TV Stations’ Nascent Digital Ad Sales Seen Rising as Industry Competes More With Web Firms

Broadcasters have a long way to go to pull even with Web rivals, though online-ad revenue is quickly growing. Online ad revenue will rise 12 percent in 2014 from last year to $783 million, or 3.7 percent of the $20.9 billion in over-the-air TV spots BIA/Kelsey forecasts, said Chief Economist Mark Fratrik. Q3 Internet ad sales rose 15 percent to a record $10.7 billion from the year-ago quarter, said the Interactive Advertising Bureau’s (IAB) latest figures compiled with the PwC US consulting firm (http://bit.ly/1l4VIBn). There’s “absolutely no reason” why TV stations “can’t compete” in “that online arena,” said Fratrik, who has done work for broadcasters. “They have been in some sense outside of new media, because they have a strong foundation in traditional media and haven’t found an obligation to do that.” Now, broadcasters are “catching up quickly” and see online ads “as an important part of their future,” said Fratrik.

Most owners of groups of TV stations have ramped up online ad efforts in recent years, after being less competitive with major website owners several years ago, said LIN Senior Vice President-Digital Robb Richter and others who track broadcast and online-ad sales and strategies. They agreed that TV-station groups generally are making headway against major Web companies in selling ads on their websites that can be seen on desktop computers. Most “everybody” is pretty good at selling desktop ads, said Richter. “Mobile is the next big idea” as audiences shift from consuming video and other content on computers to mobile devices, he said. Others agreed.

Stations are starting to focus on selling mobile ads, said independent analysts, industry executives and officials at IAB and the TVB broadcaster association on advertising. A broadcaster advantage, which Media General/LIN would capitalize on, is having salespeople in all markets where they operate, said those companies and experts. They said sales forces increasingly are being trained to sell online and not just over-the-air spots. Such “feet on the street” mean companies like LIN, which Richter said has about 275 salespeople at stations trained to sell online products as well as traditional commercials, are poised to expand such revenue, said experts.

Broadcaster efforts are early-on, even at LIN, regarded as the most ahead of the curve in the industry in online media, said executives at that company and experts. LIN distinguishes itself by having not just local online strategies but some national businesses in mobile, search, social media, video and other areas, said executives at that company and a Media General spokeswoman. LIN in January agreed to buy digital content marketing company Federated Media (CD Jan 30 p22), and last April bought a controlling stake in social-media ad campaign firm Hyfn and has made other deals.

'Enormous’ Opportunity From ‘Small Base'

Broadcasters had largely ignored online, not viewing it as an important business, said analysts and industry researchers. While they said that’s starting to change, it’s still a small business. Growth rates are impressive, coming from a small dollar amount now, said experts and executives.

"E-media is a little bit of a luxury” for TV station owners, said Atorino, a Wall Street analyst. “The amount of dollars that go into digital is really an adjunct of their regular programming,” and “advertisers have not poured a lot of money” into online broadcast ads, he said. LIN seems to get most of its online-ad revenue from national properties and not its stations, he said.

Spreading the costs of online-ad operations across a bigger company is part of the strategy of Media General/LIN, said executives at the companies and experts. LIN’s national online operations are “all things that in a digital world are really scalable,” said CEO Vincent Sadusky. A “fair amount” is being spent in markets where LIN owns TV stations on digital ads, and the company is just starting to be known as a digital expert, he said. “It’s kind of early days for us, still, even though we've been at it longer than anybody else,” he said of LIN and online ads.

Media General/LIN would have $150 million of annual online digital revenue, said a spokeswoman for the acquirer. Media General had forecast a 20-plus percent rise this year in such revenue just at the company from $19.6 million in 2013, she said. Media General ranks third among pure-play broadcasters in online ad revenue, following No. 2 player Nexstar, which had about $30 million in such sales last year, said Atorino. Nexstar had no comment for this story.

Online revenue at broadcasters, while “still small,” carries an “enormous” opportunity, said TVB CEO Steve Lanzano. Analyst forecasts call for terrestrial ad sales to rise by a low-single digit percentage this year, while digital ads could rise by double that portion and mobile could rise tenfold more, he said. “Mobile is exploding.” It’s “starting from a very small base,” so it could grow by 60 to 100 percent annually, said Lanzano: “Online video is going to explode,” as broadcasters including Disney’s ABC are streaming more content online.

Social Media Stumbles

One area where broadcasters haven’t figured out how to make money online is from social media, although some Web companies also are trying to figure that out, said industry officials. Broadcasters didn’t recognize early in social media’s development how to capitalize on it, said Richter and others. “If you don’t understand what you're doing, you shouldn’t be doing it,” said Richter. Social media “got off on the wrong foot in our industry” because its “opportunity wasn’t understood,” said Richter. “Now, they've kind of pulled back.” Stations now use social media to draw audiences to programming and communicate with those who may not watch a particular TV show about what’s on it, said Richter. LIN didn’t face as many social media hurdles, because it owns businesses in that area, he said. “We don’t have the problem of social monetization."

As more broadcast-TV video is being streamed online, the industry is starting to focus digital-ad efforts there, said analysts and executives. Mobile efforts also are at the forefront, with work on social media among broadcasters, except LIN, a way’s off, agreed experts and executives. “Companies like LIN and Media General have cross-platform properties with engaged audiences in a concentrated geography,” and that can work to their advantage, said Peter Minnium, head of brand initiatives at IAB. With well-established local brands that audiences trust, “it’s sort of a neat position to be in” for broadcasters, said Minnium. “Traditional media, especially non-national broadcasters, haven’t found themselves in” such a position “for a long time,” where they have a competitive advantage with online media, he said.

Some broadcasters see themselves as consultants to small- and medium-sized businesses that can’t afford the services of an ad agency but need help figuring out where to spend marketing dollars, said TVB’s Lanzano. “They almost become the consultant for small advertisers” that “need someone to help guide them,” he said. “Maybe with scale, they'll sort of be able to crack the nut of bringing technology, automation and scale” to small- and medium-sized firms seeking new-media guidance, said Minnium of IAB. Its members include broadcasters like LIN, as well as parts of some Big-Four broadcast-TV networks and pure-play online companies like AOL, Facebook, Google, Pandora and Yahoo (http://bit.ly/1pyTb2e).

The current focus on mobile among new and old media helps broadcasters by giving them another opportunity to target new markets, while also posing practical hurdles in planning shows that can be consumed on TV sets and so-called second screens on mobile and other devices, said Minnium, Richter and others. “For a long time, the narrative was that traditional media needed to catch up with digital,” said Minnium. “But we're in a situation where digital is taking one step backward and the whole industry therefore is moving two steps forward.” Besides the move to mobile ads, Minnium also cited the move to the digital gross rating point. At TV-station groups like LIN, “it’s taken some time to train both newsrooms and AEs [account executives] who historically have sold one screen to sell and write for multiple screens,” said Richter. “The industry itself is still learning about digital.” (jmake@warren-news.com)