Local TV Stations Ready to PAC in Cash as Election Season Gears Up

On Oct. 15, executives from Tribune Broadcasting’s 42 TV stations around the country gathered at the Ritz-Carlton Hotel in Washington, D.C., for a day of workshops, seminars and insights from guest speakers on the biggest money-making opportunity for many local TV stations over the next 12 months: political advertising.

Television’s quadrennial gold rush is on, and promises to be fiercer and richer than ever. A perfect storm of conditions is driving a leap in TV spending that is projected to hit $4.4 billion for the 2016 election cycle, encompassing federal and state races, up from $3.8 billion in 2012, according to Kantar Media’s Campaign Media Analysis Group. This political spending surge has helped drive the burst of mergers and acquisitions activity among TV station owners during the past three years.

With billions of dollars up for grabs over a short period of time, broadcasters like Tribune and others are intensifying their sales efforts, and in some cases centralizing the process, in order to make the most effective pitches possible to the political class.

“We determined two years ago that we needed to double the size of our political team,” says Tribune Broadcasting president Larry Wert. “We know that most of the dollars are placed out of New York and Washington, so we did a few things to address that. We created sales leadership (positions) dedicated to that role.”

The 2016 race marks the first battle for the White House without an incumbent on the ballot since the Supreme Court’s landmark Citizens United decision in 2010. That ruling removed limitations on political contributions by individuals and corporations, creating a new breed of SuperPACs — political action committees with seemingly unlimited dollars to spend in support of candidates and issue advertising to influence tight races.

CROWDED FIELD: The sheer number of presidential candidates, particularly among Republicans, is a contributing factor to the increase in political spending. Newscom

The fact that neither party has rallied around a single choice for nominee has raised the specter of on-air brawling early in the primary season across states that might not otherwise have seen big spending. And most of the 10 states identified as hard-core battlegrounds this time around — Ohio, North Carolina, Florida, Colorado, Iowa, Nevada, Virginia, Pennsylvania, Michigan and New Hampshire — are also expected to have hard-fought Senate or gubernatorial elections. With control of the Senate up for grabs once again, Democrats, Republicans and their affiliates will be digging deep in those fights. The only sure thing is that these factors will substantially increase the flow of ad dollars to local media.

“We haven’t seen anything like this in the post-Citizens United era,” says Elizabeth Wilner, senior VP and head of Kantar’s CMAG. “All of those contested races are going to
produce enormous amounts of spending.”

Wilner adds that even candidates in statewide races that hadn’t previously been waged on TV, such as those for state supreme court posts, are starting to produce substantial ad dollars.

The maxim that all politics is local is surely underscored by campaign spending trends. According to CMAG, local broadcast TV stations are projected to haul in $3.3 billion in 2016 spending, with another $800 million going to local cable, and the rest divided between national broadcast and cable networks. Digital spending will grow “exponentially” this time around, Wilner says, although CMAG does not forecast a specific amount of spending in the sector.

But as lucrative as the 2016 picture appears, this presidential cycle may mark the peak of television’s dominance of the field. By 2020, Wilner notes, the generation that has grown up online will be hitting the age when voter participation in state and federal elections starts to pick up. That, plus the general drift of audiences toward digital platforms throughout the day, is sure to tilt the scales on ad placement decisions.

For now, however, TV stations in battleground states are poised to cash in on the campaign trail like never before.

“We are easily looking at another record year,” says Mark Fratrik, senior VP and chief economist at media consulting firm BIA/Kelsey. “There are so many significantly funded Republican candidates, and surprisingly, Hillary Clinton has some competition with some money on the Democratic side. And there are many Senate races that are already being funded pretty well.”

Local news is the magnet for political ads on broadcast TV. Likely voters tend to be regular viewers of such newscasts. Those are the people campaigns are eager to reach.

In the final weeks of an election, “nothing is more paramount for a candidate than to put ads on the air of local television stations,” Fratrik says.

The chase for political dollars has been a big driver in the recent burst of TV station mergers, as a handful of owners seek to create mega-groups with the kind of reach that gives them leverage with advertisers. Stations in traditional swing states such as Ohio, Pennsylvania and Florida are significantly more valuable than those in states that are solid red or blue, because of the promise that they will hoover up copious amounts of political dollars every few years.

