2010: What A Difference A Year Makes

Coming into 2010, broadcasters were expecting a flood of political advertising dollars to fill coffers depleted by two years of recession.

They were not disappointed.

Candidates, parties and others attempting to influence elections, congressional votes and ballot initiatives spent some $3 billion on advertising this year, and most of that, perhaps $2.4 billion, went directly to TV stations, still seen as the best way by far to target likely voters, according to political ad tracker Evan Tracey.

So fast did the dollars come, that stations' biggest challenge was managing regular advertisers who were being pushed aside of the campaigners.

The political money, along with the return of auto advertising, which had practically disappeared in 2009, fattened the top and bottom lines of most full-service stations and took some of the pressure off the cost lines.

According to Kantar Media and TVB, spot TV revenue in the top 101 markets surged ahead 27% in the first nine months of the year. Setting aside political, the categories were led by auto (up 77.2%) followed by financial (up 51.2%) and home and hardware (up 37.9%).

The Kantar Media/TVB numbers were underscored by the sharp third quarter top line increases of publicly traded broadcast companies: Scripps (31%), Post-Newsweek (29%), Gray (28%), Fisher (27%), Meredith (25%), Gannett (24%), Journal (22%) and Nexstar (21%).

The strong results prompted BIA/Kelsey to reforecast its revenue outlook for all of TV broadcasting for all of 2010. According to the research and investment banking firm, industry revenue for the year will hit $18.5 billion, up 17% over 2009.

"This year was an affirmation that local television is still vital to any ad campaign, and we anticipate that this won't go unnoticed by the larger nationwide retailers,” said BIA/Kelsey VP Mark Fratrik.

“Additionally, television broadcasters are making significant progress in enhancing their off-air revenue sources, particularly online, through hyperlocal sites and mobile applications," he said.

However, the revenue resurgence did little to restore the confidence of Wall Street in broadcasting or awaken the dormant TV trading market.

Despite their strong revenue growth numbers, the share prices of the major pure-play station groups were still way off their historical highs, a sign of the caution with which investors still approach broadcasting.

However, because their stock prices had fallen so low last year, some of the groups managed to post impressive markets gains for the year. Sinclair, for instance, which opened the year at $4.02, rose to $8.31, a 105% gain, while Nexstar rose 59% to $6.01.

The station market is still foundering in a wide chasm between bid and ask. Owners are unwilling to sell at today’s low multiples (7-10 times cash flow), while buyers don’t see the revenue growth that would justify the multiples of just three or four years ago (up to 14 times cash flow).

Consequently, deals were few and far between this year as they have been even since the summer of 2007 when the credit crunch began hobbling the entire U.S. economy. But there was some bargain hunting, mostly by strategic buyers looking to pair up stations in markets as duopolies and enjoy the economies of scale.

LIN Media acquired WIWB Green Bay, Wis., and WBDT Dayton, Ohio, from Acme Communications for $11.5 million as part of Acme’s painfully slow process of disassembling itself. Under an agreement that preceded the sale, LIN was already operating the two CW affiliates in tandem with other stations it had the markets.

Likewise, Local TV agreed to pay CBS $16.5 million for WGNT so that it could have a second station in Norfolk, Va.

London Broadcasting picked up the McKinnon family's KIII Corpus Christi, Texas, for $31.3 million. Although London doesn’t have any other stations in Corpus Christi, it does have small cluster of similar Texas stations of which KIII will be a part.

Ion Media purchased WQEX Pittsburgh for $3 million in another kind of strategic play. Pittsburgh was one of the few Top 25 markets in which Ion did not have an outlet.

That deal also served as another indication of just how slow the station trading market was. Pittsburgh, DMA 23, was the biggest market to see a sale of a full-power TV station.

The most telling example of the declining value of TV stations was the SJL Broadcast Group’s purchase of ABC’s two, small-market outets, WJRT Flint, Mich., and WTVG Toledo, Ohio, for $30 million.

That price was about one fourth of what SJL had sold the stations to ABC for in the mid-1990s. According to SJL, the same 10-times multiple was used in both deals, meaning cash flow has fallen as precipitously as the price.

SJL Chairman George Lilly, who has been through the ups and downs of the station market for nearly 30 years, believes it will be far more active next year.

Several companies just want out, he says. They took on a lot of debt to buy stations in the mid-2000s when all economic indicators pointed up and the companies were unprepared for the recession, he said. “Some of them went under water and lost a lot of their equity value and don’t see merit in staying in the television business.”