Stations Feeling Aftershocks of Quake

More than 2 months after Japan tragedy, auto ads are stuck in a rut

Coverage of the 9.0 magnitude earthquake and resultant tsunami that struck Japan on March 11 has largely faded on TV stations’ newscasts, but the impact is being felt more than ever in their sales departments. Automotive production in Japan has slowed considerably, meaning manufacturers and dealers are cutting back and, in some cases, cancelling their spend outright.

With full auto ad budgets not expected to be back in place until well into the second half of the year, the effect has been felt at nearly every TV station around the country. “I hope it picks up by September, but there’s just not enough cars,” says one major-market general manager who asked not to be named. “We had great momentum in the first quarter, and then this happened.”

Indeed, automotive advertising has almost singlehandedly driven the rebound stations have enjoyed recently. The auto industry spent $2.6 billion on spot TV in 2010, up a whopping 53.7% from 2009, according to the TVB. Fully half of the Top 10 advertisers on local broadcast last year were automobile outfits: Chrysler, Honda, General Motors, Ford and Toyota.

That momentum carried well into 2011, until the tragedy that claimed thousands of lives struck Japan. Station groups reported mostly positive numbers in their first-quarter earnings; Nexstar posted a 1.9% revenue gain over 2010’s first quarter, Scripps was up 3.2% and Sinclair showed a booming 5.4% revenue gain.

Yet nestled in the statements from brass were ominous warnings about the quake’s effect on second-quarter earnings. “Our outlook provides for some slowing due to new car production disruptions as a result of the Japanese crisis,” said David Smith, president and CEO of Sinclair, as the company forecasted a modest 0.3%-1.6% increase in Q2.

Auto sales in the U.S. are forecasted to be around 13 million this year, and some believe the number may come up a few hundred thousand short due to the quake, with Honda, Toyota and Acura most affected. Some station executives say the blue-chip Japanese manufacturers are on pace to spend just 50-75% of what they normally would in the coming quarter on advertising, with plenty of 11th-hour cancellations.

A number of manufacturers not based in Japan, including those in the U.S. and Europe, rely on Japan for auto parts, such as a GPS or stereo, and are thus experiencing production hiccups too.

Steve Lanzano, TVB president and CEO, believes the worst is over from a production standpoint. Sales numbers were a little soft in early May, he says, but seemed to start stabilizing mid-month. “Obviously there’s some concern,” says Lanzano. “But our hope is that things have turned the corner and should start to pick up.”

A recent note from Wells Fargo analyst Marci Ryvicker also suggested Japan’s recovery will snap back quicker than expected. “Bottom line: Data points suggest that auto advertising could come back sooner and stronger than the market expects, with TV best positioned,” wrote Ryvicker, singling out CBS, Sinclair and Belo as leading grabbers of share.

Ryvicker noted that her conversations with local media sales folks were more upbeat than expected. “It sounds like groups with leading stations in large markets are not feeling much of an impact from Japan,” she wrote, “partly because cancelled inventory is being fi lled by other auto makers (both domestic and Korean) and partly because network advertising and scatter in particular has remained so strong; thus there has been a positive ‘trickle down’ effect to national spot.”

The unaffected automakers, most notably Korea’s Hyundai, and U.S. outfits such as GM, sense the opportunity and have been what one broadcast boss terms “infilling” the absent spots on dealer lots—and TV ad schedules. For some carmakers, it’s a chance to make inroads in a market where Japanese-made cars sell very well, such as in the Pacific Northwest.

“The domestics are selling more,” says Val Napolitano, president and CEO at rep firm Petry Television. “That represents a little bit of an offset.”

Station groups’ release of second-quarter earnings this summer will shed more light on how deep the sales malaise stemming from the quake has been. But what’s not budgeted for the near term will hopefully be in the books down the road. “Money not spent in the second quarter should be spent in the third and fourth quarters,” says Napolitano. “I think the dollars will be there, and this may be a temporary blip on the screen.”

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