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Overview

A Day in the Life of the Media


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Economics

By the Project for Excellence in Journalism

Analysts were divided over what direction TV stations’ revenues would take in 2005. Coming off a presidential election and Olympics the year before, a flat or slightly down year would be typical for the industry. That could be even more pronounced given that the 2004 election-year revenues had exceeded expectations, hitting record levels.

But there was something more ominous in the numbers as well. The data also show that news contributed less than before to station revenues — and that newsroom profitability in 2004 hit an all-time low.¹

2005 Projections

Over all, the forecasts for 2005 were modest for what remains an enormously profitable industry, with its pre-tax margins of 40% and even 50%.

Veronis Suhler Stevenson, a market research firm that analyzes media, projected that total advertising revenue for local TV stations would rise just slightly, to approximately $26 billion, in 2005, up 1.6% from $25.6 billion the year before. Local advertising would make up $14.8 billion of the total, while national spot advertising would be approximately $11 billion. That would represent a 1.8% growth year to year for such national advertising, and slightly less, 1.4%, for local.²

TV Station Advertising Revenues
2003 - 2005, All Figures in Billions of Dollars

Year	National Spot	Local Spot	Total
2003	$9.9	$13.5	$23.4
2004	$10.9	$14.6	$25.6
2005 (est.)	$11.1	$14.8	$26.0

Source: Veronis Suhler Stevenson 2005-2009 Industry Forecast, p.232

Projections by the other major market research source for the industry, the Television Bureau of Advertising (TVB), however, were for a downturn. As of June 2005, TVB’s analysis of TNS Media Intelligence/CMR’s estimates for the top 100 markets indicated that local broadcast TV’s revenues were down 4.3% for the first quarter compared to the year before. By January 2006, TVB indicated that 2005 third-quarter local revenues were down by 11.7% compared to 2004. The drop was attributed to the fact that the core business growth that was supposed to counteract the lack of political advertising did not materialize. The biggest drop in advertising was in political spending, down by more than half from 2004.³

Still, the local TV business continued to be a lucrative one. To get a clearer sense of that, it is useful to break down the revenue sources of local television by looking at the last year for which complete data are available, 2004.

Revenue in 2004

The campaign and Olympic year of 2004 was a good one for local TV station revenue.

It grew by more than 9%, according to data from BIAfn of 756 local TV stations across the country, from approximately $23.5 million to $25.6 million. That was a big improvement over 2003, when station revenue declined year to year (by 1.7%) from $23.9 million to $23.5 million.⁴

Financially, big markets dominated. According to the BIA figures, the top 25 markets earned 60% of the total revenue of all markets.⁵

Advertising Revenues

The bulk of revenues that local stations generate come from advertising sales, so much so that this figure alone offers a good indicator of a station’s economic health. (Other components of station revenue include trade and barter, production and promotional revenues).⁶

The long-standing rule of thumb is that even-numbered years are better for the local TV business. This is known as the even-year feast, odd-year famine cycle. The rule is tied to the fact that inevitably, more spending occurs during the Olympics, political campaigns and (most lucrative of all) presidential election campaigns.⁷

Advertising revenue comes from two major sources for local TV stations: national and local spot advertising.

National spot advertising accounts for approximately 45% of local television revenues. Companies that want to advertise in many parts of the country, but not all, purchase such ads. Companies that want to reach, say, the New England and Gulf Coast regions need multiple-market advertising, but don’t need advertising on national networks. National spot advertising, then, helps advertisers reach the specific areas they want to reach, and is a cheaper option than the broadcast networks.

Local spot advertising is placed by companies that are in the same market as the station. As an example, local car-dealers or service professionals buy local spots targeted to their specific clientele (this could be as specific as one county). Local spots bring in about 55% of station revenues.

