Broadcast Sector Logs 12 Percent 2Q10 Recovery

NEW YORK: The U.S. television broadcast sector maintained its upward momentum in the second quarter of the year with revenue growth of 12 percent over 2Q09, according to Michael Alcamo. First-quarter revenue growth for the sector was 15.3 percent.

“The recovery of 2010 has arrived not a moment too soon, for a broadcast industry reeling from a near-catastrophic slowdown in advertising, particularly automotive, finance, travel, and technology,” said Alcamo, president of investment banking firm MC Alcamo & Co. “These categories are rebuilding steadily.”

The recovery combined with greater productivity drove revenue growth and margin gains across all publicly traded TV broadcast operators.

“Despite a sluggish consumer recovery, corporate ad budgets are up sharply and are fueling industry growth,” Alcamo said.

Fisher led among broadcasters in the second quarter with revenue growth of 27.7 percent. Meredith followed with 23.4 percent. Scripps recorded a 23.4 percent gain over last year, followed by LIN with 20. 5 percent and Gannett with 20.3 percent.

The seven publicly traded, pure-play broadcasters--Belo, Entravision, Fisher, Gray, LIN, Nexstar and Sinclair--posted aggregate revenue growth of 16.7 percent.

The broadcast divisions of the eight publicly traded integrated media groups--Gannett, Journal, Meredith, Media General, McGraw Hill, Saga, Scripps and Washington Post--posted aggregate revenue growth of 9 percent.

All 15 companies averaged 12.1 percent growth on broadcast revenues totaling $1.649 billion.

Margins for the sector increased five percentage points to 39 percent. First quarter margin growth was 11 points, to 35 percent. Sinclair posted the highest 2Q10 EBITDA margins at 47 percent. Fisher gained the most, doubling 2Q margins over last year to 22 percent.

“Industrywide margin expansion reflected two factors,” Alcamo said. “First, revenue was up nearly 17 percent on the strength of major ad categories. This was magnified by technical innovation and tight control over expense growth. The two dynamics led to 34 percent EBITDA growth industrywide, and margin expansion to 39 percent.”

Sector recovery evident in the first six months of this year is expected to persist through the year’s end.

“We expect continued revenue and profit growth in 2010,” Alcamo said. “First, fully digital transmission commenced in mid-June 2009, thus, lower levels of electricity costs will be incorporated into the expense base starting with the third quarter. Secondly, the full impact of political advertising will be felt in the latter two quarters of 2010.”

Broadcasters are likely to use 2010 profits three ways, he said. Many will likely pay down debt, especially those that negotiated temporary extensions of their credit lines in 2009. Others will use profits for acquisitions, and some will simply build cash reserves.

“Broadcasters are well-advised to be cautious.” he said. “Nevertheless, for the next three quarters, visibility for revenue and EBITDA growth is excellent.”

Political advertising, for example, typically comes in with gross margins of 90 percent or more, and that revenue’s just beginning to come in. Third-quarter political ad revenue is also expected to reach new heights in the wake of the Supreme Court lifting campaign finance prohibitions. (See “Supreme Court Cuts Corporations Loose.”)

“Unlike campaign advertisements, issue advertising is not subject to the FCC’s lowest-unit-rate pricing limits,” Alcamo said. “Moreover, unlike agency-originated consumer advertising, issue and political advertising usually comes to broadcasters with minimal cost-of-goods-sold. We expect that the approaching wave of political advertising--coupled with strengthened consumer categories--will drive the industry’s revenue and EBITDA margins for 2010 quite substantially.”

-- Deborah D. McAdams