by Matthew L. Schafer
Note: This report originally appeared in the media blog Lippmann Would Roll.
The economic downturn hit many television broadcasters hard. Under the massive deregulation of the Republican led Federal Communications Commission, broadcasters were allowed to expand their audience reach over 35%, buy up newspapers, and enter into agreements allowing the consolidation of multiple television stations under one roof. Unfortunately, broadcasters took advantage of the situation, and overextended their businesses leaving some with billions in debt.
The increasing consolidation put stations in such a precarious position during the economic downturn that an annual report on the state of the media said that "the question about local TV economics in 2009 was not whether it was bad year but how bad." Those close to the industry told Lippmann Would Roll the loss came after broadcasters bought up stations with large loans while expecting pre-downturn revenues to continue. They didn’t.
Many of the same broadcasters that overextended themselves are now urging the FCC to further deregulate the industry, arguing that the outlook for local TV is dire if they are not allowed to expand. LIN Media, Nexstar Broadcasting, Gray Television, Belo Corporation, Sinclair Broadcasting, and Media General all submitted comments advocating deregulation to the FCC in relation to the congressionally mandated review of media ownership laws.
Fortunately for the broadcasters advertising revenues are looking up. CNN recently called a projected $4 billion injection of advertising revenue a "feast" for media companies. Broadcasters have already seen increases in advertising revenues. LIN Media saw advertising revenues increase in automotive, retail, restaurants, and services. Some increased up to 51% over last year. As a result, LIN Media is projecting an increase in revenue of up to 33% in the third quarter of 2010.
Belo Corp., which posted $13.5 million in net income in the first quarter of this year up 52% from the same time last year, attributed its rise in profit to advertising. While citing increases of 17% in spot advertising revenue as cause for the almost $6 million dollar increase in profit, Belo told the FCC that the competition for advertisers was reason in part for further deregulation.
"Given these financial and competitive challenges, Belo submits that it is critically important for the FCC to update its local broadcast ownership rules to enable broadcasters to play on a more level playing field with their competitors," Belo’s counsel wrote.
Despite strong advertising revenues across the board, many broadcasters in addition to Belo are telling the FCC that deregulation of media ownership is necessary to help them overcome difficulties in earnings on advertising.
Gray Television also saw an increase in advertising revenues, which drove its net revenue up over $70 million despite posting a net loss of $4.7 million. In its first quarter earnings call, Gray said the increase in revenue "has really been driven by increases in each and every of [our] advertising categories."
In its comments to the FCC, however, Gray said the broadcast industry needs deregulation, in part, because "…competition for advertising dollars has increased exponentially, threatening the single revenue stream on which broadcasters have long depended."
Gray was not alone in bringing to light supposed difficulties in selling advertising with so much competition from the Internet and other competitors. Sinclair Broadcasting, which posted a net income of 11.5 million in the first quarter of 2010, said that "television advertising continues to improve with many categories growing year-over-year." Eight of their top ten advertising categories were up. Despite the increases, Sinclair painted a different picture in its comments to the FCC.
"In reality, local broadcasters face intense competition for viewers and advertisers from a vast number of sources," Sinclair’s counsel wrote.
It appears that broadcasters are relying in part on past declines in advertising revenues to support further deregulation of the industry, but currently advertising revenues are rebounding at impressive rates as evidenced by the revenues referenced above. When one looks closer at the income statements released by these media companies, it is evident the problem with their bottom line has less to do with advertising revenues than with servicing the debt that these companies have already accumulated.