Most broadcast shares reacted favorably on November 9 to the surprise victory by Donald Trump in the presidential election, as markets processed the possibility that the new administration could usher in deregulatory changes, and even positively impact revenue growth.
The belief that Trump’s plan for tax cuts and infrastructure spending could spur economic growth pushed markets and broadcasters higher. But more importantly, broadcasters are hopeful that the Trump FCC and a more deregulatory regime could lead to more large-scale broadcast M&A in 2017. That belief exists even though the path to more transformative cross-industry deals is less clear after the Republican candidate indicated an aversion to vertical integration during his campaign, specifically speaking out against the AT&T Inc./Time Warner Inc. deal.
Affiliate TV station groups performed the best the day after the election (see table below), on hopes of a pro-growth administration that would do away with long-standing outdated ownership regulations. Many broadcasters expect significant deregulation under Trump, starting with the 39% ownership cap. Potential deregulation could mean larger TV station deals than might have otherwise been envisioned. Overturning the newspaper/broadcast cross-ownership ban is also likely to be in broadcasters' sights.
M&A activity has been very light in the TV station space in 2016, except for station spinoffs associated with the $4.6 billion Nexstar Broadcasting Group Inc./Media General merger, since involvement in the FCC incentive auction prevents participating companies from engaging in deal discussions. Expectations were already high for a busy 2017 after the auction's conclusion and have just gotten higher. What’s more, the Trump victory may push the FCC to work even harder to wrap up the auction before FCC Chairman Tom Wheeler leaves office.
Investors could also be encouraged by the prospects for lighter regulatory oversight in other areas. The FCC, under Chairman Wheeler, has had a long-standing plan to add to regulations governing negotiations of retrans agreements. With this threat potentially removed, investors can have more confidence in the growth potential of that revenue stream.
The fact that Trump won the election without the traditional reliance on local broadcaster ad time didn't seem to rattle investors, at least not on the day after the election. Trump relied on his personal notoriety and his ability to attract massive media coverage in his campaign run, as well as leveraging a variety of digital platforms like Twitter. His campaign did come back to broadcast advertising late in the election cycle, especially in the two weeks leading up to Election Day, but he raised and spent much less than Clinton did on media advertising.
The divergence from normal presidential ad spending patterns has led to lower-than-expected political spend in 2016, but how much lower has yet to be determined. Some observers expect that 2016 TV political spend will finish at or below 2012, when we estimate that local TV stations spend reached $2.87 billion. Initially, the spending levels had been expected to exceed $3 billion. Wherever the final dollars fall, broadcasters expect the political spend patterns to be an anomaly this year, unique to the unusual aspects of the Trump candidacy, and not a statement on political advertising on TV in general. Investors are no doubt pleased to have the distraction of disruptions in political spend in the rearview mirror, with apparent confidence that it will remain a significant even-year boost to TV station offers and a continuing asset for the sector, despite the ongoing good news/bad news scenario of political's displacement of core ad spend.