WHEELING AND DEALING: Local TV’s hunger for political ad dollars has helped drive station consolidation.Dollar value of M&A among TV stations *Through Q3; source: snl kagan

For months, TV and radio station owners like Tribune, Sinclair Broadcast Group, CBS and Tegna have been preparing what amount to campaigns of their own geared to political media buyers. Station groups have invested in hiring sales execs with deep roots in Washington and have taken steps to centralize their sales efforts through D.C.-based reps. There’s also been a premium on tapping new hires and consultants with expertise in handling the granular audience data analysis of vital importance to political media buyers. President Obama’s 2012 re-election campaign was notable for its effective use of digital-audience targeting tools. TV industry vets say that put everyone on notice that Big Data would be key to effective sales pitches in 2016.

Just last week, Nielsen unveiled a Voter Ratings service for radio stations designed to help campaigns target Democratic, Republican and independent voters according to the stations and formats they prefer. Nielsen has a similar service for TV stations in the top 56 TV markets.

Broadcasters’ willingness to invest in new people and new tools underscores the importance of the periodic political windfall to the bottom lines of station owners. The marriage of money and politics may be bad for democracy, in the view of many Americans, but it is a boon for anyone with an electronic bully pulpit to sell.

“We’ve seen a lot more strategy and effort going into staffing on the (buying) and on the sales side,” Wilner says. “Everybody’s going out and hiring political experts to talk to each other. You’re seeing a whole cohort of (TV) sales people in Washington that didn’t used to exist. It’s the station groups and others doing everything they can to get that revenue bump in the near term.”

SMALL SCREEN STUMPING: Political spending on broadcast TV stations Source: Television Bureau of Advertising

The biggest bonanza comes from SuperPAC spending. By law, advertisements purchased directly by a candidate in the 45-day period before a primary election and 60-day period before a general election are sold at the lowest rate that the station offers in the time period. SuperPACs do not qualify for the lowest-unit-rate discount, so they pay what the market will bear. And at a time when extremely time-sensitive ad dollars are flooding in to local markets, the price tag can be sky-high indeed.

“Certainly it’s the PAC funding that is really driving the overall growth,” says Tribune’s Wert. “Races vary by state and by market, and those will ebb and flow, but the PAC dollars look like they’re just going to continue to escalate.”

Will Feltus, senior VP of Arlington, Va.-based National Media Research Planning and Placement, says he’s seen situations where the cost of a 30-second spot on a local newscast in Roanoke-Lynchburg, Va., No. 69 on the list of 210 TV markets, costs as much as a spot in New York City. National Media has a long history of political campaign work, including media buying for George W. Bush’s presidential bids in 2000 and 2004, and Mitt Romney’s run in 2012.

“Just a few election cycles ago, the typical premium (over a campaign-purchased spot) would have been about 50%,” Feltus says. “Now it’s 200% to 300%. It’s the demand. If one SuperPAC pays that inflated rate, then the others have to pay it also.”

In some cases, presidential campaigns have found it more cost effective to buy network TV spots rather than locally targeted slots. In 2012, Feltus recalls shifting to a network buy within ABC’s “Dancing With the Stars” because a local spot in the program on the ABC affiliate in Orlando, Fla., was going for a pricey $70,000, while a national spot with nearly 100 times the reach cost $140,000.

Spending on broadcast TV for presidential advertisements between the nominating conventions and Election Day Source: Television Bureau of Advertising

But that strategy works only for a presidential campaign, not a state-specific Senate, House or gubernatorial race.

As eager as TV stations are for the windfall, they do have to exercise some restraint when it comes to peak campaign season. Stations still have to maintain good relations with endemic advertisers — meaning there are no 200% price hikes for the car dealerships, banks, retailers and packaged-good companies that are a station’s year-round bread and butter. While there’s no mandated mix of political and nonpolitical ads, station managers are mindful of turning off viewers with commercial pods that feature nothing but electioneering. And there’s potential liability if a political spot makes an out-there claim about a person or an organization. The legal vetting process of political ads was a key topic of Tribune’s daylong summit.

Wilner predicts that TV spending will eventually plateau, not only because of the generational shift, but also because advertisers are intent on finding cheaper, more narrowly targeted digital alternatives. And there’s always the potential for public backlash to the spectacle of megabucks donors flooding the airwaves.

“Will this be the last huge cycle for station groups?” Wilner posits. “We may well look back on 2016 and see it as the high point for presidential campaign spending.”