Jessell At Large | Spot TV Faces An Unprecedented Moment

To say the least, from a spot revenue perspective, 2020 isn’t unfolding as it was supposed to. As our occasional columnist Hank Price puts it: “This was the year to put grain in the storehouse.”

Just a month ago, everything was fine. In fact, better than fine. All indicators pointed to record political spending. Still thinking he could buy the Democratic nomination despite his personality deficit, Mike Bloomberg was spending in a way — $500 million! — that would shatter those records. Last fall’s forecasts of double-digit growth looked like a sure thing.

But then the fattest, loudest canary in the coal mine — the Dow Jones Industrial Average — started teetering on its perch and people suddenly recognized that COVID-19 is truly nasty stuff that could kill millions of people and wreck the economy.

As the Dow plummeted (28.5% since Feb. 21), government at all levels — some would say belatedly — began reading the infection and mortality rates and sounding the alarms. They restricted travel. They sent students home. They ordered restaurants, bars and “non-essential” businesses to close and advised folks to stay home and keep a distance from others if they had to go out. Sports arenas and concert halls fell silent. Business conferences and exhibitions were called off.

The closings, cancellations and cocooning are necessary to save lives, but they are causing massive collateral damage to the economy. There is no precedent for this. The Dow is a good measure of the damage, but the best may be the millions who are filing for unemployment benefits. It turns out nonessential businesses are pretty damn essential to those who work in them.

TV broadcasting, a big cog in our consumer economy, has not been immune, of course. I made the rounds of broadcast executives over the past several days and when I asked about the impact on spot sales, they described business as “tough,” “very, very soft” and “ugly” with nothing much coming in to replace the flood of April cancellations. Most didn’t want to put a percentage on the April decline, although one small-group head with small-market stations said he expected April to be off as much as 7%.

The broadcasters seemed reconciled to the second quarter having been wrecked, but were hopeful that the virus would somehow blow over in the quarter so that the economy and their little part of it could start returning to something approaching normal in the third. They conceded they have no visibility beyond the next month. They have no idea what course the virus will take, what federal and state governments will do next or whether the disruption will morph into a full-blown recession.

Some think it could be worse. The auto industry accounts for the better part of stations’ spot sales in any given year, and one keen observer of the spot market told me the industry is “hanging in there.” The automakers are offering — and advertising — special buyer incentives dredged up from past recessions — deep discounts, deferred and extended payments, 0% financing.

Many dealers are open for business, making deals along with appropriate concessions to the pandemic (online dealing, free delivery of cars to buyers’ homes, solo test drives). And dealers want to stay open. The National Association of Auto Dealers has petitioned the White House to preempt dealers from any state mandates to close, claiming that a good, well-maintained vehicle is vital to keeping the country rolling.

But there is no getting around that the auto industry is going to take a big hit this year and that there is a strong correlation between how many vehicles the industry sells and how much advertising it buys. Last December, NADA forecast the sale of 16.8 million cars and light trucks this year, down 1.2% from 2019.

That’s not going to happen.

Auto sales plummeted this month as the pandemic gripped the nation and the analysts at J.D. Power have calculated that sales for the year will be off 800,000 units assuming a 12-week cycle of pandemic escalation and recovery. And that was the best-case scenario. The medium case (most likely, Power thinks) was 1.7 million and the worst case was 3.1 million.

NBC and its affiliates are also having to deal with the postponement of the Tokyo Olympics, which was to be the gravy on top of the political feast. The NBC affiliates with whom I spoke were not too concerned, figuring it might even be better to have the games in 2021 when there will be little political money to soak up the inventory.

But for NBC it’s not that easy. The network plans to air the Super Bowl and the Beijing Winter Olympics back-to-back in February 2022. One network exec worried that moving the summer games to next summer will make it tougher to sell the Super Bowl and Olympics just half a year later to the same pool of advertisers.

While broadcasters cope with bad news from the sales department, stations cannot expect much relief on the cost side. Producers, reporters, anchors, photogs, techs, syndicators, networks and the electric company — all still need to be paid. In crises, the demands of the newsroom become louder and more insistent and top management typically responds to them. Broadcasters know their duty to keep their communities informed and are apt to spend more, not less, to do it.

What’s the good news?

The political will come. On Wednesday, our reporter Janet Stilson checked in with the trackers of political spending and found that all was well. Kantar/CMAG and BIA assured her that their bullish Bloomberg-adjusted forecasts would hold up. And it’s just not because of the white hot presidential race, said BIA’s Mark Fratrik. “There’s a chance that the Democrats may take over the Senate, so we’ll probably have a lot of third-party buys that will be vying to help elect Democratic candidates.”

Fratrik predicted that political would surpass auto as the No. 1 spot category this year, identifying 14 states where 33% or more of total spot advertising will be political, ranging from Reno, Nev., to Wilmington, N.C., to Bangor, Maine. And he expects that the number of states in that category will grow.

And consider this: If the nation is still in social-distancing mode to some extent his summer and fall, campaign money that might have  gone into rallies and canvassing may be steered into other impersonal tactics like advertising.

The only negative is that Michael Bloomberg seems to be reneging on his promise to spend heavily to chase Trump from the White House. It seems that even he has his limits. In addition to the $500 million plus he spent on advertising, he may have spent another $400 million on offices, travel and staff and all the other things that go into a national campaign. Ouch.

It’s also important to keep in mind that unlike in every other economic disruption, recession, depression that has plagued broadcasters over their long history, they are no longer reliant solely on advertising. They now have a second revenue stream.

Retransmission consent and similar programming payments they receive from the streaming services account for a third of their total revenue. And that revenue is baked into contracts with mostly large, financially sound MVPDs. That provides a lot of cushion and comfort to stations and groups, especially those carrying a lot of debt due to recent buying binges like Sinclair ($12 billion) and Nexstar ($8 billion).

I would also note that viewership of TV is up across the board as one would expect with millions stuck at home. According to comScore, viewership of Big Four network affiliates last week (March 12-20) grew 18.5% over the same week last year. Daytime was up 31.3%; early fringe, 35.2%; prime access, 12.3% and prime, 9.4%. Unfortunately, increasing the supply of rating points doesn’t help much in the absence of demand.

So, 2020 is not turning out as expected. Broadcasters will be hard pressed to deliver on that double-digit growth if the pandemic doesn’t subside and subside fast. Yesterday, Magna Global, the giant media agency, predicted spot will “decline massively,” but still show 1% growth on the year because of the political spend.

We will get a better read on what’s happening over the next several weeks as the big publicly traded station groups issue their first quarter earnings and provide guidance for the second quarter and beyond. The calls with analysts will be must-listen affairs.

Harry A. Jessell is editor at large of TVNewsCheck. He can be contacted at 973-701-1067 or here. You can read earlier columns here.