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Super-Charged for aSecond-Half Windfall - Broadcasting & Cable

Super-Charged for aSecond-Half Windfall

Economic headwinds may blow, but PAC mentality has station groups primed for raucous revenue
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Amid all the uncertainty in local TV today, a few truisms remain. One is that when the Olympics and a presidential election fall in consecutive quarters, business will be ridiculously healthy. Yet the second half of 2012 will be stronger still for station groups—thanks to the noisy, nasty, controversial and richly lucrative concept known as the Super PAC. Attempting to model revenue from these free-spending political groups is something of a folly, say broadcast vets. This is unprecedented, uncharted stuff.

For the broadcast groups owning stations in the half-dozen-plus states deemed election battlegrounds, the money will come in early and often, fast and furious. “Super PACs are the noisiest news in the marketplace,” says Leo MacCourtney, copresident of Katz Television Group. “We don’t have a history of Super PACs. We will write that history this year.”

B&C polled a dozen local TV leaders, from group chiefs to rep firm executives to consultants, to gauge their forecasts for the second half of the year. Predictions ranged from a high single-digit increase compared to the second half of 2011 on up to about a 40% uptick—making for an aggregate increase of about 25% for stations in the combined third and fourth quarters.

Core business—a more realistic measuring stick for local TV’s health—is expected to be up in the low single-digits.

Without a doubt, dark clouds lurk, including economic uncertainty both in Europe and here at home. But optimism going into the second half is unmistakeably abundant. “As we budgeted the year, we didn’t expect to have as good a first half as we did,” says Chris Cornelius, president and COO of Barrington Broadcasting. “We think that will carry over to the second half.”

‘Super’ Spending

Driving the optimism is, of course, the approach to Election Day in November, as two presidential candidates with seemingly endless resources fight for one job, and the Super PACs—which of course don’t qualify for the lowest unit rate that the presidential camps get for their buys—spend all too freely to ensure a victory. “We can charge [Super PACs] whatever we want,” gushes one station group chief. “What they’re going to spend is going to shock everybody in the industry.”

MacCourtney notes that the Super PAC spending is not a redistribution of cash that would traditionally go into a candidate’s coffers, but is what he calls “new money finding its way into the political process.” These unchecked political action committees may well push total 2012 political spend on TV stations over the $3 billion threshold, says Kenneth Goldstein, president of Kantar Media’s Campaign Media Analysis Group. “It’s really a race—it’s absolutely competitive,” Goldstein says. “Romney has raised a bunch of money, and a bunch of groups support him.”

Spending will undoubtedly eclipse the $2.5 billion spent in 2008. The presidential expenditure should heat up in advance of the parties’ conventions in late August and early September, catch its breath for a few weeks, then start up again in earnest later in September. Goldstein says the presidental spending windfall will be limited to six or seven states, including Colorado, Nevada and Iowa.

But the races for Senate and House seats, along with local-issues money centered on everything from same-sex marriage to immigration to the divisive healthcare matter, will ensure a wide array of markets and stations gets at least a taste.

“There are enough local races to prop up other markets,” says Bill Hague, senior VP at Frank N. Magid Associates. “It may not be great like North Carolina and Florida, but I still think there will be [substantial] political money.”

Fun and Games

Speaking of hot races, 200-plus NBC affiliates welcome the Summer Olympics to their air in just a few weeks, and a number of favorable factors—including the star power of world-class swimmer Michael Phelps and a viewer-friendly time zone in England—will likely make the Games more of a television success than other recent Olympics. “Our two biggest stations are NBC stations, and they’ve had very good [Olympic] selling seasons,” says Alan Frank, president and CEO of Post-Newsweek. “Perhaps because it’s London, or because of the success NBC had with the last couple of Games, but there’s strong interest. It’s not only on the part of clients, but on the part of viewers, too.” And the early numbers are promising. As of press time, NBC’s broadcasts of the U.S. Olympic Team Trials were drawing their highest ratings since 1996.

