Maximizing Local TV Ad Revenues

 

TVN’S FRONT OFFICE BY MARY COLLINS

November, 20, 2017

BIA Kelsey’s Tom Buono and Mark Fratrik discuss several areas that they believe offer near-term opportunities for TV stations, including strong economic conditions, growing online/digital advertising, social media and cross-platform advertising, political advertising, ATSC 3.0 and more.

It almost goes without saying that TV stations are continually challenged in their efforts to increase their share of the total advertising spending pie. A few weeks ago, MFM offered its members a local advertising update courtesy of BIA/Kelsey’s Tom Buono and Mark Fratrik. In addition to going over anticipated ad spend by media category, they identified what they see as areas of opportunity for TV station ad dollars.

Chief among these are the prospects for cross-platform and addressable advertising opportunities enabled by upgrading to the ATSC 3.0 broadcast standard. BIA/Kelsey predicts this could boost local station ad revenue from a compound annual growth rate (CAGR) of 3% to 5%. The FCC is expected to approve implementation of the new 3.0 standard at its Nov. 16 meeting, immediately after I submit this column to TVNewsCheck.

Buono, founder and CEO of BIA/Kelsey, and Mark Fratrik, SVP and chief economist for the media consultancy firm, also discussed several areas that they believe offer nearer-term opportunities. These include:

Current Economic Conditions

All local media platforms are likely to benefit from the current levels of optimism concerning the U.S. economy. In addition to low unemployment, the record levels being achieved by the stock market have contributed to consumer optimism, which as Fratrik pointed out, encourages household spending. To that point, BusinessWorld recently reported on U.S. Department of Commerce statistics, which show September consumer spending recorded the biggest increase in more than eight years.

In addition, business optimism in the United States surged to a record high of 80% this past spring, according to Grant Thornton’s mid-market business survey. Fox business reports that new orders for key U.S.-made capital goods increased more than expected, with shipments rising for the eighth straight month.   

Unfortunately, not all boats are rising with this tide. As bankruptcy law experts Wanda Borges and Bruce Nathan reminded attendees at the recent BCCA Media Credit Seminar in New York, this year’s bankruptcy filings by Toys R Us and Payless Shoes starkly illustrate the impact of e-commerce on many brick and mortar businesses.

 Online/Digital Advertising

E-commerce, which Forbes expects to soar to new heights in the upcoming holiday shopping season, is clearly a driving force behind digital media spending. BIA/Kelsey’s analysis shows that the combined spending on all forms of digital advertising will amount to $46.3 billion this year. That figure encompasses mobile and online spending at TV, radio, and newspaper sites as well as “pure-play” platforms like Google. In comparison, less than half that amount — $22.3 billion — will be spent on local television.   

One area of traditional spending that has remained resilient is direct mail, which represents 24% of the total spend ($27.7 billion); however, it is predicted to dip to 21.6% by 2021. Those dollars will likely join the shift away from other traditional media into online/digital platforms, which are expected to grow by a 12% CAGR and total $71.4 billion by 2021.

Social Media And Cross-Platform Advertising

BIA/Kelsey predicts digital media spending at local TV stations will represent 0.8% of all local ad spending in 2018 and rise to 0.9% by 2021. During this same period, broadcast or OTA (over the air) spending will decline from 13.6% to 12.7%.

Although total spending on television accounts for only 14.4% of the total local spend, it represents nearly two-thirds (64.8%) of all video ad spending. With market projections showing that the future of media consumption will be dominated by mobile video viewing, this stronghold on the video ad market underlies the assertions about the importance of ATSC 3.0 as both a platform for content delivery and advanced advertising.  

