The question about local TV economics in 2009 was not whether it was bad year but how bad.
When the year was over, industry revenues had fallen to levels not seen since the mid-1990s.1
Most of the drop came in on-air revenues, which is still expected to have generated 91% of local station revenue in 2010.2 And all sorts of advertising categories fell, from furniture, to financial services to insurance.3 The hardest hit was automotive, which was down more than half for the first nine months of 2009.
The lone silver lining was unanticipated revenue from political issue ads, which, according to estimates by the Television Bureau of Advertising, may have doubled the total from the previous non-election year of 2007.4
The outlook for the industry in 2010 is less clear. Most financial analysts expect 2010 advertising revenues to improve over 2009 levels, but the scenarios are far from secure.
Revenues were declining for the second year in a row as 2009 came to a close.
The final numbers won’t be available till later this spring, and there are differences in the estimates, but one thing was consistent. Everyone’s projections point down.
The media consulting firm BIA/Kelsey Group (the primary estimator of total revenues) estimated in December 2009 that industry revenues for the year would fall 22% from 2008 to $16.1 billion. That would come on top of a 4% revenue decline from 2007 to 2008.
It would also represent a drop of 25% from the previous non-election year, 2007’s $21.5 billion.
Local Television Revenue, 2003-2010
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Source: BIA/Kelsey Group
Revenues at local television stations come from four main sources. Three of the four — station websites, retransmission consent and mobile – have all exhibited slow but steady growth in recent years.5 (Click here to read about digital trends in local TV.) But together these three categories are expected to account for less than 10% of station revenues through at least 2011.6
And the fourth, on-air advertising, —representing nearly $9 out of every $10 of revenues, is falling.
It was this last category that took the hardest hit in 2009. Broadcast television’s trade group, the Television Bureau of Advertising, reported that for the first nine months of the year local TV advertising was down 27%.
The declines were due in part to a projected 43% decline in auto advertising, the most important ad category for local TV station owners.7 In the first nine months of the year, auto advertising was down 52%. (The fourth biggest category, ad spending from car dealers, was down 39% in the same period.)
As recently as 2006, auto advertising represented 31% of all advertising on local television. By 2009, that percentage dropped to 19% as carmakers reeled from big drops in sales and the bankruptcies of General Motors and Chrysler.
|Year||Share of Total Advertising|
|2009 (first half)||
|2008 (first half)||
Source: TNS Media Intelligence; Television Bureau of Advertising
Carmakers and dealers were not the only ones to cut their budgets in 2009. Revenue was down sharply from 24 of the top 25 categories of local television advertisers in the first nine months of the year. Ad spending from prescription, medication and pharmaceutical advertisers, for instance, was down 35%, home centers and hardware stores down 26% and furniture stores down 24%.8
There is some disagreement on the economic outlook for stations in 2010. Some analysts predict further losses, although at a lower level. One media economist, Jack Myers, of Myers Publishing LLC, for example, projects local television revenues will drop 7% more in 2010.
A December 2009 projection from BIA/Kelsey Advisory Services expects revenues to increase 4% in 2010.9 After big drops in 2008 and 2009, BIA/Kelsey projects local TV revenues to level off over through 2013.
But a late projection by Magna, a unit of the Interpublic Group, in January 2010 predicts local TV ad spending to decrease by 1% in the year.10
But even in 2012, the next big year for local TV, with a summer Olympics and a presidential election, BIA expects revenues to top off at just $17.7 billion. That would be 14% lower than 2008, the previous presidential election-Olympics year, and 22% lower than the peak for local TV in 2006.11
Local spot ads are bought exclusively by local advertisers and only run in a station’s market. For example, when a local Ford dealer buys ad time in its local market, it is local spot advertising.
National spots are bought by companies that wish to advertise in several – but not all — markets at once but do not need to buy commercials on national television networks. For example: when Ford advertises its latest model in some markets, it is a national spot advertisement.
Local spots normally account for 55% of all station advertising revenue and national spots the remaining 45%.
The economic downturn made revenue forecasting, already a combination of art and science, even more difficult for 2009. Veronis Suhler Stevenson’s latest, as of August 2009, projected local spot to decline 14.8% and national spot 13.5%.
