• by Diane Mermigas , January 10, 2008

The American people put the "me" back into media by shaping the roller-coaster outcome of this week's New Hampshire presidential primary. It was a vivid reminder in the digital age that the most effective interactivity is the handshake. It demonstrated that TV commercials and Web sites can only go so far in selling candidates and campaigns. It is evidence that local constituents rule.

That is why the primary folderol demands a closer examination on several media-related levels. The events leading up to the stunning from-behind victories of Democratic Sen. Hillary Clinton and Republican Senator John McCain suggest that politicians and media woefully underestimate the grassroots power of the people. While Clinton's emotional "moment" on the campaign trail was incessantly played nationally, from CNN to YouTube, the most critical impressions were delivered by local TV newscasts and newspapers. And New Hampshire voters carried them to the polls Tuesday.

That powerful connection should be a catalyst for local broadcasters transitioning to digital a year from now to improve their advertising and viewer support. This week's CES show in Las Vegas featured a host of devices, including cell phones, navigation devices and pocket computers, that can receive local TV stations' new digital signals. However, local TV stations should be using these political headwinds to reinvent their ties to constituents utilizing all digital interactive tools.

CBSNews.com's integration with the social news site Digg.com is a simple move in the right direction. The $20 million spent on local TV Web sites this year could be easily improved by local broadcasters' willingness to experiment with the low-cost commercial videos and local search (more than doubling to $1.3 billion) that scored for John Kerry four years ago, according to Borrell Associates. Overall local online ad spending should hit $12.6 billion.

Clearly, by the 2012 presidential election, interactive television and online video will be pervasive enough to transform passive campaign pitches into more a constructive, lucrative exchange of information with voters, painted in the humanistic elements that recently worked in Clinton's favor.

However strong the boost from this election-year advertising spending, it would be fatal for local broadcasters to use it as an economic crutch to hobble through the intensifying recessionary concerns that prompted analysts at Goldman Sachs and Bernstein Research Wednesday to issue alerts and lower earnings forecasts for the media companies they follow. Pullbacks in advertiser spending and increased disruption from digital transition are the reason that broadcasters must use this fleeting election-year breather to learn how to leverage their local assets in the digital space.

After all, local TV's political ad spending windfall is the reverse of the general trend in national television, grabbing 65% of all ad dollars in broadcast and more than 80% in cable TV. Presidential, congressional and state races will generate more than $3 billion in local ad spending this year, 80% of which will go to television. Up to 6% could be spent on the Internet--an increase from 2% four years ago.

While primary and caucus states such as New Hampshire, Florida and California will reap the early rewards, Bear Stearns analyst Victor Miller reports that election-year ad spending will most benefit media groups such as CBS Corp. ($165 million), Hearst-Argyle Television ($101 million), Gannett ($97 million) and Walt Disney ($64 million). CitiGroup analyst Jason Bazinet says News Corp. and CBS-owned TV stations will lead the pack, each with about $210 million in political advertising. More importantly, political ad spend can represent 3% to more than 25% of a local TV station's overall revenues, depending upon the market and political makeup, Miller says.

It all sounds so rosy. PQ Media and Wachovia Capital Markets say local TV broadcasters will grab more than 60% of the overall $4.5 billion in political campaign spending, up about 64% from 2004 due to wide-open, hotly contested races. Wachovia says that is tantamount to 55 cents of every political dollar raised, or about 61 cents of every political ad dollar spent, going to local TV.

All that disappears in 2009 when local TV station advertising growth could decline 6% and even broadcast network growth could be down at least 1% from this year's artificial boost, according to BMO analyst Lee Westerfield. Broadcast TV advertising growth may outpace 4.3% GDP growth in 2008 on the wings of the elections and Olympics, but the second-largest category comprising 15.5% (or $49 billion) of all U.S. advertising will spiral down in 2009.

Lehman Brothers analyst Anthony DiClemente explains that "the increased penetration of cable television and increased acceptance of the Internet as a branding media have provided efficient alternatives for advertisers."

In addition, the snowballing impact of the housing market contraction will take an increasing chunk out of advertiser spending, leaving local and national broadcasters few economic offsets. If the local broadcasters especially do not take heed of--and learn to leverage--their grassroots advantages in this year's cyclically good environment, they will pay a heavy price in the more tumultuous economic times ahead.