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MediaTalk | Season 2 | Ep. 38 - Broadcast TV and radio outlook for 2024 and beyond

Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with S&P Global Market Intelligence Tech, Media and Telecom News Team. Welcome to "MediaTalk," a podcast hosted by S&P Global, where the news and research staff explore issues in the evolving media landscape. Today, we're going to be discussing the TV and radio station worlds and who better to bring us up to speed on what's happening in those realms than S&P Global Market Intelligence Kagan principal analyst Justin Nielson, who specializes in all things broadcast and many other things as well. How are we doing Justin? .

Justin Nielson: Doing well. Thanks, Mike. Thanks for having me back.

Reynolds: Okay. A lot to dive into with many dynamics in play. On the surface, 2024 is going to be remembered as a pretty good year for station groups from the advertising point of view, approaching a double digit advance. And, I guess that has a lot to do with political, Justin. So can you give us a little bit of sense for what S&P Global's Kagan's projections are for 2024 from the TV station side?

Nielson: Yeah, thanks, Mike. I, would say it started off as a pretty good year for the TV station ad business. You had a record viewing for the Super Bowl with the Chiefs winning, the whole Taylor Swift effect with the NFL playoffs, and you also had the return of scripted programming with the strike being resolved. And then coming into the summer months the big political ad influx with all of the Republican and Democratic conferences. And then coming into the second half and fall of this year, you've got a little bit more in terms of some of the major consumer products and brands pushing out advertising around the holidays. So it should be a really good year. Looking at it from the Paris Olympics and others, there's a lot of uptick in terms of specific stations and in specific markets. You had the NBC (US) and Telemundo affiliates. Then you also had in specific markets where they have hotly contested races. And really those swing states, as you probably well aware, you know are getting influx of political ads around the season. 

Reynolds: Sure. So all things being equal, Justin, I think it's about, you guys are looking at $25 billion this year.

Nielson: Yeah, about $25 billion. Of that, about $4 billion will come in from political. And then looking at it from the perspective of national and local is strengthening a little bit. You've got some more spending with some of the lower interest rate environment happening with some of the mortgage rates, as well as car interest loans.
So you should be seeing a little bit more in terms of that core ad spend, but on the national side, it's a little bit of a different story because a lot of that business from the major brands and the tier one automotive manufacturing is moving to digital and social media platforms.

Reynolds: Yeah, that's been the issue for a while now that the national, when I listen on some of the earnings calls, everybody says local is doing good or good enough or better than it had been going back to our friendly years during the pandemic, but national again is being diffused in many different ways. So we'll see if that trend continues. Is there, you had mentioned a political cycle a little bit here, and I think $4 billion, maybe $4.2 billion coming to the TV stations. Justin, expectations for that, was that where you guys sitting, going back to last year or things have increased in that capacity?

Nielson: I belive they have. It was a little slow to begin the year because we really didn't have a primary season. We had at the time Biden and Trump moving towards the nomination and then the switch up of Biden and Harris that happened right around the Democratic convention. Yeah, you have a lot more of that political spending that's happening in the second half of the year and exceeding some of our initial estimates maybe slightly.

Reynolds: And again, as you alluded to as well, there's some displacement there, but once we get past Nov. 5, hopefully things wind up for the stations and the industry on an upswing overall. Justin, can you talk about some of the categories that have been working on the local side?

Nielson: Yeah. Professional services for sure. In the local markets, the lawyers keep spending.

Reynolds: Oh, no doubt. It's every day.

Nielson: And in some cases retail, real estate may be coming back a little bit with some of the lower mortgage interest rates. Home improvement is coming back with lower interest rates. You get more equity lines of credit and stuff that may be moving the needle in terms of Home Depot's and Lowe's and those types of retailers. Yeah, I think positive signs definitely into the December kind of holiday season.

Reynolds: On the other side, obviously automotive has stoked the industry for decades. Seems to be up and down a little bit in the last couple of years. Where does auto stand? And maybe some of the other categories that haven't lived up to their traditional contributions.

Nielson: Yeah. Auto has been sluggish. Coming out of the pandemic, you had a supply issue. Those supply chain issues have abated a bit, but there was a big move into EVs from a lot of the manufacturers. That sales cycle hasn't materialized yet. There's still very high prices for some of these vehicles. The inventory levels have been rising. And, but now they're going to the more promotional boots on the ground, that type of local advertising that moves the inventory. So that's, that should be good for stations.

Reynolds: Yeah. Again, yeah, the push toward EV is fine and hopefully all works out. They just need more charging stations. That's an issue. That's an issue where I live, and I'm sure many other places as well. All right. If we look out, if we look out to the end of the decade, Justin, you guys have made some projections there up to 2029. I believe how to how things looking out for the stations.