Source: Veronis Suhler Stevenson, 2009-2013 Communications Industry Forecast. Television Bureau of Advertising projections listed are the midpoint of the projection range.
The disparity between projections for local spots suggest that category of advertising may have been down more than expected.
Even when the economy starts to turn around, forecasters predict less growth for local on-air TV spot revenue. The reason is that competition in local markets is growing, especially from local cable advertising.
In return for carrying the channels on their distribution systems, cable companies are allowed to pre-empt a portion of the spots delivered from channels’ satellites with their own local spots. Advertising on cable can be even more targeted than spots on local on-air television. For instance, businesses can reach younger viewers on channels such as MTV, women on Lifetime or African Americans on BET.
This ability to target ads on individual cable systems, at generally lower ad rates, has caused marketers to shift some spending away from local television stations.12
Spending on local cable spot advertising grew nearly 60% from 2002 to 2008 and even had 2% growth in 2009.
That growth increasingly came at the expense of local TV. In 2008, cable providers received $43 for every $100 of local TV spot ad revenue. In 2009, that figured was expected to have increased to $50.13
|Year||Broadcast Local Spot||Cable Local Spot|
Source: Veronis Suhler Stevenson, 2009-2013 Communications Industry Forecast
And analysts expect local cable ad revenue growth to outperform that of local broadcast TV for years to come. From 2008 to 2013, Veronis Suhler Stevenson projected that cable local ad revenue would increase at a compound annual growth rate of 5.9%. Local broadcast ad revenue, by contrast, was projected over the same period to decrease at a compound annual rate of 4.5%.
One bright note for local television in 2009 came in political advertising. Normally, political advertising in non-election years is a negligible source of revenue for local television stations.
Not anymore. According to the Campaign Media Analysis Group, part of the ad measurement company TNS Media Intelligence, political ad spending was higher than expected in 2009. Evan Tracey, the chief operating officer of the media research firm, told PEJ at the end of 2009 that political ad spending would end up totaling about $970 million for the year.14
That was $85 million more than his group projected in a joint forecast with the Television Bureau of Advertising in September 2009. And it was more than double that of the last non-election year, 2007 at $481 million.
The main factor that pushed up political television spending in 2009 was issue advertising. Policy debates over issues like health care legislation sparked new advocacy advertising. Most of this came from interest groups on either side of a policy debate. Tracey estimates issue ads accounted for about $650 million, compared with $320 million from election campaigns.15
|2009 (est.)||$1 billion||2010 (proj.)||$2 billion to $3 billion|
|2007||357 million||2008||1.5 billion|
|2005||479 million||2006||2 billion|
Source: Campaign Media Analysis Group/Television Bureau of Advertising
In 2010, political spending is likely to increase as 37 governors, 38 senators, and the entire House of Representatives will be elected. Heading into the year, Tracey’s group estimated total political spending of between $2 billion and $3 billion, but that was before the Supreme Court struck down many campaign finance limits, something that could result in even more lucre.16
But not all the gains will accrue to local TV stations. Candidates and issue groups have shifted some of their spending to local and national cable, and forecasts suggest that trend will continue.
What does all this mean at the level of the individual local television station?
Numbers for total revenue by station, as opposed to overall spending across the industry, reveal that not all stations are affected equally. On average, stations in larger markets are suffering proportionally greater declines than those in smaller markets, according to figures from 2008, the most recent available.
One reason for the steep declines may be that large markets tend to offer more options to advertisers, including local cable and broadcast outlets as well as online platforms, community newspapers and magazines. Advertisers in small markets who want to advertise on news platforms generally have fewer choices. And smaller stations, which have never had the luxury of relying on national advertising, may have simply been more nimble in responding to local advertisers.
Another factor may be that local merchants and service providers have stopped advertising or cut back sharply as the economy worsened. This may have been amplified in larger markets, where commercial spots are more expensive than in smaller markets.
Looking across the whole landscape of TV, the average station with a local news division saw revenues fall 27% in 2008, according to PEJ’s analysis of BIA/Kelsey Group data for 848 local television stations.17
This follows average per-station earnings declines of 13% in 2007.
