Upward Momentum

ADELUGE OF ADS FROM EXPANDed legalized sports betting and the return of midterm political ad spending in 2022 are expected to aid U.S. TV broadcasters’ rebound from the pandemic.

At the same time, radio broadcasters are likely to bounce back more slowly. They’re impacted by a reliance on ad categories that are still affected by the pandemic as well as declines in drive-time listening. At the same time, radio’s ever-deeper move into streaming is giving the media sector additional luster.

Those are some topline findings from the firm I represent, S&P Global Market Intelligence’s Kagan research group. It bases its findings on data from a variety of sources, including proprietary surveys and analyst estimates, publicly listed company reports and third-party providers.

For TV stations, spending in the 2022 midterm elections is expected to reach $3.25 billion, up 7% from the last midterm election in 2018. It’s likely to be spurred by the 50/50 split between Democrats and Republicans in the U.S. Senate – along with the Republicans’ efforts to flip the House Democratic majority.

Political advertising will be spent most heavily in swing-state markets – such as Arizona, Florida, Georgia, Nevada, North Carolina and Texas. And not so coincidentally, markets in three of those six – Arizona, Florida and North Carolina – are among the top five markets that are growing most quickly, when assessed according to ad revenue growth forecasts for the 2021-2026 period.

The markets and their compound annual growth rate (CAGR) over that period are: ■ Orlando-Daytona Beach-Melbourne, Fla., 7.52%; ■ Tampa-St. Petersburg (Sarasota), Fla., 7.37%; ■ Miami-Ft. Lauderdale, Fla., 7.36%; ■ Charlotte, N.C., 7.34%; ■ Phoenix (Prescott), Ariz., 7.21%.

Legalized sports betting has already been a booming new ad category for broadcasters. As a result, station groups are developing new programming that relates to betting lines and best picks. Nexstar Media Group recently announced the launch of the SportsGrid Network, a diginet for sports wagering and fantasy sports. And Sinclair Broadcast Group’s partnership with Bally’s has resulted in a sports betting app and an upcoming direct-to-consumer streaming service. This comes in addition to Sinclair’s decision to rebrand its regional sports networks with the Bally’s monicker.

Other ad categories that are forecast to outperform for TV stations in 2022 include healthcare, professional services, telecom, banking and home improvement. On the flip side, the auto, retail and travel categories are still soft.

Given all of this, the U.S. broadcast station industry ad revenue is expected to reach $40.05 billion in 2022, up 13.2% from $35.39 billion in 2021. If realized, that would surpass the $39.66 billion posted pre-pandemic in 2019.

EXAMINING 2021 RESULTS

Because core ad categories have mostly recovered from the COVID-19-induced

UPWARD

MOMENTUM

BY JUSTIN NIELSON

Despite some speed bumps, radio and TV broadcasters are both expected to show increases in revenue moving ahead. Each are impacted by very particular dynamics.

advertising pullback of 2020, TV broadcasters expressed optimism about the back half of 2021 in their earnings calls. The expanded schedule of National Football League games and new scripted content is adding to their positive outlook.

Despite the sharp decline in broadcast TV network ratings, station audience levels were boosted by local news viewership during the pandemic. Even though there was a slight dip in ratings during the first half of 2021, station executive remarks indicate they expect the ratings to be stable moving forward.

As the effects of the pandemic ease, TV station groups have renewed focus on negotiations for increases in retransmission consent fees, which added $13.5 billion to their coffers in 2021 overall, a 4% increase over 2020. They benefited from increases in per-subscriber fees in renewal negotiations that slightly outpaced traditional sub declines. However, the growth percentage is expected to drop further over the next few years. (See table, page 12.) That’s in sharp contrast

TV STATION

Ad Revenue Growth Projections

2019 2020 2021 2022 2023 2024 2025 2026 2021–2026 CAGR

Total TV station ad revenue ($M) $21,889.7 $21,044.8 $20,557.1 $24,300.0 $23,199.5 $26,942.8 $24,662.7 $27,618.5 6.08%

