Political Season Can't Save Local-TV Sales

April 25, 2008

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Ad Revenue Is Falling
Amid Slowing Economy;
'It's Tough Out There'

By SAM SCHECHNER

Local television stations across the country are suffering a decline in advertising revenue in the tough economy, despite a blockbuster political season.

Buffeted by the faltering real-estate market and shrinking auto sales, total ad revenue for local stations nationwide fell 2.3% in the first quarter compared with the year-earlier period, according to the Television Bureau of Advertising, a trade group for local stations. And the second quarter is on pace for a 3% to 5% decline, according to Chris Rohrs, the group's president.

These figures follow a flurry of downbeat earnings reports and disclosures from television groups in recent weeks. Gannett and Journal Communications this week reported accelerating declines in TV revenue, with March worse than the quarter as a whole. Two weeks ago, NBC Universal parent General Electric reported in an earnings call that NBC's group of local TV stations saw an 11% decline in local ad revenue in the first quarter from a year earlier.

"It's tough out there," GE Chief Financial Officer Keith Sherin said on the call.

While TV networks' ad-revenue growth has stagnated amid a flurry of technological changes and newspapers have watched advertisers flee to the Internet, local TV stations have until recently been a relatively stable feature of the tumultuous media landscape. But now nonpolitical advertising at local stations is down in the mid-to-high single digits, by some estimates. And that poses a problem for a host of media companies that had grown accustomed to their stations' steady, if not always growing, profits.

The downturn could accelerate stations' chase for new revenue streams, such as online classifieds and streaming video, predicts Gordon Borrell, chief executive of media-research firm Borrell Associates. He also says it could speed a shakeout in the business: "We don't think local markets will be able to support four or five local broadcast-TV stations, and we think some of the weaker ones may fail" in a few years.

The TV industry has long relied on political advertising in election years. Local "spot" TV ad revenue -- defined as spending in local markets by national or local advertisers -- typically grows at least 10% in election years and falls in off years, according to data from TNS Media Intelligence, which tracks spending in the top 100 U.S. media markets.

This year, political advertising pumped about $216.1 million into the local TV ad market in the first quarter, more than double the $99.7 million in the first quarter of 2004, the last presidential election year, according to Evan Tracey, chief operating officer of the Campaign Media Analysis Group at TNS. Even so, overall revenues are down, in comparison to the 8.7% rise in local ad revenue the industry saw in the first quarter of 2004.

"It's a tough market," says Wayne Simons, vice president and general manager of Fort Myers Broadcasting, which owns WINK-TV in Ft. Myers, Fla. "I wish someone could tell me when we're going to get out of it."

Ft. Myers is among several areas where plummeting real-estate values have had a ripple effect on the local economy. Its metro area had the fifth-highest foreclosure rate in the U.S. in March, with one foreclosure for every 102 homes, according to RealtyTrac, a foreclosure-tracking firm. One result: the overall local-TV ad market there was down 12.7% in the first quarter, according to Mr. Simons. Media companies have also been blaming slowdowns around Sacramento, Calif., and Las Vegas for lower ad revenue.

The malaise may now be spreading. Several executives at major TV-station groups say the Northeast and Mid-Atlantic areas are softening, too, with some executives saying those areas could show revenue declines in the high single digits in the second quarter.

The industry is seeing weakness in several ad categories, including the auto sector, which usually represents well more than 20% of local TV ad revenues, making it the largest single source of ad dollars for local stations. Additionally, national-restaurant ad spending on local stations was down 4% to $110 million in February, the last month for which data are available, according to TNS. And furniture-store ad spending declined 5% to $57 million.

Most local station groups are hoping the Olympic Games in August and the presidential election in November will tighten the market enough so that revenue is at least even or slightly up year on year, executives say.

"We're just crippling along trying to bridge from now till August," says James E. Rogers, owner of Sunbelt Communications, a broadcasting company whose biggest station is KVBC-TV in Las Vegas.

But the unusual election battle between Sens. Hillary Clinton and Barack Obama could throw a wrench into those works. If their contest drags on through the Democrats' late-August convention, candidates and parties may spend less on ads in the interim, says Mr. Tracey of TNS.

And when the race does become set, "You may have a situation where there will be more money than there is time to buy" on local stations, he says, adding that "of course, forecasting politics is like palm reading -- without all the science."

Write to Sam Schechner at Sam.Schechner@wsj.com