TV and Radio Broadcasters 'Playing It by the Day,' During COVID-19

Advertising is a volatile business, and ad purchases can change without much notice, said Moody’s Vice President-Senior Analyst Christian Azzi. “It is such a shifting ground.” The pandemic has hit TV and radio financially, but radio’s situation is worse, said Pollack Broadcasting CEO William Pollack, who owns both radio and TV stations. “We’re playing it by the day.”

Nearly every broadcaster said on Q1 calls that Q2 will be bad for the industry. “We expect the steepest declines in spending to occur in the second and third quarters of 2020 before there is a modest improvement in the fourth quarter,” said S&P Global emailed investors.

Television is doing better than other mediums because it has access to a non-advertising based, predictable income stream in retransmission consent, said Noble Capital Markets analyst Michael Kupinski. TV stations are enjoying a huge increase in viewership, said Azzi: “People are at home spending all their time with their TVs on.” That’s a positive for such outlets, but the ad dollars that would ordinarily flow from the increase in impressions aren’t there because of the COVID-19 shutdowns, analysts and others said.

Stations have “a fixed level of inventory,” but demand is much lower, causing falling ad rates, said Nexstar CEO Perry Sook during a call last week. “Typically, higher viewership would give broadcasters the leverage to seek increased advertising rates. But, not when there is low advertising demand,” said Kupinski in a report on media ad revenue subtitled “The Dust Has Yet to Settle.

Gray Television, Nexstar, Scripps and Sinclair emphasized the “visibility” into future earnings provided by their retrans venue, unlike their ad income. However, nearly every TV and radio group has withdrawn prior forecasts and quarterly guidance because of COVID-19, analysts noted. “Of course, we can’t know the full impact of COVID-19 at this time,” said Scripps Chief Financial Officer Lisa Knutzen on the company’s call Friday. Retrans has climbed to become over 50 percent of TV station revenue, said Kupinski. “This growing revenue stream should provide a ballast to TV broadcast company's revenue and cash flow,” said Knutzen.

TV stations are expected to be bolstered by political commercials, which hardly stations expect don't expect to be adversely affected by COVID-19. Since the pandemic is expected to discourage political rallies, campaigns could rely on TV ads even more, broadcasters said. Since the bulk of political ad money comes shortly before Election Day, the pandemic's effects haven't been seen yet, said Sook. Kupinski cautioned that political ad dollars could take a hit since companies and individuals may have less money to donate due to recession. TV stations traditionally get a bigger boost from political ads than radio, Kupinski said.

Radio is “clearly a challenging sector,” said Scott Van den Bosch, radio analyst and Moody’s senior credit officer. Neuhoff Communications CEO Beth Neuhoff told us she knows of radio groups down as much as 90% in advertising because of COVID-19, though she and analysts said roughly 50 percent is more common. Radio is being hit doubly hard by a drop in ads and cratering listenership due to commuters staying home, broadcasters and analysts said.

Corporate Changes

Companies are adjusting by trimming expenses and shifting programming, among other actions, we found.

CEO Bob Pittman said on a call last week iHeartRadio shifted timing of morning shows to keep them compatible with a listenership that isn’t commuting. “People aren’t jumping in their cars at 6 a.m. anymore,” said Neuhoff, whose company took similar steps. Neuhoff and Pittman reported increased listening on digital offerings and on devices. Pittman said iHeart’s robust podcast and digital businesses made the company “well positioned for recovery.” S&P Global said robust digital offerings will also help Townsquare Media offset broadcast radio ad declines.

Radio and TV executives said the pandemic's effects vary depending on station locality. Neuhoff said stations in areas with most people remaining at home are seeing less ads than in open ones, but neither is “even close” to where it was before the pandemic. She said stations in Georgia -- which has reopened from COVID-19 restrictions and where there's a robust political primary -- are likely not hit as hard as other markets.

Many are cutting costs. Scripps CEO Adam Symson said the company froze hiring and walked back executive pay increases. Nearly every call contained similar comments. Companies seeking to hold on to their money and the uncertain environment could mean rampant mergers and acquisitions are unlikely this year, analysts said. Stations that sold now would have values depressed, discouraging sellers from going to market, said Azzi. Despite that, many CEOs said they remain interested in such deals.

Gray CEO Hilton Howell said on his call he expects the company to continue to grow through M&A. “Our company is not for sale,” he added. Companies are focused on liquidity during the crisis, said Moody's Van den Bosch, saying he doesn’t see any big delays on the horizon for radio.

Broadcasters and analysts differed in expectations of when the pandemic slowdown could end. No one can be sure how attempts to reopen will go, said Neuhoff. “We expect [the virus] to peak about midyear and anticipate that it will be followed by a U-shaped recovery in the second half of 2020,” said S&P Global. A long, slow recovery could be especially bad for radio, because it’s already perceived to be losing listeners and advertisers to digital, analysts said. The longer the slowdown, the harder it will be for the medium to regain listeners, said Van den Bosch.

In a worst case scenario of a "protracted weak economy, we believe advertising will not rebound until the first quarter of 2022,” Kupinski wrote. “In our best case scenario, advertising would grow in the second quarter of 2021.” Media investors "should be prepared for a weak advertising picture for a protracted period,” the analyst said. Scripps’ Symson said the consumer patterns caused by the pandemic -- such as increased news viewership -- could be good for TV long term. “The sun will inevitably rise on commerce seas,” Symson said.