Total TV station ad revenue growth (%)

— -3.9% -2.3% 18.2% -4.5% 16.1% -8.5% 12.0%

RADIO STATION

2019 2020 2021 2022 2023 2024 2025 2026 2021–2026 CAGR

Rated market total (local/ national spot & digital) ($M)

$10,375.9 $8,034.2 $8,794.9 $9,395.8 $9,866.4 $10,210.7 $10,451.3 $10,627.4 3.86%

Rated market total radio station ad revenue growth (%)

— -21.8% 8.4% 6.8% 5.0% 3.5% 2.4% 1.7%

TV Station Retrans & Virtual Multichannel Projections: 2015–2026

(All Non-Percentage Figures in Millions)

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

2021–26 CAGR (%)

Total TV Station Gross Retrans Fees $6,514 $8,053 $9,360 $10,302 $11,011 $11,783 $12,077 $12,311 $12,477 $12,656 $12,817 $12,992 1.5% Growth of Retrans Fees 32% 24% 16% 10% 7% 7% 2% 2% 1% 1% 1% 1%

Virtual Multichannel Subs Subject to Station Carriage Fees 0.1 0.4 1.5 0 5.2 6.9 8.8 10.2 11.1 11.8 12.2 12.6

Annual Virtual Multichannel Sub Station Carriage Fees (O&Os and Affiliates 100%) $4 $27 $163 $760 $946 $1,245 $1,424 $1,607 $1,790 $1,982 $2,181 $2,211

Total Multichannel Video and Virtual Subs

% Change 100.1 99.0 97.4 96.2 91.9 87.2 82.1 $77.2 72.6 68.8 65.8 63.3 -5.1%

0% -1% -2% -1% -4% -5% -6% -6% -6% -5% -4% -4%

Total TV Station Gross Retrans and Virtual Multichannel Sub Carriage Fees $6,518 $8,080 $9,523 $11,062 $11,956 $13,027 $13,502 $13,918 $14,267 $14,639 $14,997 $15,203 2.4%

% Change 32% 24% 18% 16% 8% 9% 4% 3% 3% 3% 2% 1%

As of June 2021. NOTE: Historical cable, DBS and telco video subscribers have been re-stated. This metric is higher than cable or DBS in later years because telco video providers are present in fewer but larger markets. Virtual Multichannel subscriptions could include live streaming broadcast TV stations such as DirecTV Now, Fubo TV, Hulu with Live TV, Sony Vue, Sling TV, and YouTube TV in certain markets. Revenue figures rounded up to the nearest million. SOURCES: Industry data; Kagan estimates

to the retrans revenue growth in years past. In 2015, it was 32%.

The retrans revenue stream has been impacted by cord cutting. Many legacy multichannel subscribers have been lured by a growing number of options from virtual multichannel, subscription video-on-demand and over-the-top providers. However, churn of traditional multichannel customers is not as pronounced as originally feared during the pandemic, and TV stations have benefited from virtual subscriber gains.

Bottom line, when full results are reported, TV station revenues in 2021 are likely to be mostly flat year over year, at $34.06 billion. That is despite a 4% drop in total spot ad revenue, given that it was an election off year. (TV stations garnered $3.58 billion in political ad revenue in 2020.) It also takes into account the 4% retrans growth as well as a 5% gain in digital/online revenue.

