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.”

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