Nielson: Yeah, on the current trends, we still see national declining, being softer than local political coming in and those even years breaking records every time it seems like then, and I don't see that abating. You see some shift to connect to TV and social media in certain aspects, but the bulk of it is still being placed on local TV stations just because of the footprints and then also the local news that's supporting that programming. And then, more down the road, the digital category has continued to tick up in terms of the ad share for TV stations. More is being done in digital marketing services and helping their clientele and their advertisers and around the digital realm.

Reynolds: Yeah. I think that's important for the stations. They recognize that people are on the go. If you can get your station out into your phone or on the tablet, as the case might be, there's money to be made there for sure.

Nielson: Yeah. And then you've got the expansion of the multicast channels with next-gen TV. So there's more inventory to be placed on local stations and yeah, it's probably a lower ROI in some of these multicast channels, but it gives them additional capacity, maybe at a lower rate.

Reynolds: Sure. Okay. Before we delve into radio, let's turn our attention to another key revenue stream for TV stations: retransmission consent. Those are the fees stations receive from distributors to retransmit their signals. Kagan Research, I think, found for the 11 broadcast groups the measure edged up a bit during the second quarter, but this is a revenue stream that is maturing, Justin? Yeah.

Nielson: It has matured, and you've got two factors in play. Maybe three. So the first one being the declines or the cord cutting that's happening on the traditional multichannel. So the cable, the satellites, and the telco video operators are seeing pretty drastic, especially for the satellite operators. And that was probably one of the reasons for the DIRECTV proposed merger, as they're seeing declines in their subscriber bases that are not tied to broadband packages, those kind of double and triple pay packages that cable operators provide. It's a little more sticky. But you're still seeing more contraction in traditional multichannel as opposed to virtual. So you've got the YouTube TVs, the Hulu with live TV, the DIRECTV Entertainment Holdings LLC Stream, and DISH Network LLC Sling and others that are actually seeing subscriber gains because it's a little bit more flexible. Consumers can subscribe during football season and unsubscribe, and they don't have to be tied to two or three-year contracts in some cases. But from a retrans feed perspective, the rates have increased in every cycle. We've been tracking that and up anywhere from high single digits to low teens in some cases on each one of these renewal periods.
The problem is, when you've got a declining subscriber base overall, that growth is not being materialized on the bottom line. So in most cases, you have a renewal that happens for a major TV station group. They have an uptick in the next year, and then that matures in the second and third year, and then potentially declines a little bit in that third year before the next renewal. And that's what has been seen in some of the reported earnings from the broadcasters. You've got great TV that's at the end of its cycle, a little bit of a dip in the third and second quarter. You've got Sinclair Inc. that's coming up against some renewals, so they're seeing a little bit of an uptick, say with Nexstar Media Group Inc., and then with The E.W. Scripps Co., kind of the same situation as Gray Television Inc. is that kind of at the end of some of the renewals and then looking forward in '25, '26, and '27, get those upticks.

Reynolds: Yeah, so it's like you said when those renewals kick in, the numbers look really good for the first couple of years. And then they, not that they dwindle, but they measure themselves back down. And then the cycle starts again. Exactly.

Nielson: And then that's going to be reflected in our retrans projections, which should be coming out shortly.

Reynolds: Okay. Okay. All right. We're looking at you guys. You mentioned Sinclair and Nexstar. Anything you can talk about in terms of the big four network operators in their O&O's? I think Paramount might have led the way there, Justin?

Nielson: Yeah, and in that case, it's the same situation where their renewals were coming up against some of these rate increases. And in the case of, let's say the last big disruption that happened with Walt Disney Co. and Charter Communications Inc., they were able to get the rates that they wanted, but they paired back on some of their programming and channels that were being distributed through Charter. So I think that's probably going to be a trend going forward where distributors are going to pair back on some of the cable channels, but broadcasting is still core to their pay TV packages, especially with sports and NFL and just basic programming from the major networks.

Reynolds: Okay. All right. Let's switch over to radio. A business, again, local and then the national players in terms of Spotify AB and others, like Sirius XM Holdings Inc. Justin, what's an overall assessment for the radio category?

