TV Station Reliance on Ad Revenues Diminishes

CHARLOTTESVILLE, VA.: Diversification of TV station revenues finally appears to be taking hold, and not a moment too soon. The advertising business that supplied nearly 100 percent of TV revenues for decades contracted dramatically in 2009, SNL Kagan analyst Robin Flynn noted.

“In 2006, we estimate that TV station revenues from the three sources stood at $24.6 billion,” Flynn wrote. “In 2009, despite growing retrans and online revenues, due to terrestrial ad revenues that on a preliminary basis appear to have been off by 20 percent or more, we estimate the total revenue pie shrank to less than $19 billion.”

Kagan analysts don’t see a full recovery to 2006 revenue levels in the near future, projecting total 2013 levels at $21.7 million. Of that, they say 16 percent will be from retrans and online advertising, compared to 3 percent in 2006.

“Based on our latest projections, TV station industry revenues could go from what was a 97 percent reliance on local and national terrestrial ad revenues in 2006 to a revenue mix of just 84 percent from terrestrial ad revenues by 2013 with 9 percent from retrans revenue and 7 percent from online revenues,” she said. “Based on expectations for increasing online and retrans revenues, that 16 percent from nontraditional sources is expected to continue to grow, with mobile interactive revenue also potentially contributing to the category.”

Flynn said stock prices reflect growing investor confidence in the sector in part due to the revenue diversification picture. Gray TV shares, for example, are up nearly 55 percent year-to-date to $2.32, after taking a pummeling last year when it swung to a $10 million loss in the third quarter. Retrans, however, increased 466 percent to $4.3 million during that period. Sinclair Broadcast Group, the pioneer of demanding retransmission fees for broadcast signals, pulled in $28 million in related revenues during 3Q09, up 51 percent from the year-earlier period. Sinclair shares are up 32 percent year-to-date to $5.31.

“Although investors were initially concerned that TV networks would force stations to give up some of their hard-won retrans dollars, it now appears that with the weight of the networks behind them, local affiliates should be able to profit from the higher rates being negotiated by the networks for their own O&Os,” she said.

Flynn’s analysis, “The brightening picture for TV stations,” is available at SNL Kagan’s Broadcast Investor