely think it will be a plus, and then it’s a question of how big a plus. The quarter after that, I don’t know—I think we just have to play it by ear. Pretty much one quarter at a time is as good as it gets. —MM

September
October