Broadcasters continue to be pleased with the automotive spending they are seeing, as vehicle purchases stay strong following a long period of pent-up demand. Several group chiefs report the auto category up 15%-20% over last year, when production was slowed due to the tsunami in Japan, before rebounding near the close of the year.

“Dealer spending is up in the double digits, and we expect it to be up in the double digits in the second half,” Cornelius says. “I don’t see anything getting in the way of that. And we’re seeing it in all markets. I can’t think of a single market where we don’t have significant growth in automotive.”

Auto isn’t the only category showing major growth. While telecommunications is down, Mac- Courtney says dining, retail and financial services are all up well into the double digits for Katz’s station clients. Others have more modest numbers, but positive ones nonetheless.

“Automotive is still driving [the growth], but retail and financial services are not bad,” says Steve Lanzano, president and CEO of the trade association TVB. “Hopefully that engine keeps cooking.”

The back half of 2011 saw a flurry of station group acquisitions, and some industry watchers envision a lively last two quarters of 2012 as well. Newport Television and Nexstar Broadcasting remain on the block, though both groups’ footprints across far-flung markets may be a tough sell for strategic buyers. While some M&A insiders say the gap between would-be buyers and sellers remains wide, Richard Foreman, founder of media brokerage firm Richard A. Foreman Associates, says attractive properties, such as leading news stations and outlets with duopoly potential, will get their share of attention. “I think it will be busy,” Foreman says. “I think we’ll see the strong players getting stronger.”

Pretty High Anxiety

Despite all the optimism, local TV leaders still have their guards up. By most accounts, the recently concluded network upfront market was lackluster, both in terms of inventory sold and the price increases. ABC, CBS, Fox, NBC and The CW sold $9.57 billion worth of ads in the upfront, according to trading firm Miller Tabak + Co., up a modest 4.1% over last year, while prices went up a respectable, but hardly resounding, 7.4%.

“With the stock market, consumer confidence, unemployment and global macroeconomic headwinds [that] surfaced over the past two months, the scatter ad market started to weaken to low-growth levels and had the effect of dampening the upfront negotiations,” says Miller Tabak analyst David Joyce.

Dismal daily reports about the failing economies of European nations have many concerned about the effect on the already sensitive domestic economy. Many voice anxiety about America’s ability to withstand another unforeseen crisis here or abroad, such as last year’s tsunami or 2010’s BP oil spill.

“We keep hearing about economic concerns and the contagion in Europe, and what it could do to our economy,” says David Amy, executive vice president and CFO at Sinclair Broadcast Group. “Everyone’s concerned about what can happen here. It’s very frustrating to keep hearing about doomsday scenarios and how bad things are.”

Station group chiefs are also wrestling with another tricky economic picture—their own affiliation deals with networks that demand increasing amounts of compensation to keep the relationships intact. In recent months, Fox parted ways with a pair of stations in Idaho, showing the affiliate community that the network clearly means business when it comes to sharing big chunks of retrans cash.

Executives at groups such as Meredith and Raycom— and elsewhere in the Fox community—are anxiously watching to see if Fox exercises its option to acquire smaller stations in their markets and shifts the Fox affiliation in-house. “Relationships can be fluid,” acknowledges Paul Karpowicz, president of Meredith Local Media. “Our group doesn’t anticipate anything happening, but those are things you have to deal with.”

No One Ever Said 13 Was Lucky

But through the dark clouds, abundant sun is shining on broadcasters’ faces. Their most pressing matter in the back half of 2012 may just be effectively juggling commercial time so the Super PACs and presidential camps, along with the mom-and- pop marketers who spend money on local TV year-round, all get the spots they desire. That’s a “First World” problem if ever there was one.

“The test for all of spot TV will be managing your inventory well,” says MacCourtney.

Inventory should remain tight even after Election Day, when those local advertisers ramp back up to heavy rotation after the political spots clear out. Broadcasters are hopeful, if not overly optimistic, that the largesse will stretch into next year. “[2013]—that’s the story, not 2012,” Hague says. “I think [broadcasters] could be bleeding out of their eyeballs. It will be a typical TV odd year, where you have to do it the old-fashioned way.”

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

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