The upcoming mid-term elections in the U.S. will give a shot in the arm to local radio and television stations, but the broadcast media will still need to deal with the disruption brought by digital media, according to media experts.
Despite nearly $2.5 billion expected to flow in political advertising this fall, broadcasters are experimenting with technology, data and new systems to compete wit h websites and social media for their share of advertising revenue, said speakers at the 35th annual TV and Radio Finance Summit hosted by S&P Market Intelligence.
“You haven’t seen an industry struggling like the newspaper industry, but you’ve seen an industry that’s struggled to break even every year,” said Jeff Smulyan, founder and CEO of Emmis Communications, a media company focused on radio.
Projections for station revenue show a weak environment for both TV and radio, said Robin Flynn, senior director, at S&P Global Market Intelligence. Auto spending has been down recently, and the drop in that key category (which makes up up to 25% of local TV ad revenue) has affected local media, while TV and radio have lost ground as a share of advertising spending on digital media have gained, she noted.
At the same time, the local stations have had to adjust to the growth of digital streaming platforms, “cord-cutting” and other new viewer behaviors that threaten their audience numbers and their relationships with both the national networks they belong to and the cable companies that carry them.
There is a “redistribution” of market share underway, said Flynn. Digital video now has almost as large a share of total U.S. ad spending as national spot TV advertising, she said. By 2019 without the impact of political ads, station advertising revenue is expected to drop from 10.9% in TV and 7.1% in radio to 8.7% and 5.6% respectively
Flynn noted S&P also projects cable and broadcast TV will continue to decline in next 10 years, while digital providers such as “over the top” subscription services and “over the air” free platforms such as YouTube and other non-subscription services will continue to take market share.
“The consumer is empowered like never before. They want what they want when they want it and only what they want,” said Valari Staab, President of NBC Universal owned and operated stations.
The ad markets are cyclical, with Olympic games, the World Cup and elections helping boost certain cycles, and sales reverting to the norm afterwards. “There are some quarters you feel the floor is dropping out from under you and you look a month down the road and everything looks rosy again. That’s the way it’s always been,” said Joe Dorrego, chief financial officer of Fox Television stations. But now, the experts say, a number of digital developments are affecting ad sales, and forcing change, they noted.
“It’s a combination of fundamentally changing our consumer proposition—that needs to happen—and future proofing,” said Chris Ripley, president and CEO of Sinclair Broadcasting Group. Big advertisers who want the reach of television advertising work with large national ad agencies that don’t make money buying local TV, he said.
“They want the inventory, but we’re so difficult to buy…that’s why they’re not buying us” said Steve Lanzano, president and CEO of TVB. “The key to getting those dollars back and stop them going to national (ads) is to provide a more efficient process.”
Ripley explained that it’s more efficient for agencies to spend their money in network buys because the local TV is too fragmented and is not as automated as network buys because it lacks the data overlays that enable automating national buys. Additionally, local TV lacks the data overlays that allow targeting and attribution.
“The good news is they’re both fixable,” said Ripley. Broadcasters are making APIs available to national agencies that can automate the media buying process and forming partnerships to develop addressable TV products at the local level.
Local TV and radio do have an advantage in their content, especially local news, weather and sports, said speakers. Stations need to leverage that advantage and make it easier to buy their inventory and adapt to new programmatic buying and marketing automation, they explained.
“We are the only must-have in these programming patterns people have. They want the four programming networks,” said Staab.
Staab noted NBCU is realigning how its local stations deal with large national agencies, taking the sale of national spot from its owned and operated stations and placing it under one point person at the holding company to make it easier and less expensive for the national agencies to buy media in local markets. The company is also retraining sales people at local stations on digital so they can understand they can also sell other products besides TV time, such as product integrations, outdoor and digital media.
“It’s hard now. We literally had to put up a chart to show our sales people what they can sell” said Staab. “It’s a much more complicated sale.”
But the change is necessary, said Staab, noting that NBCU is also cross-training sales staff from its Telemundo Spanish-language network to sell English language television, while it trains English-language salespeople how to sell Spanish television.
“Agencies are going through as much change as we are,” she said. They are trying to break down silos and work across specialties, too, said Staab: We’re in a big time of change. We’re trying to stay close to the agencies and find ways it works for both of us.”
Radio companies have also been faced with the automation question and are working with agencies that are looking for operational efficiencies, said Tucker Flood, president of Eastman Radio: “It’s been interesting to try to get the agencies to think a little differently regards to how they buy.” He noted one test of media buying automation led the marketer to commit an extra $2 million with the station.
“Google and Facebook have the ability to know everything, everything about their customers. We haven’t had that ability,” said Smulyan. Now, radio stations are developing that data, he added.
Several speakers noted that multiple broadcast groups are collaborating in a pilot program in Phoenix to test “next-generation” TV service that would enable advanced functions. The 18-month test has only recently begun, noted Sandi Kozsuch, principal, strategic & industry Initiatives of Cox Media Group it is studying targeted advertising, premium content and encryption to protect content in Phoenix over the next 18 months and in 2019-2020 is expected to add more test markets and consumer electronics brands.
Next generation TV is more mobile- and advertising-friendly, which should help local stations hold the line against competition, said Justin Nielson, senior research analyst at S&P Global Market Intelligence. However, consumers will have to upgrade their equipment and the growth of wireless 5G service poses a threat to the new technology, he said.
Bullish on Politics
The upcoming mid-term elections in the U.S. will allow local broadcasters some breathing room, thanks to a contentious climate that virtually guarantees large ad buys in most markets. Both Republicans and Democrats are highly motivated to raise funds and spend them on advertising, said Flood. S&P is projecting $2.5 billion in TV and radio ad spending around the election.
“With the money that is being raised, it will be spent, said Flood. “There’s no saving money in political campaigns.”
Thanks to their polling operations and analytics, the campaigns are able to target and engage in programmatic buying, but as the inventory tightens, expect discipline to break down and last-minute spending will spike.
“There’s a lot of talk about targeting, targeting, targeting, but at the end of the campaign there’s a land grab for available space,” said Flood. “Once you get into it, there’s a lot of money being spent and targeting goes out the window to ‘How do spend all my money and get the impact I want and get the points?'”
The 2016 presidential campaign was anomalous because the Trump presidential campaign spent less than usual on traditional advertising and relied more on social media. In the midterm elections, campaigns still spend on social media efforts, but are expected to rely on local media. “We are the local community,” said Lanzano. “We’re the brand in the media”
Based on the amount of money being spent, the broadcasters don’t see much limit to the increased sales. Even inventory pressures will be relaxed, thanks to the to the use of sub channels and digital platforms. Lanzano singled out the Chicago market, thanks to the Illinois governor’s race “where you have two millionaires who are going to spend crazy money.”
Additionally, the Spanish-language market is already seeing a surge of political advertising around issues and will probably see large spending for the elections, said Flood, who is working with the Univision network.
“There’s a considerable influence of the Hispanic public in what’s going to happen in the election,” he said.
After stories of social media and data manipulation involving Facebook and the research firm Cambridge Analytica, the broadcasters said campaigns have cut back on Facebook ads, but they added they don’t expect the influence of Facebook and Google on campaign spending to drop much.
“Will they still get growth? Yes. Will they still get dollars? Yes,” said Lanzano. “They’re all over Washington D.C.” But the Trump model was a “one-off” and is not likely to work in the midterm elections or even if and when he runs for reelection in 2020, said Lanzano.
“We’re bullish on the political issue,” said Lanzano. “This should be a good political year.”