Wells Fargo analysts expect that TV stations may be harmed by posting their political ad rates online.
“While this might not sound earth-shattering to investors, our view is that this requirement could have adverse implications for broadcast TV stations, particularly when it comes to the competitiveness of non-political ad rates,” wrote the team of analysts led by Marci Ryvicker.
The Federal Communications Commission passed a
Friday requiring broadcasters to upload their public inspection files into an online commission database. Those files include the rates they charge political candidates for air time. By law, TV stations have to offer candidates their lowest unit rates within 45 days of a primary and 60 days of a general election. This applies to candidates only—neither parties nor PACS. And not all candidates buy at the discount rate, opting instead for better-situated, more expensive spots.
Stations affiliated with the Big Four—ABC, CBS, Fox and NBC—in the top 50 markets must start complying this year, (30 days after the FCC announces in the Federal Register that the Office of Management and Budget has approved of the ruling). The commission said it will then review the impact of the ruling in the top 50 markets before extending it to all markets on July 1, 2014.
The underlying issue has to do with lowest unit rate,” they said. “
The concern from Friday’s action is that posting these lowest unit rates online is likely to inhibit the competitiveness of the broadcast business model.”
The rule covers around 60 percent of all expected 2012 political ad spending on TV, according to Ken Goldstein and Elizabeth Wilner of CMAG—cited in the Wells Fargo note. The analysts said Disney’s ABC stations have the most “TV specific ad exposure” at 93 percent, followed by Comcast-owned NBC stations at 85 percent; with CBS and Fox at 81 percent—though the impact on overall revenues for the parent companies are in the single digits.
Pure-play TV station companies that derive nearly all of their revenues from advertising are another story. Of those, Belo has the most exposure at 77 percent of TV ad revenues. LIN TV is at 51 percent; Sinclair, at 39 percent.
“While we do not take this ruling lightly and do believe it could have an impact longer term, we point out: 1) there are still a lot of details to be ironed out—specifically timing and infrastructure—and 2) despite their significant market and affiliate exposure, we are least concerned about the diversified entertainment companies given that broadcast revenue and cash flow is small relative to their consolidated financials,” the analysts said.
Broadcasters were ordered to upload inspection files in 2007, but successfully appealed on the grounds that the process was overly complex burdensome. The subsequent ruling adds the political ad rate and uses a centralized database approach to the requirement. It remains to be seen if broadcasters will bring a legal challenge against the new ruling. The National Association of Broadcasters said on Friday that it would “be seeking guidance from our board of directions regarding our options.”
Regarding the database infrastructure, the FCC said it anticipates designing an “online public file that is highly available, scalable, cloud-based, and eliminates any user wait time associated with processing documents after upload. We expect that this will enable stations to upload public file material in a timely fashion, including uploading political file material promptly even during times of increased traffic prior to elections.”
The issue of “increased traffic” was one of the primary objections brought by broadcasters, who said they didn’t have the station personnel necessary to constantly upload ad-buy information right before elections. The FCC rejected this and said uploading the files would eventually save them money and time.
Deborah D. McAdams
See the full
Second Report and Order
on Enhanced Disclosure Requirements for TV Broadcast Licensee Public Interest Obligations