And the bigger the stations, on average, the tougher things looked. Those in the top 15 markets, for instance, fell 22%. That was twice the rate of those in smaller markets.
|Market Grouping||Average Revenue (2006)||Average Revenue (2007)||Average Revenue (2008)||Percentage Change,
2007 to 2008
Source: MediaAccess Pro, BIA/Kelsey Group
Average Station Revenue
1995-2008, Average Across All Stations That Produce News
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Source: BIA/Kelsey Group
When average revenues are adjusted for inflation, the figures paint an even more dire picture. The typical station has lost 30% of its revenues since 1995, the first year for which comparable data are available.
Source: RTNDA/Hofstra University Survey
Based on survey responses of news directors
Even in this difficult terrain, however, news continues to be very important in the economics of local television.
On average, each station made about 44% of its revenue from news broadcasts, according to a 2008 survey of news directors by the Radio-Television Digital News Association.18
The figure is increasingly significant when considering the average television station that produces news airs an average of just 4 hours and 36 minutes of news per weekday. Advertising from the rest of the day — more than 19 hours — represents the remaining 56% of revenues.
The proportion of revenues from advertising on news broadcasts in 2008 is slightly lower than the 45% year before, but within the same range as responses in recent years.
Local TV News Profitability at Stations
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Source: RTNDA/Hofstra University Surveys
More than half (53%) of all news directors surveyed said their stations were making a profit on news. This figure decreased slightly from the previous year (55%). Yet what is more significant is there is slight downward trend since 2003. Local news continues to play a critical role in local TV financing.
1.“BIA/Kelsey Expects TV Station Revenues to End Year Lower Than Anticipated; Levels Last Seen in 1990s Predicted Through 2013,” BIA/Kelsey Advisory Services, December 23, 2009.
2. Television Bureau of Advertising, “2009 TV Ad Revenue Figures, Top 25 Local Broadcast TV Categories, Jan.-Sep. 2009,” December 18, 2009.
3. Television Bureau of Advertising, “2009 TV Ad Revenue Figures, Top 25 Local Broadcast TV Categories, Jan.-Sep. 2009,” December 18, 2009.
4. “$1B In Political Spending Possible in 2009,” TV NewsDay, May 14, 2009.
5. Veronis, Suhler, Stevenson, 2010 Communications Industry Forecast, August 2009.
6. Television Bureau of Advertising, “Forecast Conference: A Look at 2010,” September 10, 2009.
7. Diane Mermigas, “TV Station Revenue Crisis: Mind the Gap,” MediaPost Blogs, July 6, 2009.
8. Television Bureau of Advertising, “2009 TV Ad Revenue Figures, Top 25 Local Broadcast TV Categories, Jan.-Sep. 2009,” December 18, 2009.
9. “BIA/Kelsey Expects TV Station Revenues to End Year Lower Than Anticipated; Levels Last Seen in 1990s Predicted Through 2013,” BIA/Kelsey Advisory Services, December 23, 2009. An earlier projection by the Television Bureau of Advertising estimates indicates that revenues will grow in the range of 3% to 5% in 2010.
10. Deborah Yao, “Forecaster Boosts US Ad Revenue Outlook for 2010,” The Associated Press, January 19, 2010.
11. “BIA/Kelsey Expects TV Station Revenues to End Year Lower Than Anticipated; Levels Last Seen in 1990s Predicted Through 2013,” BIA/Kelsey Advisory Services, December 23, 2009.
12. Veronis Suhler Stevenson, 2009-2013 Communications Industry Forecast.
13. Veronis Suhler Stevenson, 2009-2013 Communications Industry Forecast.
14. Evan Tracey, e-mail communication with PEJ, December 1, 2009.
15. Evan Tracey, e-mail communication with PEJ, December 1, 2009.
16. Evan Tracey, e-mail communication with PEJ, December 1, 2009. The Campaign Media Analysis Group expects local TV to take in about 70% of all campaign ad spending in 2010.
17. The Project uses BIA/Kelsey Group’s MediaAccess Pro database to calculate station revenue; the last full year for which data are available is 2008. Since there are hundreds of local television stations in the U.S., the report (like previous ones) short-lists those that have news directors (to see if they produce local news) and are commercial and viable. Spanish-language stations are not included. The exact tally of stations cannot be the same every year since stations constantly change ownership or shut down or both, and news divisions are not permanent features of local stations and may be added or removed.
18. Figures from the 2009 survey probably will be previewed in April 2010, with full data released a few months later.