The kicker is that local interactive online advertising revenues that were supposed to supplement traditional ad revenue declines will slip to only about 8% growth in 2009, just ahead of a much-weaker 7.2% national online growth rate. This year, local interactive advertising is still expected to increase 47% over 2007 to about $13 billion, according to Borrell Associates. The message is clear: Local media can't run for cover.
The Television Bureau of Advertising Tuesday vastly lowered its 2009 TV station ad forecast to levels recently set by Wall Street analysts, saying it now expects local spot sales will decline 4% to 8% and national spot will be down between 11.5% and 15.5% next year. Only election-year spending helped to save local TV in the first 10 months of this year. Still, the owned-and-operated TV stations of Disney/ABC, CBS, News/Fox and NBC Universal significantly underperformed pure-play broadcasters for the second consecutive quarter, due partly to less battleground-state political exposure.
With as many as 1,000 local auto dealers expected to go out of business by next year and the big three domestic automakers seeking federal aid to avoid bankruptcy, local ad-supported media pain has only just begun. Auto ad spending, which contributes about 25% of the industry-wide local ad revenue base, was down about 40% last quarter for major TV station groups like Fox.
Local cable, which generally outperformed local television last quarter, could sneak up on broadcasters in these difficult times as a prelude to a complete rollout of the new addressable, interactive advertising and data that Canoe Ventures fronted by major cable system operators. "The credit crisis has magnified trends that were already in motion. For most of the decade, advertisers have been viewing interactive media as a more efficient, less costly way of reaching consumers than traditional media buys," Borrell observes. Advertising expenditure dials have "just about been adjusted for interactive media," which means that local TV especially must position itself to capture double-digit growth during a recessionary recovery by 2010.
In what is considered to be only the beginning of the local ad downturn, third-quarter estimated that declining advertising revenues reported by Goldman Sachs were -4% for local TV (broadcast and cable), -6% for network TV, -8% for radio, -5% for outdoor, and -15% for newspapers. The only third-quarter ad revenue gains were an average 5% for cable network and 10% for the Internet.
Without marginal lift from elections or holidays, 2009 is shaping up to be the worst ad year in decades, when double-digit declines could be led by spot television (-16%) and newspapers (-12%), analysts say. This will be especially brutal for media companies whose primary business is local TV and newspapers, like Belo, Scripps and Gannett. Others are like Tribune Co., whose corporate credit rating was lowered to CCC-Negative late Tuesday by Standard & Poor's due to concerns that it will be unable to sell $1 billion of mostly non-media assets by year's end to make debt payments. The situation could adversely impact its ability to retain and manage its already stressed local TV stations and newspapers.
Some pure broadcasters' efforts to aggressively grow ancillary revenues are working, but not fast enough. For instance, Nexstar's third-quarter retransmission consent income grew 38% to 6.2 million, and eMedia revenues grew 63% to $2.7 million of its overall $70 million. But $4 million in Olympics-related revenues and $8 million in political ad revenues were one-time boosts.
With broadcast network companies such as NBCU, Disney, News Corp. and CBS increasingly relying on online sites, digital platforms and devices to distribute their programs, local station owners fear the dilution of the affiliate brand. They worry that the broadcast network owners will exit the TV station business by selling programs directly to cable and new digital media.
The high capital cost, declining revenues and tighter margins will become increasingly apparent in the media conglomerates' television station results. Disney's ABC-owned station reported ad revenue declines of -12% last quarter compared with -18% for CBS stations and -22% for Fox stations. In what could prove to be a best-case scenario, Bernstein Research estimates that Disney's ABC TV station advertising will decline -15% in fiscal 2009, which assumes an 80% incremental margin. At News Corp., which recently sold eight of its smaller TV stations, local TV and newspaper declines will pressure overall margins through fiscal 2009.
Still, News Corp. and Disney executives last week defended their holistic strategy of continuing to own major market TV stations. "These are business for us that deliver high capital returns and ... we still believe in them because of the way that we run them and the free cash flow that they throw off for this company," said Disney CEO Bob Iger.
Local TV station owners (many of them heavily in debt) are under pressure to modify high-cost legacy structure, leverage their unique local content and connections, and engage in new digital enterprises to collectively offset traditional ad declines. That means reaching beyond cash retrans fees from cable and telco operators to linking their local franchise brands with consumer electronics manufacturers like Apple, GPS operators, wireless mobile telephone and PDA manufacturers (like RIMM).
It also means leveraging their position with Google and other Internet players seeking to capitalize on selling their available ad inventory and launching new Wi-Fi services using unlicensed "white space" between their channels. "If our business is going to be in-play, we might as well reinvent ourselves," confided one veteran independent broadcast executive. "It beats waiting for a rescue that will never come."