TV Broadcast Ads on the Rise; Streaming Concerns Continue

TV broadcasters are seeing increases in commercial advertising, but they have concerns about being compensated for their programming and don’t see big M&A opportunities on the horizon, said Tegna, Gray Television and Sinclair Broadcast executives in those companies’ Q2 earnings calls last week. “Increased competition from technology companies, streaming content providers, and the [broadcasting] networks as well as continued regulatory constraints means that we must transform to remain relevant and to grow impressions and revenue,” said Sinclair CEO Chris Ripley.

Gray’s Q2 revenue was $813 million, down 6% from Q2 2022, said its earnings release. Sinclair’s Q2 revenue was down 8% from Q2 2022 to $768 million. Tegna’s Q2 total revenue dropped 7% from the prior year quarter, to $732 million. Comparisons to Q2 2022 were affected by the absence of mid-term political ad revenue that pumped last year’s results, the companies said.

Broadcasters are getting less retransmission consent revenue partly because of networks “exploiting” the more favorable retransmission rates they're able to negotiate for streaming, because that doesn’t fall under the FCC’s MVPD rules, said Gray Television Chief Legal and Development Officer Kevin Latek. The recent formation of a coalition of affiliate groups to lobby the FCC to reopen comments on classifying streamers as MVPDs is “an important first step in what Latek called “a long battle.” The industry “is not adequately compensated for the programming content and audience share that we consistently bring,” said Ripley. The rise of direct-to-consumer streaming offerings means it's no longer possible to be the exclusive source for a piece of content, Ripley said. Programmers increasingly taking shows from their “mothership network” to offer them on streaming services “will be a mitigating factor” in future negotiations, said Tegna CEO Dave Lougee.

All three broadcasters reported commercial advertising on the rise, and they said the long-important automotive category is well into recovery after a lengthy slump caused by supply chain difficulties. Along with auto, all three broadcasters pointed to home improvement as an ad category on an upswing, while Gray and Tegna said the restaurant category has been declining. “We’re robust on the return of ad revenue,” said Sinclair Chief Operating Officer Rob Weisbord.

All three also expect record political ad revenue from next year's presidential election, although Gray Co-CEO Hilton Howell said it behooves companies to be conservative in their political ad projections because former President Donald Trump is “a wild card.” The Trump campaign spent less on political advertising during the 2016 race than broadcasters expected (see 1609160068). Gray said it has already begun to see 2024 presidential campaign spending in early primary states such as Iowa.

Sinclair was the only one of the three broadcasters to extensively mention ATSC 3.0 in its earnings call. The company expects its ATSC core network and platform to go live in Q1 of 2024, and the first next-gen revenue to trickle in the same year. The network “will create an interconnected platform to provide commercial services and solutions for national data distribution,” Ripley said.

Gray would be open to buying more stations “if the right thing came along,” but there are “no must-have stations left, in our opinion,” said Co-CEO Pat LaPlatney. Any upcoming TV M&A discussions are likely to involve Tegna, Lougee conceded. The company is considered one of the few remaining targets for purchasers looking to acquire large numbers of stations. Tegna is unlikely to buy more stations itself any time soon, Lougee said. “We’re certainly not in the near term looking at any big financial swings,” Lougee said. Ripley said Sinclair is looking at opportunities to shift from mostly minority-owned to “majority-owned and consolidated growth investments.”