As the effect of political advertising starts to take hold in several hot primary states, we are reminded of the roller coaster impact politics has on local television station revenues.
To normalize this up and down challenge of the local television station revenues, how can we evaluate the long term health of local television stations? Some suggest that just the “core” of advertising revenues should count and that political advertising revenues should be removed. By my estimates though, there are two problems with this approach.
In many states, political advertising revenue is a consistent component every two years for certain local television stations, and the industry as a whole. Failing to acknowledge that fact neglects the continuing impact that political advertising has on the present and future health of the local television station industry. Second, for many local television stations situated in competitive markets, political advertising sometimes “crowds out” other advertising, especially in some programs and dayparts. By subtracting all political advertising revenues, the revenue potential of a particular station/market/and industry as a whole is then understated; this could leave viable advertising unsold.
So what is the most efficient way to look at all advertising revenues generated by local television stations while acknowledging the impact of political advertising on a market and industry performance?
We have come up with a way to evaluate local television revenue annual performance. Our method is to examine the annual revenue changes that have occurred and those we predict will occur and have generated a four-year moving average of those annual industry revenue changes. By continuously averaging four years, the impact of two election years (one Presidential) and two non-election years are incorporated into the prediction. By examining the overall historical trend of the four-year moving average, we can highlight the position of local television stations in the ever-increasing competitive marketplace.
What does our examination show? The chart below shows that four-year moving average change in total local television stations advertising revenue for the past 16 years and what we expect in the next five years in the black line, along with the individual years’ annual change noted by the blue stars.
The wide swings in total television advertising revenues are clearly shown by the blue diamonds. Yet, except for the down years around and coming out of the recession, the overall trend in local television advertising averages around 3-4%. That consistency is expected to continue, which will make local television advertising a continuing, important part of the advertising mix.