[opendtv] Quid Pro Quo

  • From: Craig Birkmaier <craig@xxxxxxxxx>
  • To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
  • Date: Tue, 9 Jul 2013 08:49:36 -0400

http://www.nytimes.com/2013/07/08/business/media/with-political-ad-profits-swing-state-tv-stations-are-hot-properties.html?_r=0

July 7, 2013
Campaign Ad Cash Lures Buyers to Swing-State TV Stations
By BRIAN STELTER

When Allbritton, the media company that owns Politico, put its seven television 
stations up for sale this spring, analysts quickly singled out one as the most 
attractive: WJLA, the company’s ABC-affiliated station in Washington, D.C. It 
is the biggest of the bunch, the best known and, perhaps most important, a 
magnet for political spending.

WJLA took in $33 million in election-related and issue advocacy advertising 
last year. Only three stations in the United States earned more for political 
ads, and two of those were also in Washington. That’s because the stations’ 
signals reach citizens in a crucial battleground state, Virginia, as well as 
the political power brokers in the nation’s capital. If Allbritton were to sell 
WJLA by itself, it could fetch $300 million.

That math helps explain why Gannett paid $1.5 billion for 20 stations last 
month, why the Tribune Company agreed last week to pay $2.7 billion for 19 
stations — and why more consolidation in the marketplace is forecast for later 
this year.

The increasingly expensive elections that play out across the country every two 
years are making stations look like a smart investment, with the revenue piling 
up each time a candidate says, “I approve this message.”

Despite an array of digital alternatives and a rapidly transforming television 
business, 30-second commercials remain one of the most valuable tools of 
campaigns and political action committees. As Leslie Moonves, the chief 
executive of the CBS Corporation, which owns 29 stations, memorably said last 
year, “Super PACs may be bad for America, but they’re very good for CBS.”

Next year’s midterm elections will be a boon to stations as well, and “2016 
could be amazing,” said Mark Fratrik, the chief economist for BIA/Kelsey, a 
media research firm and consultancy.

Station owners have come to dread what they call “odd years,” like 2013, when 
there is little political spending, and anticipate “even years.” For stations 
blessed to be in swing states, political ads routinely represent a third of 
their overall ad revenue in election years.

For instance, WBNS, the highest-rated station in Columbus, Ohio, grossed about 
$50 million in advertising last year, of which at least $20 million was 
attributed to campaign spending. Columbus is the nation’s 32nd largest TV 
market.

Contrast that to the next biggest market, KSTU, the most popular station in 
Salt Lake City. Kantar Media CMAG estimates that KSTU brought in about $29 
million in advertising last year.

On paper, these two stations are equals; WBNS came out far ahead because 
Columbus was in the middle of a hotly contested race between President Obama 
and Mitt Romney to win Ohio’s 18 electoral votes.

Mr. Fratrik said that stations in Ohio enjoyed, on average, a 38 percent 
increase in total ad revenue last year, in large part because of political 
spending. The increases were more than 40 percent for some stations in 
Wisconsin, where a recall election for governor added to the political drama. 
One of the stations being bought by Tribune is up the road from Columbus in 
Cleveland. Another is in Milwaukee. Two others are in Virginia, and one is in 
Colorado.

As he talked up Tribune’s acquisition to investors this week, Peter Liguori, 
Tribune’s chief executive, made sure to mention the increased exposure to 
swing-state advertising.

Analysts say the surge in station consolidation this year has also been driven 
by low interest rates and by an enormous rise in retransmission fees for 
stations, which are the equivalent of per-subscriber fees for cable channels 
like ESPN and MTV. Some stations now earn 40 to 50 cents a month from each 
cable and satellite subscriber.

But those fees currently account for about 10 percent of station revenue, and 
even if they double in the next five years, as the research firm SNL Kagan 
predicts, advertising revenue will remain the most important part of the 
station business. Thus, political advertising is a lifeline, even if the sheer 
volume of ads sometimes makes viewers want to hurl the remotes at their sets.

“We get complaints from viewers,” Michael J. Fiorile, the chief executive of 
WBNS’s owner, the Dispatch Broadcast Group, acknowledged. “The bigger 
complaints are from regular advertisers who really get pushed off the air.”

“Don’t get me wrong,” he added with a chuckle. “It’s a good problem for us to 
have.”

Dispatch, which is locally owned, is not up for sale, and Mr. Fiorile said his 
stations would survive without the every-other-year campaign ad bonanza. But 
owners of other stations have been able to command a premium, and maintain a 
healthy profit margin by virtue of their location in competitive states.

“There is no doubt that the prospect of higher political revenues for big four 
affiliates — especially those with higher local news ratings — makes those 
stations quite a bit more valuable than those without,” said Robin Flynn, a 
senior analyst for SNL Kagan.

The spending comes not just from presidential campaigns, but from local and 
statewide races. Ms. Flynn’s data shows that Los Angeles, in reliably blue 
California, beat out Washington as the top market for all political ad revenue 
last year, partly because of huge spending on ballot propositions.

Although the Obama campaign gained attention last year for its careful ad 
targeting, which sometimes resulted in effective but cheap ad buys on obscure 
cable channels, local newscasts remained one of the most desirable places for 
political ads. In Washington last fall, WJLA and another Washington station, 
WTTG, took the extreme step of adding extra half-hours of news temporarily to 
make room for more ads.

But anyone hoping for a commensurate increase in the size of local newsrooms 
would be sorely disappointed; staffing levels have risen only slightly. 
Salaries stayed stagnant last year, according to a Hofstra University 
professor, Bob Papper, who called the results of his annual survey “lousy.”

The influx of ad spending has also left stations vulnerable to criticism that 
they are not doing nearly enough to fact-check all the ads they are profiting 
from. Timothy Karr, a senior director of strategy at Free Press, a public 
interest group, studied Cleveland, Milwaukee and four other local markets last 
August and September and found what he said was “a near-complete station 
blackout on local reporting about the political ads they aired.” Denver was the 
best of the six, he said, and even there, 2,880 ads from five PACs and outside 
groups were countered by just five fact-checking news segments.

“This profiteering may explain newsrooms’ reluctance to investigate the sources 
of political ad spending, or to vet the ads they air for accuracy,” Mr. Karr 
said. “It’s clear that they don’t want to bite the hands that feed them.” 
 
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