Broadcasters No Longer Reliant on Auto Ads, Executives Say
Broadcasters have evolved to no longer depend on automotive ads for revenue, said several broadcast executives on company quarterly earnings calls last week. The executives also discussed ATSC 3.0 projections, their M&A outlook and the continued rise of sports betting. “Back in the day, when auto sneezed, broadcasters got a cold,” said Gray Television co-CEO Hilton Howell. That’s no longer the case, he said. “We’ve become less reliant on auto,” said Sinclair Chief Operating Officer Rob Weisbord. Auto ads are likely to rebound but will never be as central to broadcaster balance sheets, said Nexstar CEO Perry Sook.
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Nexstar’s net revenue for Q4 2021 was $1.25 billion, a 9.5% drop from Q4 2020, said the company’s release. E.W. Scripps had total revenue of $622 million, a 5.3% increase from Q4 2020 that the company pegged to its acquisition of Ion at the start of 2021. Gray Television reported total revenue of $721 million, down 9% from Q4 2020. Sinclair saw total revenue decrease to $1.48 billion from $1.5 billion in Q4 2020. All the companies cited the cycle of political ad revenue and 2020’s presidential election as the reason for quarterly declines.
Auto was described as a lagging category by nearly every company, an exception to an advertising market that several described as bouncing back from COVID-19 declines. “We remain optimistic that the country and advertisers are beginning to take all this in stride,” said iHeartMedia CEO Bob Pittman. “We’re feeling good about the overall business environment,” said Sook: “Our largest category, auto, while recovering, remains still somewhat challenged.” “Every other category posted solid gains” for Gray, said COO Bob Smith. Categories that did well in Q4 include legal, travel and tourism, several broadcasters said. There’s a “robust feeling” that the country is on the “downside of omicron,” said Weisbord.
Nearly every company predicted auto ads will rebound late in 2022. That could possibly be Q3, “if chips start to flow,” said Weisbord. Several said with that timing, it's likely auto industry ads would be competing with and displaced by a hefty rush of political ads anticipated for the 2022 midterms. “Scripps is expecting to reach 2020 political revenue levels this year even though there isn’t a presidential election,” said E.W. Scripps CEO Adam Symson. “The high level of partisanship in our country” means big spending even in down-ballot political races, he said. Due to political displacement, broadcasters may not get a rise in revenue from auto ads until 2023, several executives said.
Several broadcasters said sports betting and gambling were their fastest-growing ad categories in Q4. A great deal of ad money tends to flow into markets where sports gambling has just been legalized, as competing apps jockey for new users, said Scripps President-Local Media Brian Lawlor. Sinclair will launch a direct-to-consumer digital streaming service offering sports and in-app gambling this year, plus a “gamification initiative’ said CEO Chris Ripley. Each Sinclair platform will have “game centers” as part of the company’s arrangement with gambling company Bally's. Sinclair also recently launched an online store selling nonfungible tokens, Ripley said. Gray is “continuing to see pretty big gaming ad budgets” in local markets, Smith said.
Gray’s footprint in ATSC 3.0 markets has greatly increased with the purchase of Meredith, but the company doesn’t expect increased revenue from the technology in 2022, Smith said. Scripps and Nexstar have been testing 3.0 use cases in Michigan, including navigation and in-car entertainment, Sook and Symson said. Sinclair is looking toward deploying the standard in mobile phones, Ripley said: 75% of the country will be able to receive broadcasts in the new standard by the end of 2022. “Monetization can’t be far behind.” Nexstar will have 3.0 in 50% of its markets at year’s end, Sook said.
The increase in streaming services owned by networks has “diminished the exclusivity” of the content broadcasters air, changing the nature of negotiations with networks over the fees affiliates pay them, said Symson. Scripps is launching a marketing campaign to encourage broadband-only households to buy digital antennas, including partnerships with retailers and antenna installers, Symson said. Airing content on over-the-air TV helps viewers discover it, even if many end up viewing it over streaming, Symson said, comparing broadcasters to carnival barkers. Symson also linked the push to the company’s ATSC 3.0 interests.
Sinclair’s 2021 cyberattack incident cost the company $63 million in advertising revenue and led to costs of $11 million to date, said Ripley. Insurance is expected to offset some of the losses. The attack temporarily disrupted the company’s ability to run local advertising on some stations, Ripley said. The company created a subcommittee on cybersecurity to strengthen its defenses after the incident, Ripley said. “We are not expecting further revenue impact,” said CFO Lucy Rutishauser, though she said further expenses from the incident are possible.
“Nothing has been on the market for the past year or two,” said Gray Executive Vice President Kevin Latek of M&A possibilities for Gray, which bought Meredith last year: “We’re not actively looking.” Nexstar is aiming more at purchasing content-related assets, said CFO Lee Gliha.