This may not be the time to start thinking about what an economic recovery will mean for the TV industry, even though, hard as it may be to believe, some kind of recovery eventually will come. The past several months have left local TV stations loose-toothed on the canvas. Local TV's ad dollars declined 27.6% in the first three months of 2009, according to a Television Bureau of Advertising analysis, and the shuttering of thousands of car dealers means the sector's largest pot of ad dollars will permanently shrink. At the broadcast networks, things aren't quite as bad. But it's still a long stretch down the road from "great." Negotiations taking place around network upfronts—that odd spring rite during which most network TV ad spending gets committed—have atypically dragged well into the summer, as ad buyers sense they have the upper hand. Yet I remain convinced TV is poised for a post-recession bounceback that will outstrip any rebound in other traditional media. The recovery of those downtrodden local TV stations in particular—and the equally downtrodden companies that own them, such as Belo Corp. (BLC)—will be one worth paying attention to.
In this context, "recovery" is a relative term, given the shift to digital in matters of marketing and the implications of a significantly smaller U.S. auto industry. The previous high-water revenue marks for local TV will remain out of reach, and shrinking ad dollars will result in some carnage. Analysts expect a number of niceties long associated with local TV, such as each major station producing its own newscast, to start disappearing. (Disclosure: BusinessWeek 's corporate parent, The McGraw-Hill Companies (MHP), owns four TV stations.) Paradoxically, though, the current diminution of ad demand could help local TV stations win more attention from national advertisers. "In TV advertising, pricing has fallen more precipitously for local [stations] than [for] national [networks]," says Anthony DiClemente, an analyst at Barclays Capital (BCS). "The pricing disparity between local and national may become so wide that it's worth it to buy targeted local ads rather than pay up for a big mainstream national campaign."
Will this dynamic drive local TV stations' recovery? No. Something simpler will. TV has historically held on to its share of the ad pie better than all other traditional media. Consider, too, the increasingly tattered state of its main competitor, the print newspaper. Does anyone think newspapers—in 2010, or 2011, or whenever the ad market turns—will be stronger than they are today? "The most effective [ad] buy for you, if you want to hit 100% of Chicago with a branding message, is [still] some slick video advertisement. And you can't do it with cable," says Gordon Borrell, founder of research group Borrell Associates (and a former newspaper executive). There's also one key quirk of local advertising to consider. Faced with a crunch, executives say, smaller local advertisers can stop all spending suddenly. (Their national counterparts move more slowly, which is one reason why network TV is faring better.) In a local recovery, such shut-off switches can be snapped back on just as quickly.
There are those who doubt this scenario. Among them: John Malone, the steely and sagacious chairman of Liberty Media, who worried aloud about the fate of local news and media at the All Things Digital conference in May. "Is all advertising going to be national?" he wondered. "Anyone who has a [local store] becomes a franchisee of someone else," he says, referring to the chain-ification of every business from coffee to credit. More future-minded pundits point to the potential for local online players, such as IAC/InterActiveCorp's (IACI) Citysearch, to suddenly soak up ad dollars, or the rise of ultra-targeted cable technologies making that medium a more appealing destination for marketer dollars. But the former have yet to loom large in the ad marketplace, and cable's attempts at precise ad targeting have been a litany of disappointments and delays. Canoe Ventures, a consortium of six major cable companies, just pulled the plug on an ambitious and high-profile effort to offer such ads.
Make no mistake: TV station groups won't be rolling in the roses once a recovery finally arrives. The business will still face numerous challenges. The sector may not be the play so much as picking its survivors—the stations and companies that will best endure. I'm not sure anyone looking to invest in traditional media companies these days is wise, but if you're determined to make this bet, local TV may be where to place your chips.