Broadcasting Recovering From COVID-19 Woes but Remains Uncertain
TV broadcasters are making a comeback from the lows of the COVID-19 pandemic due to more political ad revenue than expected, but many are declining to provide guidance for 2021, according to earnings calls and investor releases this week from the CEOs of Gray Television, Meredith, Fox, Graham Media, Sinclair Broadcast and Nexstar.
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Broadcasters face more uncertainty than ever, said Gray CEO Hilton Howell, citing the undecided presidential election, unknown FCC composition in 2021, the pending broadcast ownership Supreme Court case and the pandemic. “When uncertainty reigns, it makes it difficult to make a clear decision,” Howell said on an earnings call Thursday.
Broadcasters were predicting 2020 would be a record political year even before campaigning started, but nearly every earnings announcement said those expectations were greatly exceeded. Nexstar predicted political ad revenue of $400 million for the year and expects to exceed that by 20%, CEO Perry Sook said on his company’s call Thursday. The “strong political environment” is making up for lower revenue in other areas, said Sinclair CEO Chris Ripley in an earnings call Wednesday, noting Sinclair has had $363 million in political ad revenue in 2020. Political “surpassed our most wildly optimistic model,” said Howell. He said Gray now expects $380 million in political ads and could touch $400 million.
Gray and Nexstar both have stations in Georgia and expect their political ad totals to increase further because of at least one runoff election, and possibly two, for U.S. Senate seats in the state. “We believe we will see significant spending on both sides,” Howell said. “We are not done with political this year,” said Sook.
Several broadcasters said they won’t provide official guidance for next year, but most also mentioned advertising returning to nearly pre-pandemic levels and strong showings so far in November. “Visibility is extremely low” for 2021 at this time, said Sinclair Chief Financial Officer Lucy Rutishauser. “We have significant expectations for a strong fourth quarter,” said Nexstar's Sook. “Across the board, everything is improving," said Gray CFO James Ryan. “We are off to an encouraging start to fiscal 2021," with 15% growth in national digital advertising hitting a record high, said Meredith CEO Tom Harty in an earnings release. “Local and national advertising revenues have improved steadily throughout the second and third quarters of 2020,” said Graham Media parent company Graham Holdings in a release. Sook said auto advertising, a major earner for TV broadcasters, is starting to return. Auto has “continued to improve,” said Sinclair's Ripley.
The broadcasters cited the pending U.S. Supreme Court decision on the FCC’s appeal of the 3rd U.S. Circuit Court of Appeals Prometheus IV decision as a major factor in the prospects for station buying and selling in the year ahead. “Very few local stations have been for sale” due to the election and COVID-19, said Gray Chief Legal and Development Officer Kevin Latek. He and Howell said Gray will study chances to grow. Sook said relaxed ownership rules could allow Nexstar to look to combine major market CW and MyNetwork stations with major stations in the same market. The granting of cert in the case is “a big deal,” Ripley said. Nexstar could soon make a move on some digital assets, Sook said.
Ripley said he was “disappointed” in moves by YouTube and Hulu to drop Sinclair’s regional sports networks. He blamed the timing of renewal talks, which occurred during a dearth of live sports on the networks. “There’s definitely a different conversation to be had with them” when major sports leagues return, Ripley said. He also said subscriber churn has been an issue for the RSNs, but they were purchased primarily to complement Sinclair's other sports offerings, rather than with a focus on subscriber counts. Fox CEO Lachlan Murdoch also cited sports content issues in his earnings release. Fox “reported a 7% decrease in other revenues, primarily due to lower sports sublicensing revenues at the Cable Network Programming segment as a result of COVID-19,” said the release. “We have successfully adapted to changes in the sports calendar and entertainment production schedules to deliver key programming to audiences and advertisers across FOX,” Murdoch said.
Sook discussed his hopes for Nexstar's headline news offering, NewsNation, which is marketed as unbiased. “I think we have a swim lane here,” he said of the program’s prospects. Gray’s production studios have resumed making content after a hiatus caused by COVID-19, Howell said.
Nexstar also hopes to have ATSC 3.0 lit up on its stations in a dozen markets by the end of 2020 and an additional 20 next year, Sook said: Houston, Cleveland and Los Angeles are among markets where Nexstar will switch stations to the new standard. The business case for 3.0 is both “offensive and defensive,” he said, noting the capabilities for broadcasting in 4K, increased capacity and datacasting as key features. Monetization of 3.0 is still four or five years away, Sook said. Ripley praised the FCC’s actions on datacasting and 3.0 and said the commission has “touted” the new standard.