2022: THE POLITICAL WAVE

This year, we expect a similar trend of rate hikes in retrans renewals that will slightly outpace

STREAMING, LIVE EVENTS BUOY RADIO RESULTS

WHILE THE RADIO STATION BUSINESS IS ALSO EXPECTED to bounce back from the pandemic-induced recession, its growth will only constitute a partial recovery. Kagan projects U.S. radio ad revenue growth of 6.2% to $15.75 billion in 2022. That will partially offset the deep 23% decline in 2020, when revenues fell to $13.68 billion. Radio ads are predominantly local and focused on the auto, retail, travel and entertainment categories, which were heavily impacted by the advertising pullback. The media sector’s core local spot ad market is projected to grow by 10% to $8.41 billion in 2021. This year, it’s likely to increase 7%, to $9 billion. Between 2023 and 2026, growth rates will gradually decline from 5% to 1.3%. They’re expected to reach $10.08 billion by 2026. National radio ad revenues are forecast to rebound by 8% to $2.05 billion in 2021. In 2022, they’re likely to rise by 6%, to $2.17 billion. Between 2023 and 2026, national ad sales is forecast to drop from 4.5% to 1.3% annual growth.

As radio stations continue to invest in streaming, podcast and digital marketing initiatives, the digital revenue stream is expected to

rise to $1.52 billion by the end of 2026. Off-air is projected to rise by 5% in 2021 with the return of live events. And it should remain a solid segment for the radio industry long term, with a 2.5% CAGR taking the segment to $2.38 billion by the end of 2026. Total radio revenue, including national and local spot, digital, off-air and network revenue, should rise at a five-year CAGR of 3.39% — from an estimated $14.84 billion in 2021 to $17.53 billion by Off-air is forecast the end of 2026. Based on our radio market-level ad projections, the top five to rise by 5% in 2021 fastest-growing U.S. markets by 2021-2026 CAGR are: with the return of ■ Dallas-Fort Worth, Tex. at 4.27%; live events. And it ■ Orlando, Fla., 4.25%; should remain a ■ Austin, Tex., 4.24%; solid segment for ■ Phoenix, Ariz., 4.23%; the radio industry ■ Seattle-Tacoma, Wash., 4.21%. long term. Radio also must compete with multiple streaming and on-demand options for music and talk and is hindered by the new hybrid or permanent work-from-home economy, which has greatly reduced commuting hours during prime in-car radio time. Despite those headwinds, radio’s lower ad cost, local audience and relatively high return on investment compared to other media should help it maintain its share of the U.S. advertising market.

the cord-cutting trend, with gross retrans and virtual sub fee revenues up 3% to $13.92 billion. Virtual sub growth and the ability of TV stations to increase per-sub renewal rates are mitigating losses on the traditional sub side.

Broadcasters are well prepared for the shift, hedging against a potential decline in retrans fees with their own streaming services in addition to virtual per-sub carriage fees.

In 2022, TV station industry revenue, including gross advertising and retrans fees, is expected to climb to $38.22 billion, up from $34.06 billion estimated in 2021. Total spot ad revenues are expected to continue to rebound from the pandemic, improving 20% to $21.2 billion. That includes $3.25 billion in political ad spend. Digital is expected to come in at $3.1 billion, up 5% year over year.

Over the projections period running through 2026, the TV station industry is expected to become less reliant from the standpoint of traditional spot ad revenue. Retrans-fee revenue and more emphasis on digital revenue is likely to help smooth the ebbs

and flows in political ad spending.

Retrans revenue, as a share of total station revenue, grew from 4% in 2009 to 38% in 2020 and is projected to reach 36% by 2026.

Another factor at play is NextGen TV, also known as ATSC 3.0. It’s being deployed on local stations nationwide, with 41 markets already broadcasting live over-the-air (OTA) NextGen TV streams. Another 25 are either preparing or intending to launch, according to information on ATSC.org as of Dec. 14. The upgraded OTA service should help boost

local ad revenue but might not be a solution to increase retrans revenue, a conundrum of sorts.

In 2022, TV station industry revenue, including gross advertising and retrans fees, is expected to climb to $38.22 billion, up from $34.06 billion estimated in 2021.

Justin Nielson is a senior research analyst at Kagan, a unit of S&P Global Market Intelligence. He can be reached at (888) 275-2822 or Justin.Nielson@spglobal.com.

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