According to the latest figures, 2004 proved the even-year adage by bringing in a bounty of revenue for local stations.⁸ Advertising revenues (the sum of national and local spots) increased over all by 9% to $25.6 billion. Unprecedented political advertising, particularly in the congressional races, fueled the spike. The national spot market benefited most, growing 10% to $10.9 billion in 2004. The local spot market wasn’t far behind, boosted by automotive, financial and real estate advertising. It grew 8.5% to $14.6 billion.⁹ Veronis Suhler Stevenson had forecast (in 2004) national spot and local spot growth of 8.5% and 6.8%, respectively.¹⁰

Other market research agencies confirmed the pattern of growth and ebb in revenues. According to the Television Bureau of Advertising (TVB), local TV ad revenue grew by 12% in the top 100 markets in 2004. It put the figure at $18.3 billion (1% better than the bureau’s 10-11% forecast). Further, the bureau noted that all of the top 10 advertisers in local broadcast, nine of which were the major automotive companies, posted increases in 2004.¹¹

TVB also released its forecast for the television industry’s next two years at its annual Forecast Conference in September 2005. According to its projections, total spot revenues would grow between 6.1% and 7.9% in 2006. Local spot was projected to grow between 2.9% and 5.1% and national spot by 10.5% to 11.7%.¹² If growth matches the projections, it would be in line with the odd-even-year cycle of local advertising. But the fact that the projections are more modest than those for previous even years may be a cause of concern for the local market — especially with the added threat of local cable.

Local Cable Advertising

Traditionally, cable systems were confined to national advertising, but that has changed over the last few years. Factors such as consolidation of markets and new technology have enabled cable systems to carry the same advertisement on a group of systems at once.

And local cable advertising has been flourishing. According to the latest Veronis Suhler report, it grew at an annual compound rate of 10% from 1999 to 2004. For 2004 to 2009, it is projected to grow at a rate of almost 15%. By comparison, local spot ad revenue for local broadcast stations grew at a rate of 3% annually from 1999 to 2004 and is expected have an annual compound rate of growth of just 3.8% until 2009.¹

Growth of Local Spot Advertising vs. Local Cable Advertising
2000 - 2008, Percentage Growth

Year	Local Spot	Local Cable
2000	6.8%	15.9%
2004	8.5%	19.6%
2008 (est.)	6.8%	14.4%

Source: Veronis Suhler Stevenson 2005-2009 Industry Forecast

One reason for the increased profitability of local cable is the growing number of “interconnects.” The term refers to linkages that multiple cable systems have formed to allow advertisers to air ads simultaneously across all participating systems in a TV market. Interconnects represent a challenge to local broadcast station revenue in part because they can offer rates that are a fraction of what individual stations charge; the cable systems make money by aggregating their revenues from ads on some 30 or 40 different channels.

The impact that the interconnects will have on local station economics will become clearer in 2006, but it is bound to become a more important consideration for local TV economics in the years to come.

Newsroom economics

While local stations made money in 2004, how much was the newsroom contributing to the growth? According to data, not as much as it used to. The latest results, such as those of the Radio-Television News Directors Association (RTNDA/BSU) survey, presented a cautious economic picture for local news in 2004.¹³

The survey found that the amount newsrooms contribute to total revenue saw roughly a three percentage-point decline in 2004. For the year, news accounted for 42.8% of station revenue, down from 46.1% the year before.¹⁴

Percentage of Station Revenue Produced by News
2002 - 2004, All Stations

Year	Average Percentage
2004	42.8%
2003	46.1%
2002	39.7%

Source: RTNDA/Ball State University Surveys. Based on survey responses of news directors

According to the survey, news divisions in the top 25 markets contribute less of total revenue than those in smaller markets. That is slightly deceiving, however. Most of the difference might be coming from the independent stations in the top 25 markets that produce news, including Spanish-language stations. While there are no hard data to support that, it is worth considering that their contribution would be much smaller than that of the stations affiliated with the four top networks.

The most striking finding of the survey was that “news profitability” (i.e., newscasts that were making a profit) hit an all-time low in 2004. The report showed that the number of news directors reporting a profit fell by almost 14 percentage points from the previous year. Of the 1,223 stations that participated in the survey, only 44.5% of the news directors reported that they earned a profit. This was down from 58.4% from the year before.

Local TV News Profitability

All Stations, 1996 - 2004

Design Your Own Chart

Source: RTNDA/Ball State University Surveys

Based on survey responses of news directors

The percentage of profitable newsrooms began to decline after 1997, when two thirds of news directors said they were showing a profit. By 2001 and 2002, just over half were doing so. On the other hand, comparing 2004 with the last eight years, there’s been a jump of approximately 21% in the number of stations that say they are losing money. Indeed, the number of news directors reporting a loss in 2004 was the highest the survey has ever recorded, at 12.1% (the previous high was 11.2% in 2002).¹⁵

