Broadcasters Uncertain About Downturn, Say Executives
Some broadcasters are seeing lower than expected political advertising and possible continued shortages in the auto industry, plus are certain how an economic downturn will affect their businesses, executives from iHeartMedia, Gray Television and Sinclair Broadcast said on Q3 earnings calls this week. “We are truly disappointed that several unexpected factors will keep us from hitting our previous guidance” on political advertising for 2022, said Gray co-CEO Hilton Howell, noting the results for Q3 are still up 30% from political ad results for Q3 2018, the last midterm election year.
Gray’s Q3 revenue was $909 million, up 51% from Q3 2021, said its earnings release. IHeartMedia reported Q3 revenue of $989 million, up 7% from the same quarter last year. Sinclair’s Q3 revenue was $843 million. In Q3 2021 Sinclair had revenue of $1.5 billion, but that number included the company’s sports networks, which were deconsolidated from the broadcast portion of the company in March, Sinclair’s release said.
Gray had some political campaigns completely stop their spending in August, including canceling planned ad buys, said Chief Operating Office Bob Smith. “A couple of major super PACs unexpectedly canceled fairly large orders for the general campaign,” Smith said. Races in states such as New York where Gray doesn’t have a large presence also became unexpectedly competitive, which led political ad dollars to divert away from Gray’s markets. This will be the first political ad cycle in 20 years where Q4 won’t produce more than half of Gray’s political ad revenue for the full year, Smith said. Sinclair is expecting 2022 to beat 2018 political ad revenue by 30% for the year, and sees the majority of that to come in Q4, said CEO Chris Ripley. “Political revenues remain robust,” Ripley said.
All the companies mentioned concerns about a possible recession. IHeart CEO Robert Pittman said he believes the current downturn’s effect on broadcast advertising will be “moderated” by lessons learned from the 2020 economic shutdown. “The people controlling advertising decisions today are the same people who controlled advertising during the last economic and advertising downturn,” said Pittman. Pulling back on ad buys during 2020 led to big losses for the companies that did so, and they learned from that, he said. “I can’t imagine things get much worse than 2020,” Pittman said. “We are keeping an eye on how the macro economy might affect us, and we will have a better grasp on demand once the elections are over,” said Sinclair COO Rob Weisbord. Broadcasters will have a better grasp on how advertising demand is affected once the crowd-out effect of political ads is out of the way, several of the companies said. Pittman said iHeart is likely insulated from the effects of an economic downturn because it mostly relies on large advertisers, which are more likely to keep spending during a recession.
The auto industry is starting to resolve chip shortages, but advertising could also be affected by a shortage of sheet metal, delaying new minivans, said Weisbord. Interest rates on car loans also increased, he said. “That could be good or bad,” said Weisbord. The high-interest rates could cause inventory to stockpile, causing dealers to ramp up advertising to clear their lots, he said. Sports betting ads also slowed, due to a change in the gambling companies' tactics, Weisbord said. Fifty percent of states have legalized sports gambling, but such advertising is now concentrated on sports networks rather than broadcast stations, he said.
Gray said it doesn’t have much visibility into future retransmission consent numbers, but subscribers are moving from traditional MVPDs to streaming services, which means less money for the broadcaster. “All the broadcasters are focused on this,” said Gray Executive Vice President-Chief Legal and Development Kevin Latek. Streaming services negotiate with the networks to carry the content, and only some of those proceeds go to broadcasters, Latek said. “Networks are paying us below market rates for the signals they’re putting on" over-the-top contracts "that we don’t see and aren’t told about,” he said. “It’s obviously better to get some money than to not get money, but right now the delta is meaningful.”