Ad Profits Fuel Sale of TV Stations in Key Election States
By BRIAN STELTER
Gannett and the Tribune Company have recently purchased groups of TV
stations, in locations where political advertising can be highly
lucrative.
By BRIAN STELTER
Published: July 7, 2013
When Allbritton, the media company that owns Politico, put its seven television stations up for sale this spring, analysts quickly singled out one as the most attractive: WJLA, the company’s ABC-affiliated station in Washington. It is the biggest of the bunch, the best known and, perhaps most important, a magnet for political spending.
WJLA banked $33 million in election-related advertising last year. Only
three stations in the United States earned more, and two of those were
also in Washington. That’s because the stations’ signals reach citizens
in a crucial battleground state, Virginia, as well as the political
power brokers in the nation’s capital. If Allbritton were to sell WJLA
by itself, it could fetch $300 million.
That math helps explain why Gannett paid $1.5 billion for 20 stations
last month, why the Tribune Company agreed last week to pay $2.7 billion
for 19 stations — and why more consolidation in the marketplace is
forecast for later this year.
The increasingly expensive elections that play out across the country
every two years are making stations look like a smart investment, with
the revenue piling up each time a candidate says “I approve this
message.”
Despite an array of digital alternatives and a rapidly transforming
television business, 30-second commercials remain one of the most
valuable tools of campaigns and political action committees. As Leslie
Moonves, the chief executive of the CBS Corporation, which owns 29
stations, memorably said last year, “Super PACs may be bad for America, but they’re very good for CBS.”
Next year’s midterm elections will be a boon to stations as well, and
“2016 could be amazing,” said Mark Fratrik, the chief economist for
BIA/Kelsey, a media research firm and consultancy.
Station owners have come to dread what they call “odd years,” like 2013,
when there is little political spending. For stations blessed to be in
swing states, political ads routinely represent a third of their overall
ad revenue in election years..
For instance, WBNS, the highest-rated station in Columbus, Ohio, grossed
about $50 million in advertising last year, of which at least $20
million was attributed to campaign spending. Columbus is the nation’s
32nd largest TV market.
Contrast that to the next biggest market, KSTU, the most popular station
in Salt Lake City. Kantar Media estimates that KSTU brought in about
$29 million in advertising last year.
On paper, these two stations are equals; WBNS came out far ahead because
Columbus was in the middle of a hotly contested race between President
Obama and Mitt Romney to win Ohio’s 18 electoral votes.
Mr. Fratrik said that stations in Ohio enjoyed, on average, a 38 percent
increase in total ad revenue last year, in large part because of
political spending. The increases were more than 40 percent for some
stations in Wisconsin, where a recall election for governor added to the
political drama. One of the stations being bought by Tribune is up the
road from Columbus in Cleveland. Another is in Milwaukee. Two others are
in Virginia, and one is in Colorado.
As he talked up Tribune’s acquisition to investors this week, Peter
Liguori, Tribune’s chief executive, made sure to mention the increased
exposure to swing-state advertising.
Analysts say the surge in station consolidation this year has also been
driven by low interest rates and by an enormous rise in retransmission
fees for stations, which are the equivalent of per-subscriber fees for
cable channels like ESPN and MTV. Some stations now earn 40 to 50 cents a
month from each cable and satellite subscriber.
But those fees currently account for about 10 percent of station
revenue, and even if they double in the next five years, as the research
firm SNL Kagan predicts, advertising revenue will remain the most
important part of the station business. Thus, political advertising is a
lifeline, even if the sheer volume of ads sometimes makes viewers want
to hurl the remotes at their sets.
“We get complaints from viewers,” Michael J. Fiorile, the chief
executive of WBNS’s owner, the Dispatch Broadcast Group, acknowledged.
“The bigger complaints are from regular advertisers who really get
pushed off the air.”
“Don’t get me wrong,” he added with a chuckle. “It’s a good problem for us to have.”
Dispatch, which is locally owned, is not up for sale, and Mr. Fiorile
said his stations would survive without the every-other-year campaign ad
bonanza. But owners of other stations have been able to command a
premium, and maintain a healthy profit margin by virtue of their
location in competitive states.
“There is no doubt that the prospect of higher political revenues for
big four affiliates — especially those with higher local news ratings —
makes those stations quite a bit more valuable than those without,” said
Robin Flynn, a senior analyst for SNL Kagan.
The spending comes not just from presidential campaigns, but from local
and statewide races. Ms. Flynn’s data shows that Los Angeles, in
reliably blue California, beat out Washington as the top market for all
political ad revenue last year, partly because of huge spending on
ballot propositions.
Although the Obama campaign gained attention last year for its careful
ad targeting, which sometimes resulted in effective but cheap ad buys on
obscure cable channels, local newscasts remained one of the most
desirable places for political ads. In Washington last fall, WJLA and
another Washington station, WTTG, took the extreme step of adding extra
half-hours of news temporarily to make room for more ads.
But anyone hoping for a commensurate increase in the size of local
newsrooms would be sorely disappointed. There was a slight increase in
local TV hiring last year of about 4 percent, according to a Hofstra
University researcher, Bob Papper. Salaries stayed stagnant, and
declined in some cases.
The influx of ad spending has also left stations vulnerable to criticism
that they are not doing nearly enough to fact-check all the ads they
are profiting from. Timothy Karr, a senior director of strategy at Free
Press, a public interest group, studied Cleveland, Milwaukee and four
other local markets last August and September and found what he said was
“a near-complete station blackout on local reporting about the
political ads they aired.” Denver was the best of the six, he said, and
even there, 2,880 ads from five PACs and outside groups were countered
by just five fact-checking news segments.
“This profiteering may explain newsrooms’ reluctance to investigate the
sources of political ad spending, or to vet the ads they air for
accuracy,” Mr. Karr said. “It’s clear that they don’t want to bite the
hands that feed them.”
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