2005 Local Ad Market Takes Shape

What a difference a year makes. After a booming 2004, TV’s local ad market is expected to cool down in 2005.

Heavy election and Olympic spending powered this year’s ad market. If the estimates hold, local broadcast ad spending for 2004 will surpass 2002 levels, the latest growth year. Local and national spot sales will grow an estimated 10% to $17.9 billion in sales, according to the Television Bureau of Advertising (TVB).

Local cable, the chief competitor, is also pacing up, increasing 14% over last year to $5.3 billion in sales this year, according to the Cabletelevision Advertising Bureau.

The growth isn’t distributed equally across the station groups. The Athens Summer Games were a major contributor to local TV’s ad revenue, generating $285 million, according to TNS Media Intelligence/CMR. Gannett, which counts 13 NBC affiliates, pulled in $28 million in Olympic sales. Hearst-Argyle Television’s 10 NBC stations generated $19.5 million from Olympic advertising. NBC’s own station group posted an estimated $100 million in sales.

The Political Effect

But revenue from political money dwarfed the Olympic take. From January to October, political campaigns spent $1.2 billion on spot TV. Of that, $547 million was presidential money, according to TNS/CMR. The Bush and Kerry campaigns dumped money into 18 swing states, including Ohio, Florida and Pennsylvania.

In Cincinnati, local broadcasters raked in $25 million in presidential spending. In Philadelphia, stations booked close to $60 million. Station groups in geographically key areas, like Raycom Media, Hearst and Clear Channel, found the swing-state full-court press profitable.

Other big events also kick up 2004’s bottom line. CBS stations benefited from the Super Bowl, and last season’s Friends and Frasier finales were sales bonanzas for NBC stations.

In 2005, Everybody Loves Raymond will be the biggest series finale. Fox has the Feb. 1 Super Bowl, which will mean additional millions in ad dollars to Fox’s station group and companies with Fox affiliates, like Sinclair Broadcasting.

Forecasts for 2005 range from pessimistic to energized. There will be no Olympic money or political bonanzas until 2006. In a TVB poll of 18 investment banks and ad firms regarding their 2005 projections for national spot advertising, estimates range from down 10% to up 3%, excluding political monies. Local spot fares better, with forecasts calling for low-single-digit growth.

“With the amount of money that came in this year, that’s a pretty good rate,” says Jay Ireland, president of NBC Universal’s station group.

Harris Nesbitt media analyst Leland Westerfield says a primary question for stations is how much advertisers will shift spending from local broadcast to local cable.

Still, major categories, such as entertainment and restaurants, look strong for next year. Merging telecommunications companies—AT&T and Cingular, Sprint and Nextel, Bank of America and Fleet—are likely to mean increased advertising. “When companies go through mergers,” says Ireland, “they brand and expand.”

Most forecasts call for a healthy climate in 2005 in automotive, the biggest and most important category. Foreign carmakers, like Toyota and Nissan, have been particularly active in recent months.

“Excess supply causes tremendously aggressive marketing,” says TVB President Chris Rohrs. “That won’t change, especially when you add in that car companies have more and important new models to introduce.”

Yet, sales execs say, in many markets fourth-quarter auto and retail ads are soft. Advertisers displaced by election buys may not have returned in full force. If these key categories don’t rebound, it spells trouble for next year. “There has not been a bounce, and we need to see that,” says Craig Dubow, president and CEO of Gannett Broadcasting.

On the retail front, Westerfield says the category “will motor along with retail-sales growth up 3%-4%.”

New Ad Targets

Stations are also targeting pharmaceuticals as an emerging category. To date, drug manufacturers have focused on network TV and magazines, but local broadcasters are pitching hard. “We offer a geographic targeting component,” says Rohrs. “We’re getting some traction.”

Even with healthy projections, station groups’ measurements vary with the company. Belo Corp, with its 20 stations, forecasts mid-single-digit growth, which is slightly above market averages.

But Belo’s stations, concentrated in Texas, Washington and Arizona, did not book as much political money as other big groups ($52 million in political versus $90 million for Gannett, for example), so the fall in a non-political year shouldn’t be as dramatic.

Despite the political barrage, Hearst-Argyle reports five of its top ad sectors—retail, furniture and housewares, telecommunications, and financial—improved in 2004 over previous years. Hearst is pushing a sales initiative called “Thrive in 05,” focused on growing retail spending and special projects. “We aren’t laying back just waiting for 2006,” says Chairman David Barrett.

As for Tribune Broadcasting, its stations weren’t big political plays. Its top three are in Illinois, New York and California, which missed out on the heavy political spending, while its younger-skewing WB affiliates were not as attractive to political advertisers.

In off-years like 2005, says Patrick Mullen, president of the broadcast group, Tribune stations typically gain share, which helps ad-sales initiatives.

Conversely, ABC stations, bolstered by a stronger prime time, should see heightened demand next year. And CBS’ ratings dominance gives its stations a boost.

NBC’s softness in prime could hurt its stations next year, particularly if the network doesn’t rebound in February sweeps. Says Hearst-Argyle’s Barrett, “A lot of people are waiting to see the November ratings books before they make their buy.”