The differences in profitability between the network affiliates are striking. Over the last two years, the highest percentage of stations reporting a profit were those affiliated to the Fox Network. The percentage rose from 63% in 2003 to 67% in 2004. ABC affiliates, on the other hand, were the least likely to show a profit, down to 44.1% from 64.9% in 2003. ABC’s numbers seem to be a reflection of its poor performance during prime time (link to Network TV Audience). But the past two years have been a difficult time for local news in general, with a number of local newscasts being canceled because they failed to build a sufficient audience.¹⁶ The Sinclair Group, one of the largest TV station groups in the U.S., seemed to be getting out of the news business in 2005. It shut down news operations in Birmingham, Pittsburgh and Milwaukee, and there were reports that it might do the same in other cities.¹⁷

If we look at profitability by market size, the largest and the smallest markets seem to perform similarly, with a third of each reporting profits. The markets in the middle were more profitable. But again, independent stations and/or Spanish-language stations tend to be concentrated in the large populations centers. Separating their results from those of the four big networks’ affiliates would dramatically change the numbers. It could also account for the anomalous fact that the top 25 markets show a profit rate lower than the smaller markets.

Newsroom Profitability by Market Size
2003 vs. 2004, All Percentages

	Reporting Profit		Breaking Even		Reporting Loss
	2003	2004	2003	2004	2003	2004
Mkt 1-25	47.2	37.8	16.7	35.1	19.4	16.2
Mkt 26-50	60.6	48.9	6.1	19.1	12.1	12.8
Mkt 51-100	63.1	51.4	12.3	23.6	6.2	11.1
Mkt 101-150	64.1	45.9	7.7	19.7	6.4	9.8
Mkt 151+	47.4	33.3	10.5	27.1	7.9	12.5

Source: RTNDA/Ball State University Surveys. Based on survey responses of news directors

Conclusion

In the universe of newsroom profitability, the data show three worlds: The rich generally are those in the top 25 markets. The poor, although that term may be a relative one, are the bottom 151. And a lot of stations are in between. While the majority of news directors recorded profits, the middle-tier stations — markets 51-100 — were also showing greater losses that the previous year (6% to 11%), and those are numbers that emerged during the robust year of 2004.

The message here may be that newscasts that are on the fringes of viewership — the sixth, seventh or eighth-ranked local news stations in the largest markets and the fourth, fifth or sixth-ranked stations in medium markets — are in jeopardy.

Click here to view footnotes for this section.

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Hispanic Media & News

Hispanic television had a good year in 2005. Spanish-language and cable television stations gained more than other media in advertising spending, over 10 percent, highlighting advertisers’ shift to formats that allow them to target people with specific interest.¹⁸ The growth in viewership has attracted advertisers and generated notable revenues for the nascent medium. According to BIA Financial Network estimates, the growth rate for stations affiliated with Spanish-language networks (like Univision, TeleFutura, Telemundo, and TV Azteca) outpaced the growth of the overall local TV market. Established local TV stations affiliated with these Hispanic networks increased advertising revenues by 9.5% in 2004 (outpacing the growth of the entire local TV market by 2 to 4 percent). Further, BIA reported that the number of local television stations affiliated with the major Hispanic networks had increased by over 56% in the last five years.¹⁹

Moody’s Investors Service issued a report in October 2005 that noted the tremendous growth of Spanish media. It predicted that over the next several years, most growth will likely accrue to media that target growing populations like Hispanics. Companies that are already leaders in the Spanish media market, such as Univision and Telemundo were predicted to achieve above-average growth over the next decade. The report also noted that some mainstream media companies are venturing into the Spanish-language arena to “at least partially mitigate stagnation” in their English-language businesses.

Over the last decade, advertisers have increased spending in Spanish-language media from $1.2 billion to $3.2 billion. That is still only 5% of all advertising spending in the U.S., suggesting that higher spending levels are likely since Hispanics (most of whom, polls show, get at least some of their news from Spanish-language outlets) are now the largest minority group in the country.²⁰

And the Spanish news media are benefiting from the overall growth. Across the country, Spanish-language TV news is gaining viewers and attracting advertisers.

