TGFP. Thank God For Political. You hear that a lot lately in the executive suites of TV-station groups, particularly those that are big in local news. Leading up to tomorrow's general election, politicians have spent an estimated $1 billion for campaign spots in and around local newscasts (see story, page 20).
The electronic campaigning has been the most important contributor to station groups' double-digit earnings reports for the third quarter and to forecasts of more of the same in the fourth quarter. Merrill Lynch estimates that TV-station revenue grew 35% in September and 20% in October compared with the same months in 2001.
But what of 2003? Broadcasters are wary about making any definitive predictions, but most are hopeful that the sales strength will carry over into the new year.
Strength, though, is a relative term. Sans both Olympics and political elections next year, broadcasters and media analysts believe that, if 2003 tops 2002, it won't be by much. As the off year in TV's two-year, have/have-not cycle, even a low-single-digit decline could be perceived as strength. It certainly would be far better than the train wreck of 2001.
"We feel confident about the first six months of the year [2003]," said Tribune President Dennis FitzSimons, as he reported third-quarter earnings last week. Tribune TV's sales should grow by 15%-20% in the fourth quarter, he predicted. And that "will spill over into the first quarter and, we think, into the second quarter."
Hearst-Argyle President David Barrett also sees positive signs for 2003. He told investors last week that network scatter sales remain strong for the first quarter and "that bodes well for the spot TV market."
But he also stressed that it is too early to draw any firm conclusions about next year.
Analysts say TV advertising may be down next year even if the economy gets back to full health. It's just not that easy to replace $1 billion.
"Look at it this way: You had the first half of the year that was up only 3%, and probably all of that was political," says Bear Stearns broadcast analyst Victor Miller. "Now you're seeing seven of the top 10 ad categories growing in the third quarter and eight of the top 10 categories growing in the fourth quarter. Normally, political crowds out growth in the core business altogether, so the fact that you have growth in a majority of categories is a good sign."
But Miller's early call on next year: TV revenues down 2%-4%.
For now, the TV business is humming along because of political combined with improved strength in the general business. Also, of course, any comparison with the second half of last year, when the post-9/11 economy was at a standstill, is apt to look good.
Emmis Communications CEO Jeff Smulyan reports that political is "off the charts" at his TV stations. And other business is good and should remain so for the rest of the year.
The question is 2003, and difficulties in forecasting include the low consumer-confidence level (down 45% from two years ago) and the prospect of war in the Middle East. Wars are often accompanied by recessions.
The Post-Newsweek Stations, a unit of the Washington Post Co., reported 20%-plus revenue growth for the third quarter, thanks largely to political spending. Fourth-quarter revenue will be up double-digit as well, says Alan Frank, president, Post-Newsweek Stations.
The non-political business has been "better than we predicted it would be," he adds. "A lot of our categories have been strong—auto, some of the retail. Most categories are up from last year."
But like Smulyan, Frank doesn't have a read on 2003 yet. For that matter, he doesn't have a read on December. "Business is so late coming," he says. And this year's pacing is hard to compare with last year, which was skewed by the post-9/11 malaise.
The political season helps some groups more than others, of course. For Hearst-Argyle Television, which has bushels of ABC, NBC and CBS stations, most with well-respected news operations, political dollars will account for a full 8% of the company's revenues this year, according to Bear Stearn's Miller. That's the good news. The flip side is that the sales staff will be severely challenged next year to replace those dollars. "That's a lot of dough [roughly $50 million in net revenue], and only a portion of it is coming back next year," he says.
But some groups are recording big gains in the third quarter without a big political windfall. Tribune Television is one example: Revenues were up 13%, to $310 million. Just 2% of those revenues were political, says FitzSimons. "Our stations are performing well, and we're doing it without a disproportionate amount of political." He credits The WB's strong ratings, syndication and local news for drawing premium ad rates at Tribune stations.
Hearst-Argyle, Belo, Meredith and Acme Communications all reported double-digit gains in TV revenue for the third quarter. Cash-flow increases were also substantial. Hearst-Argyle reported a 22% revenue jump, to $176.5 million, while cash flow leaped 57%, to $74.2 million.
Belo reported an 18% gain in TV revenue, to $158.7 million, and a 44% gain in cash flow, to 64.5 million. Meredith said TV revenues were up 14%, to $64.2 million, while cash flow soared 52%, to $15.4 million.
Acme, which gets a thimbleful of political advertising, reported a 20% revenue gain, to $20 million, with cash flow climbing 16%, to $4 million.
Political advertising was a big factor for most of the aforementioned groups, Acme and Tribune being the two exceptions. Hearst-Argyle took in $23 million in political for the quarter. Belo generated a little more than $11 million in the category and said it will generate a bunch more in the month leading up to the election; spot dollars for the group will be up 30% for October and rise in the high teens for the fourth quarter.
Meanwhile, Merrill Lynch predicts that TV ad sales will settle down considerably next year, tracking just slightly above growth in the gross domestic product in the first quarter. If true, that would mean single-digit ad growth at best.
For now, though, TGFP.
