The cord-cutting continues. As we examined last week, the migration from linear TV crossed a symbolic threshold. Consisting of broadcast and cable, it dipped below 50 percent of U.S. viewers for the first time. Declines continue to be driven by the better product-market fit held by OTT streaming apps.
Continuing that narrative, new insights from Wells Fargo Securities paint a deeper picture of the high stakes and impacted parties. Specifically, it reports that local TV station groups – as opposed to major cable operators – could bleed the most. This is simply due to their composition of revenues.
For example, about 50 percent of revenue for these station groups is domestic affiliate fees paid by TV distributors. So as that revenue evaporates upstream due to streaming migration, local groups’ impact is outsized. Worse, there’s no easy path to diversifying away from this troubled revenue bucket.
All Politics is Local
The one exception to this dilemma will be next year’s cyclical windfall that local broadcasters always enjoy: a presidential election year. Here, Tip O’Neil’s “all politics is local” mantra, applies closely to advertising spend, as candidates look to surgically geotarget campaigns for the greatest impact.
Putting some numbers behind that, the 2022 election cycle saw aggregate local TV ad revenues jump 30 percent to $20.4 billion, according to BIA Advisory Services (disclosure: my former employer). Contributing to that is a revenue boost often seen throughout the TV food chain in an Olympics year.
Back to the most impacted TV groups, they include Nexstar Media Group, Sinclair Inc., Tegna, and Fox Corp. Wells Fargo Securities names Nextar and Sinclair as having the greatest exposure with 54 percent and 50 percent respectively tied to domestic affiliate revenue. Fox Corp is close behind at 49 percent.
By comparison, the share of revenue from affiliate fees is considerably lower for TV-network-based media companies that operate on more of a national or global level. These include Paramount Global (21 percent) Warner Bros. Discovery (20 percent) Walt Disney (15 percent and Comcast, NBCU (7 percent).
Play to your Strengths
Meanwhile, if we adjust the focal range to other segments of the local-national spectrum, hyperlocal TV assets are seen as one potential asset in stemming the cord-cutting tide. The idea is that content that’s relevant at the city level is a valuable differentiator that can’t be replicated by streaming apps.
For example, Cox Media Group is doubling down on these hyper-local differentiators with a new initiative. Known as Neighborhood TV, it will create target zones around a 6-8 mile radius of a given locale, offering neighborhood-focused news. It will pilot the program in Georgia and North Carolina.
Cox isn’t alone, following similar efforts like Fox Local. The latter works with Amazon to be featured as a channel in FireTV’s FAST (free ad-supported TV) lineup. So in some cases, to get the best of both worlds – local flavor and streaming scale – the old saying may ring true: if you can’t beat ’em, join ’em.