Nielson: Yeah, not as rosy as TV. Probably because it's all advertising-based in most cases, and you have some off-air revenue in terms of live events and some of the community events that they support, but it's primarily advertising, and about 80% of that advertising is local. So it's very much based on their footprint and the local markets and how well they're doing. But yeah, from the national front, more dramatic declines in the national ad business over the past, let's say five to ten years. They never really rebounded from the pandemic, to be honest. Yeah, they came down from the high watermark in 2005 and 2006 during kind of the radio consolidation era and then have continually just bounced around low single-digit growth and then a major double-digit decline during the credit crisis of '08 and '09, the brief recession, and then COVID hit them again, and they just never really recovered in terms of their ad share. Also, new players came out with Sirius XM, and then you've got the music streaming services from Apple Inc. and Amazon.com Inc. and others that just took away some of that subscription and audience share from the local radio stations. And then there's the other aspect where radio is still fairly fragmented. There isn't a lot of economies of scale outside of, let's say, the major station group owners like iHeart and then Audacy Inc., which was formerly Entercom, and they went through the CBS Radio acquisition. Integrating those assets within the portfolio of stations has been a challenge. They're now exiting bankruptcy with a better balance sheet. There are some positive signs in the radio business. It's just that the advertising market just hasn't come back into that space.

Reynolds: I gotcha. And again, is it a mirror of the TV situation that local is stronger than national when we come to radio?

Nielson: For sure. And it's really regional in aspects. So you've got some markets that are growing, like in the Southwest or in the Atlantic, and you've got other areas that are a little bit more on the decline in terms of household growth and then just overall economic trends. So you see some kind of winners and losers in some aspects.
Reynolds: Since we're in the season, I'll ask a political lesser factor for radio than TV.

Nielson: Yeah, that's historically been the trend. They do get some uptick in terms of political. You probably are well aware in terms of the political candidate; they want to be seen on TV. But yeah, some of that is being placed on radio. It's mostly fundraising, to be honest. Call to action type of campaigns, propositions that come up, issue-based spending. So you'll get some of that, but at a very lower proportion than TV.

Reynolds: Okay. You would mention at the top when we first started talking about radio, it's mostly an advertising business, but there are a couple of other aspects that are coming into play. Okay.

Nielson: Yeah, the live event business coming out of COVID, music events and festivals. People wanted to get back out there and see live music. And that has been a bit of a catalyst for that category. That category grows on average anywhere from, in good years, maybe 5% to 6% and maybe 3% to 4% in off years. There has been a bit of oversaturation in terms of live events and just pricing for some of these live events. I know is going out to concerts with the family and stuff.
It's basically any live event has been almost double in price over the past few years.

Reynolds: Yeah, no doubt. No doubt. What are you guys looking at as I think the forecast period here again for the radio, like the TV's out to 2029 your sensibilities, sir, as we move out to the end of the decade.

Nielson: Yeah. Continuing trend, national declines, local up in certain years in certain markets. Overall revenue declines low single digits. We do see some leveling off in terms of those declines in the later years as digital becomes a larger share of their business. Right now it's anywhere from 8% to 10% of their business could top 15% to 20% over the course of that time. You've got, we didn't really talk about podcasting, but podcasting has been a growing business line for radio, getting their talent in kind of an on-demand stream. 

Reynolds: That's both the local and nationally in terms of podcasting?

Nielson: Yeah. It depends. On the national side, maybe more for their network talent, and on the local side, you've got your sports talent, you've got your news talk. Some of those podcasts have been fairly popular in certain markets, but now they have to compete with some of these big names that are getting deals with Spotify and Amazon and others.

Reynolds: Sure. So as we look at it, revenue kind of moderating, decreasing slightly, but radio is still a good business. Why, Justin?

Nielson: Yeah, it's typically has been, if you're able to buy a station for cash with very little debt on the books. It's a fairly good cash flow business. Historically, cash flow has been about 30% to 40% in some cases.

Reynolds: All right. To get an even more in-depth assessment of the radio business today and tomorrow, Justin is going to be speaking at the Harvard Club in Manhattan on Nov. 13. Justin, can you tell us a little bit about the Forecast 2025 conference?

Nielson: Forecast 2025. It's always a great event, very high level. You've got radio and TV executives coming in to speak about the business. It will be from our panel's perspective, the morning panel. More outlook-driven. So, looking at the advertising business as well as the retrans revenue trends. And then just generally the media business overall is looking at it from an investment standpoint and then an operational standpoint.

Reynolds: All right. For those interested in hearing more from Justin and other notables, you can check out, just go to RadioTVForecast.com and you can find out more information and register as the case may be. But hey, we were lucky. We had Justin here first with us today, not only talking about the radio business but breaking down the broadcast TV world from both advertising and retrans content revenue perspectives. Justin, we appreciate it. Thank you, Mike. Always a pleasure. That concludes this episode of MediaTalk. Thanks to all of you for listening. We'll catch up soon on our next installment.