In the meantime, local stations are using social media platforms to both grow on-air viewership and to deliver content. BIA/Kelsey’s analysis finds that a strong social presence can aid mid-market stations as well as the stations in the top 25 DMAs (designated marketing areas). For example, stations in the Jacksonville, Fla. (DMA 42), Richmond-Petersburg, Va. (55) and Greenville-Spartanburg, S.C./Ashville, N.C. (38), DMAs ranked 6, 7 and 10, respectively, in average engagement-to-audience in the most recent quarter, based on combined analysis by BIA/Kelsey and Share Rocket.

National Brands

Capitalizing on marketing dollars from national brands has been an elusive opportunity for local TV stations. “Brands get a lift in their campaigns (when they buy local TV advertising) but it has been difficult to do it,” BIA/Kelsey’s Buono noted. “We see that changing with programmatic advertising.”

As attendees at last month’s TVNewsCheck TV2020 conference learned, programmatic solutions are almost within local TV’s reach. A report on the conference by MFM’s member magazine editor, Janet Stilson, for this publication explains that these include Publicis Media’s $50 million automated buy involving TV stations in 90 markets.

Another opportunity for TV stations is the $50 billion in local advertising that is subsidized by national brands and manufacturers. MFM’s November Distance Learning webinar presented by LSA Recas Co-op Advertising's Tim Brennan, explored “The Good, The Bad, and The Ugly” sides of the topic. I will share his insights in my next column.  

Political Advertising

TV station ad revenues will also benefit from next year’s political advertising, which BIA/Kelsey’s Fratrik sees as “a major factor” in the outlook for local TV advertising. How major? The Cook Political Reportsummarizes Kantar Media’s prediction of total spending to include $2.4 billion for local broadcast and $850 million for local cable.

Increased demand for spot advertising will likely result in higher rates as local businesses compete for inventory. Demand for spot will also be influenced by planned increases in TV ad budgets. BIA/Kelsey’s Local Commerce Monitor survey of more than 1,000 small and mid-size businesses (SMBs) found more than half (54.7%) plan to increase their TV ad budgets in 2018 compared to 6.4% that plan to decrease spending.

With respect to vertical ad categories, automakers will dominate OTA TV ad spending at nearly $3.9 billion, followed by hospitals ($703 million), supermarkets ($702 million), wireless carriers ($691 million), and full-service restaurants ($619 million).

ATSC 3.0

As I mentioned above, BIA/Kelsey views broadcast television’s upgrade to ATSC 3.0 as a major vehicle for increasing CAGR by an additional 2 percentage points, from 3% to 5%. Buono’s comment to webinar participants was unequivocal: “ATSC 3.0 is a game changer for local TV, both in terms of competing for viewership and with respect to revenue sources.”

To illustrate the possibilities for new revenue potential, he used the example of geo-targeting involving hospital advertisers in the Washington, D.C., market. He predicted that in the year 2021, this would increase TV’s ad share from 28.2% to 30.2%, representing an additional $1.4 million in ad revenue. The firm’s analysis indicates that these types of opportunities will enable large and medium market stations to recoup their 3.0 investment within three years

Stay Tuned

The industry’s implementation of 3.0 is guaranteed to be a major topic of discussion for many months to come. There will be no shortage issues including multicasting ATSC 1.0, MVPD carriage of 3.0 signals, and the inclusion of 3.0 chips in smartphones and other portable media devices. Despite the number of challenges that must be overcome, market research from BIA/Kelsey concludes that local television will not enjoy the same future success without it.

Here at MFM (and BCCA, the industry’s credit association), we will do our very best to explore and share the data and insights that can help stations capitalize on these opportunities. This includes focusing on 3.0 during our 2018 annual conference, Media Finance Focus 2018, in our Distance Learning webinars, and in upcoming issues of our member magazine, The Financial Manager.

MFM’s mission is to provide the media industry with financial education, information sharing, and opportunities to discuss issues with peers. To be successful we need to know about the topics that are important to you and your organization. Please continue to post your comments and send emails.

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary, the media industry’s credit association. She can be reached at mary.collins@mediafinance.org and via the association’s LinkedIn, Twitter or Facebook sites.