TV Stations Feel the Effect Of a Political Off Year

Even adjusted for the lack of campaign ads, 3Q results are weak
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Thanks to the sagging local ad market, TV-station groups are starting to post weak third-quarter results, but the first round of reports don't show any disasters.

The first TV groups out of the earnings-season gate are units owned by newspapers: Tribune, Gannett and E.W. Scripps. Of course, TV stations generally post weaker autumn results in off-election years because political advertising is so much stronger during congressional and, even better, presidential election years.

Even adjusting for the lack of political spending this year, however, the newspaper companies generally posted weak TV-station results, although Scripps posted strong gains from its stable of cable networks, which include HGTV, DIY and Food Network. Scripps CEO Ken Lowe raised the likelihood that Scripps will eventually buy out Tribune's 30% interest in Food.

Tribune CEO Dennis FitzSimons said that, among major spending categories, car advertising remained strong, movies had gone flat, and soft drinks was weak. The last "was a category that moved from spot to network," he added.

Scripps reported that car-advertising sales were strong, as were communications and financial services. However, the company's stations are seeing a decline in spending by retail stores.

Tribune's TV revenues are less erratic because local political spending tends to go to Big Three network affiliates with top-rated newscasts. All but two Tribune stations are affiliates of The WB, of which the company owns 25%.

"We're starting to see some strength in television pacing," FitzSimons said. "Scatter has been, I wouldn't say difficult, but not as strong as last year."

Because of last year's acquisition of stations in St. Louis and Portland, Ore., revenue at Tribune stations rose a sluggish 5% to $327 million, but operating cash flow dipped 1% to $131 million. Excluding the acquisitions, TV ad-sales revenue would have increased just 2%, and cash flow would have dipped 3%.

FitzSimons pointed out that last year was unusually strong, with sales up more than 20% from the 9/11-triggered ad downdraft during the third quarter of 2001. "We had good television performance against some tough comps from last year." FitzSimons added that he's "cautiously optimistic about the fourth quarter."

At Scripps, broadcast revenues slid 1% to $72.3 million, largely because of the absence of political revenues this year. Still, even adjusting for the lack of political spending, Scripps station revenues would have been up only around 2%.

Moreover, Scripps stations in Detroit and Cleveland also lost sales in the midst of the blackout that rocked the Midwest and New York.

Scripps's cable networks more than picked up that slack, boosting revenues 25% to $121 million.

That comes partly from a pickup in license-fee revenue from Food Network and HGTV, partly from strong ad sales. "We are outpacing our peers on volume; we are outpacing our peers on CPMs," according to Lowe.

At Gannett, station revenues dropped 6% to $172.3 million largely because of political ads. Cash flow fell 10% to $79.3 million. after adjusting for the election ads, Gannett stations would have posted a single-digit percentage increase.

"We picked up a few dollars in Sacramento," said Gannett CEO Doug McCorkindale, referring to sales during the recent gubernatorial recall election by Gannett's ABC affiliate KXTV(TV). "But it was too short, and the dollars weren't that big."

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