Sinclair, Gray Walk Back Political Ad Revenue Projections
Lower-than-expected political advertising revenue for Gray Television and Sinclair is more likely a one-time outlier than an indication of a permanent shift in TV ad spending, numerous analysts and broadcasters said in interviews Wednesday. “Of course, online [advertising] is increasingly relevant, but all politics is local, and local stations are still important” for disseminating political advertising, said BIA/Kelsey Chief Economist Mark Fratrik. Both broadcasters announced revisions to their projected political ad revenue for Q3 Tuesday, and both companies cited the unpredictable advertising strategy of the current presidential campaign as the cause, as analysts told us last week (see 1609160068).
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“While we previously anticipated a decline in Presidential ad spending in the third quarter based on the late fund raising by the Trump campaign, we have yet to see significant spending, even at the levels we initially anticipated,” Sinclair Chief Financial Officer Chris Ripley said in a news release. “There can be no assurance that increased spending will materialize given the very unusual nature of this year’s late presidential campaign season,” said Gray in a news release. Tuesday, Gray suffered a 9 percent decline in its stock price, and Sinclair a 10 percent fall.
Sinclair said its Q3 media revenue will be close to $638 million, down from the range of $649 million to $663 million it had predicted, and rescinded a prediction of $260 million-$280 million for political ad revenue for the full year. “Gray withdraws previously issued political revenue guidance for the third quarter and full year 2016,” said the broadcaster. “If and when circumstances permit, Gray will provide an appropriate update to the market.”
The lack of predictability stems from late ad orders, political money redirected to other places than TV ads, and some down-ballot races becoming less competitive, said Gray and numerous analysts. “If GTN actually knew what the numbers were going to be, they would have provided them,” Wells Fargo analyst Marci Ryvicker emailed investors. Political ad spending in the 2016 election is “IMPOSSIBLE” to predict, Ryvicker said. She reduced Wells Fargo's forecast for broadcast political revenue from $3.3 billion to $2.65 billion.
Numerous analysts pointed to Republican nominee Donald Trump's campaign and its less-than-expected spending as being behind the changed predictions. “The concern all along has been Trump,” Ryvicker said. ”We have been talking about the Trump Effect for quite a while; and while there is still hope, the placement of Trump dollars is impossible to predict.” The Trump campaign “hasn't been spending money,” said S&P Global Market Intelligence Associate Research Analyst Peter Leitzinger in an interview. When one candidate in a general election spends less, opponents are also unlikely to spend as much, analysts told us.
Though advertising in down-ballot races is picking up some of the slack from the national election, those dollars go away when those races stop being competitive, a broadcast executive told us. Gray and Sinclair pointed to widening gaps in Ohio and Colorado as being part of the problem, in their releases. Gray and Sinclair own many stations in smaller markets, making them more vulnerable to a slackening of political ad dollars in local races, the executive told us. In larger markets, the political ad revenue is a smaller portion of total revenue, Fratrik told us. In a smaller market, an expensive race can have more of a boom-bust effect, he said. CBS, which owns stations in larger markets, isn't seeing an overall drop in ad dollars, CEO Les Moonves said Tuesday at a Goldman Sachs conference. Ad spending on senatorial and gubernatorial races and issues campaigns “is tremendous,” with California and Pennsylvania particularly robust, and with Pittsburgh and Philadelphia campaign ad sales “going through the roof,” Moonves said.
Several analysts downplayed the consequences of the reduced ad revenue. “These changes are NOT SECULAR,” Ryvicker said. “They are SITUATIONAL, as it has been pretty clear Donald Trump is not a conventional Presidential candidate -- something that has impacted ALL races, Presidential and otherwise.” If the Trump campaigns spends its ad money late, it could be a boon to radio, since available TV spots may not be available, Leitzinger said. The campaign could be “keeping its powder dry,” Fratrik said.