Local broadcast chiefs have long spoken about turning digital nickels and dimes into real dollars, and their recent actions indicate they mean it this time. A recent flurry of digital acquisitions and launches, including Gray Television’s rollout of its homegrown LocalX Marketing solution, shows that station groups are leveraging their brands to better compete for local digital and mobile advertising.
LocalX provides mobile design, search engine optimization, social media management and other solutions to clients, some of which already advertise with Gray stations. Jason Effinger, Gray senior VP of media and technology, said it was hatched because local clients kept asking for a suite of services that could be somewhat foreign to station staffers. “We no longer have to say, hey, we don’t do that,” he said.
Flurry of Activity
Other groups have opted to acquire digital outfits, with none being more bullish on that front than LIN Media. Earlier in the year, it acquired digital content and marketing company Federated Media Publishing for $22.4 million—the largest digital acquisition in LIN history. Last year, it bought stakes in digital marketing firms Nami Media, HYFN and Dedicated Media.
Nexstar has been active in the space as well, acquiring Internet Broadcasting in March for $20 million, after picking up Inergize Digital along with nine Newport TV stations in 2012. Perry Sook, Nexstar president and CEO, said he sees the $31 million in “e-media” business Nexstar did last year growing to around $100 million in five years’ time. Tom O’Brien was brought on as executive VP of digital to make it happen.
Some groups have built their own digital ventures. LIN created LIN Mobile late in 2012. In August, Gannett announced the creation of G/O Digital, which it described as “a one-stop shop for advertisers seeking localized, targeted solutions.” In an earnings report April 23, Gracia Martore, president and CEO, hinted at the potential of digital revenue growth at the local level. “With greater scale and new innovative product offerings, we’ve successfully deepened our connections with customers across all platforms and positioned Gannett to grow and thrive in the digital age,” she said.
Gray Television is unique in that it manages its online business internally, which means the infrastructure was mostly in place to build its own digital outfit. Around three-quarters of clients at LocalX’s launch are current Gray TV advertisers, but the number of digital-only clients is expected to grow as Gray gets the LocalX word out. The stations’ reputations around town are their own best marketing.
“We hear from clients, ‘We are so glad we get it through someone we trust—we don’t know who to trust,’” Effinger said. “The trust factor was a key component as we launched in our markets.”
Gray will initially roll out the platform in 19 markets and aims to have LocalX in all of its DMAs by the end of the year. Marci Ryvicker, senior analyst at Wells Fargo Securities, applauded the move.
“We’ve heard at a handful of investor conferences that advertisers have been looking for more digital options as well as a one-stop shop from broadcasters when looking to allocate ad dollars,” she wrote. “After a year and a half of R&D, LocalX enables [Gray] to provide professional and enterprise-level digital marketing solutions to advertisers and provides the opportunity to extend beyond traditional revenue streams.”
Digital revenue has, since its inception, been in the single digits in terms of a station’s overall revenue, but with so much content consumed in a mobile arena, the number is rising fast. Mobile ad spending looks to be around $8.67 billion this year, according to BIA/Kelsey, nearly doubling by 2017. Between 2015 and 2016, local mobile spend will overtake national, BIA/Kelsey forecasts.
Edward Atorino, media analyst at Benchmark Company, describes digital/mobile as an “explosive growth category” that represents a fourth revenue stream for station groups, along with local advertising, national advertising and retransmission. The stations are a little late to the game, he said, but are catching up quickly. “The next couple of years will be quite significant,” Atorino added. “The TV guys are trying to figure out the best way to attack it.”
Effinger wouldn’t share revenue projections, but made it clear that LocalX, which gets back-end support from TrafficBuilders, is built to win. “The model is very profitable to Gray,” he said. “It’s a big step in the right direction.”