Local Broadcast Ad Markets Decline

National television's upfront advertising market sluggishness shouldn't have been much of a surprise this year, given that local TV sales have been showing weakness since the end of 2004.

"Local TV started decelerating since the middle of last year when General Motors pulled a lot of local money," said Mike Gallant, securities analyst for CIBC World Markets.

Radio was the first to see reductions from General Motors in the second quarter, he said. Then GM hit local TV hard in the third quarter--and continued into the first quarter of 2005. Many other companies followed that trend. And it's not just the autos.

Retailers and movie companies have moved money out of local broadcast, said Gallant. Those advertisers made similar moves in buying national television. National upfront ad dollars look to be somewhat flat across broadcast, cable, and syndication, collectively. Those numbers, say analysts, are an indicator of what is to come in the ad marketplace.

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Recent earning results for a number of station groups--Tribune Broadcasting, Gannett Co., and others--have reflected lower local TV sales problems. Gannett Co., for instance, witnessed a decline of $4.9 million or 3 percent in the first quarter because of lower political advertising and a number of ad categories--automotive, retail, restaurants, and telecommunications.

"Advertisers have been enamored with the Internet and other media," said Gallant, in guessing where ad dollars could be headed. Further examination, says Gallant, should be made of direct mail--an area that national advertisers are seemingly bulking up on. But Internet money may not be coming out of local TV. "The Internet isn't as much of a factor locally as it is for the national broadcast and cable networks," said Gary Belis, vp of communications for the Television Bureau of Advertising.

Local broadcast hit a pothole in the first quarter of 2005--down 4.3 percent to $3.8 billion, according to the Television Bureau of Advertising (TVB) and TNS Media Intelligence. "This year is particularly rough because it was against a presidential political year last year," said TVB's Belis.

At the same time local numbers were dropping, national numbers were inching up--network TV was up 3.9 percent to $6.4 billion, while syndicated TV was 4.2 percent higher, up to $987 million. The TVB has predicted that 2005 would be a flat year in terms of local TV revenues, and that 2006 would see a 7 percent to 9 percent rise--because of the Winter Olympics and a congressional political year.

All this means that local broadcast has some catching up to do this year, say media analysts. The fourth quarter--typically the strongest for TV--will decide how the year performs. TVB's Belis says another good test is the second-quarter numbers--the next-strongest ad sales period after the fourth quarter. That data comes out in the middle of August.

The year before was a different story. Overall, local broadcast was strong in 2004--up 12 percent to $18.3 billion from $16.3 billion the year before. Healthy advertising revenues came from the Summer Olympics and big political campaigns. Local rate gains in 2004 were higher than the 9.5 percent gain for network television, which ended the year at $24.8 billion.

The TVB now calls local broadcast ad revenue data a two-year rollercoaster--Summer Olympics and big political years witness major gains, only to fall again the next season, say media analysts. This year's first-quarter drop may look more alarming to industry watchers than in previous periods. Two years ago, in 2003, local broadcast was slightly down 0.3 percent in the first quarter versus the previous year.

The TVB says those comparisons should be examined somewhat differently. In 2002, there was a more moderate advertising sales period because of ad revenues from the Winter Olympics and congressional political campaigns. These advertising events typically pull in less advertising than the Summer Olympics and a presidential political season.

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