Auto Ads Still a Drag for Broadcasting
A drop in automotive advertising caused by supply chain woes remains a drag on TV and radio advertising, according to Q3 reports delivered in calls last week. Last year's revenue was strongly affected by the COVID-19 pandemic’s slowdown on commercials but buoyed by political spots from the presidential election, several companies noted.
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Nearly every company said the loss was offset by increases in other categories, but they don’t expect auto to recover until well into 2022. Weakness in auto is “a short-term pain” while diversifying revenue is “a long-term gain,” said Gray Television co-CEO Hilton Howell. The drop in vehicle ads “muted” what has otherwise been a trend of pandemic recovery, said Cumulus CEO Mary Berner. The dip is “having more of an effect on Q4” than the radio company expected three months ago, she said.
Gray revenue was “essentially unchanged" from Q3 2020 at $601 million, it said. Sinclair reported a similar position, with $1.5 billion. Tegna increased 2%. Salem Media rose 8.8% to $66 million. Cumulus gained 21%.
Auto and other categories affected by supply chains “continue to lag,” said Sinclair CEO Chris Ripley. Gray’s auto ad revenue is down by 30% over the last three quarters compared with the same period in 2019, said co-CEO Pat LaPlatney. The supply chain concerns are also affecting Salem Media’s book publishing arm, said President-New Media David Evans. The effects of lowered auto ads have more weight in smaller markets, where auto was a bigger portion of the ad pie, said Berner. Auto is expected to “remain a headwind” until Q2 2022 or possibly the second half of the year, said Nexstar CEO Perry Sook.
Most broadcasters said gains in the services category were compensating for the drop in auto. “Other industries are way up,” said Salem President-Broadcast Media David Santrella. Tegna CEO Dave Lougee said its ad revenue is up 12% compared with 2019. Growth in other ads is “more than offsetting significant supply chain issues affecting the auto category,” said Lougee.
Sports betting was one commonly cited growth category. It's "on fire,” said Berner. Nexstar’s gambling ad revenue grew 66% in Q3 from the same quarter in 2020, and is the No. 1 or 2 ad category in every jurisdiction in which it's legal, said Sook. Lougee said sports betting has room to accelerate. “We don’t have much live gambling,” which could be a “growth category for the whole sector,” he said. “Salem has not yet gone after this business,” said Santrella of gaming commercials. “We’re continuing to debate whether we want to do that or not.”
Lougee confirmed that Tegna had been the recipient of recent acquisition offers that it's “actively considering.” Gray is expecting to close on its buy of Meredith's TV stations next month, said Gray Chief Legal and Development Officer Kevin Latek. The company expects FCC approval “fairly soon” because it drew no opposing filings, Latek said. Post-Meredith, the company is likely to focus on integrating the new stations rather than new purchases, said Howell. Gray has gone from 30 markets to over 100 in eight years, Howell said. Cumulus is primarily focused on driving “digital growth,” said Berner, who said the No. 2 U.S. radio station owner had transitioned from “a legacy radio company” to a multiplatform new model company.
“The timeline is approaching for broadcasters to begin using this tech in the mass market,” said Ripley of ATSC 3.0. He forecast the company’s monetization of its spectrum using 3.0 to be worth $1.7 billion. Sook estimated Nexstar will generate as much revenue from its spectrum using ATSC 3.0 in 10 years as it will from retransmission. “You have to build the toll road before you can charge people to drive on it,” said Sook of the 3.0 transition. Nexstar will reach 30% of U.S. households with 3.0 by the end of 2021, and 50% by year-end 2022, he said.
All the broadcasters remained bullish about political ad revenue. Nexstar has stations that will benefit from 30 of next year's 34 U.S. Senate races, Sook said. COVID-19 has “totally engaged a new population” in local political races, to broadcasting’s benefit, said Lougee. “People have been woken up to local government.” Gray continues to benefit from political ad buying beginning earlier with every cycle, Latek said. Gray projects its political ad revenue in 2022 will be 80% of the revenue from presidential election year 2020, Latek said.
Much of Sinclair’s call involved its efforts to create a direct-to-consumer sports offering, and recent reports that sports leagues were opposing those efforts. Sinclair has enough of “a critical mass” of digital rights to launch a product, Ripley said: “That’s what we intend to do.” Sinclair has explicit streaming rights to several MLB teams and is seeking more teams, plus NHL and NBA rights through negotiation, he said. He said the direct-to-consumer offering is still expected to launch next year: “You need more than a team or even a league.”