The two biggest names in Spanish-language television are Univision and Telemundo. Univision (along with its second network, Telefutura) owns and operates 62 stations and has duopolies in 15 markets. All of its full-power stations broadcast local news twice daily, and many of them offer news on the weekend. NBC Universal’s Telemundo group has 15 owned and operated stations and 1 independent station. All but two of them broadcast local news, and many are expanding into new parts of the day like early morning and weekends).²¹

Though the two Spanish-language broadcasters dominate the audience, they face growing competition not just from other Spanish-language networks such as Azteca America but also from the English-language broadcasters, who are also looking for ways to tap into the growing Hispanic audience.²² In 2005, ABC began offering its entire primetime lineup in Spanish — either dubbed or close-captioned. NBC Universal was working to improve its distribution of Telemundo and concentrating on owning and operating stations in areas with a growing Hispanic population. In January 2006, in fact, it sold four if its small stations and sought more duopolies of NBC and Telemundo stations.²³

Indeed, in the largest Hispanic markets, Spanish newscasts, which benefit from a relative lack of options for Spanish-speakers, are edging out their English counterparts in ratings. In August 2005, Univision’s evening newscast was No. 2 among the key 18-to-49 demographic in New York , the nation’s largest market. In the same month, the Spanish prime-time and late newscasts did better than the English ones in both Miami and Los Angeles.²⁴ There was a rapid proliferation of Spanish-language newscasts across the nation during the year.²⁵

In August of 2005, the NewsMarket, a leading online platform for aggregating and distributing video content over the Internet, said it had experienced a sharp rise in the number of journalist registrations and media requests from Hispanic news outlets in the U.S.²⁶

DIGITAL TV

Since the passage in 1996 of a new Telecommunications Act, all of the country’s television stations have been allowed to reach their viewers by “multicasting” on as many as six channels — simultaneously. Investment in this new digital technology, though a lot of effort, also means the eventual end of the conventional analog, one-channel version of television (See more on multicasting in Cable TV News Investment) .

Some stations took advantage of the new rules by providing more coverage of local events (e.g., WRAL in Raleigh uses its digital spectrum to air high school basketball and community board meetings). Others formed partnerships to provide specific services (e.g., some NBC affiliates were participating in a 24-hour weather-only channel; ABC News Now provided expanded ABC News reporting to the network’s owned and operated stations).

But over all, the switch to “multicasting” has created upheaval in the local television landscape.

Many local stations are worried that they may not be able to take advantage of new revenue streams unless there is a mandate that cable systems carry every channel the local stations transmit. Thus, broadcasters are fighting with cable systems over how the channels will reach the public. The National Association of Broadcasters (NAB), a powerful Washington lobby, wants the FCC to decree that local cable companies must carry most of the broadcasters’ multicast channels. The cable companies, represented by the National Cable Television Association (NCTA) argue, on the other hand, that the government shouldn’t be telling a major industry what it can or cannot do. So far, the broadcasters have been unlucky at the FCC, which ruled against two types of “must carry” regulations in February 2005. One version would simply have required cable systems to carry two channels from every local station; the other would have required them to carry every channel from every local station.

TV stations warned that there was no incentive for them to develop additional channels if cable systems aren’t required to carry them, and basically argued that the FCC was stifling local initiative. The cable systems argued that the FCC shouldn’t make cable systems carry programming they don’t want to carry.

In February 2006, President Bush signed into law legislation that sets February 17, 2009 as the official shut-off date for analog TV transmission. But this is the second time a shut-off date has been set (the first was to be 2006) and there is always a chance the date could slip again.²⁷

The arguments between cable and broadcast, and the question over where the FCC’s authority lies, could heat up as the 2009 deadline for TV stations to turn over their old analog spectrum moves closer.

Research groups such as Points North Group and Horowitz Associates warn that the federal government’s push for digital television by 2009 will wreak havoc with TV customers. They say that the 55 percent of TV homes that have cable have no digital signal — and do not intend to get it.

In U.S. homes, while the primary TV set may be connected to a digital set-top box, second and third sets in the home don’t necessarily have such boxes. Instead, those TVs get cable signals directly from coaxial cables that run into homes. That represents about 67 percent — or 180 million television sets — in the U.S. Who is going to pay for the extra box that you are going to need? Senior analysts ask. Will the cable company be forced to give you a box?

Digital signals will be given free to the private sector. But analysts say that not all broadcasters are ready to spend the money to abandon analog and switch to digital — especially in the short span of three years, as required in the law’s time frame. And cable operators could be adding to the confusion. Right now, only 25 percent of cable subscribers have digital set-top boxes.

The changeover also involves tough political questions, since it is argued that by and large, those losing TV service will be the low-income households that can’t afford to switch. And politicians, with an eye on the midterm and general elections before 2009, might want to hold off on any important decision on the end-date of the digital switch.

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