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Station group CEOs look to ad targeting, sports betting, cannabis for growth

While TV stations are expected to benefit from $3 billion or more in political advertising in the 2020 election cycle, station group CEOs are eyeing a major boost to their ad businesses down the road.

Perry Sook, chairman, president and CEO of Nexstar Media Group Inc., now the largest station operator following its purchase of Tribune Media Co., told NAB Show New York conference attendees on Oct. 16 that the adoption of impression-based sales could result in a 5% to 10% bump in overall ad revenues for stations.

Pat LaPlatney, president and co-CEO of Gray Television Inc., said station viewing has been diffused across apps, websites, streaming outlets and other devices. When aggregated, though, he believes more people are watching local broadcast content than a decade ago. He said pulling the disparate audiences together, making it easier for clients to make cross-platform buys and finding better measurement would result in a significant uptick in ad sales.

Local TV companies are now looking to do more business against targeted consumer groups interested in particular types of services or products, as they monetize their audiences beyond deals rooted on the traditional currency of gender and age. LaPlatney said adding targeting and measurement of the reach local TV provides would make for effective tools not to only help stations capture more local ad sales business but enable spot sales to grow as well.

Executives on the panel said their core advertising businesses are continuing to shift. Sook, for instance, said legal has surpassed quick-service restaurants as the No. 2 advertising category for Nexstar behind automotive. During the first half of 2019, the professional services category was on par with auto, according to Patrick McCreery, president of the local media group at Meredith Corp.

In some markets, legal has surpassed auto as the No. 1 category for Gray, said LaPlatney, who called that transformation "a good thing." He said a more diverse revenue base would provide a hedge against the auto category taking a major hit.

Sook acknowledged automotive dealers are less profitable than they were three years ago and there has been some reduction in their market spend, including on local TV ads.

"We're part of a system that is changing," he said.

Executives believe that sports betting could emerge as a significant ad category for stations as more states legalize the practice in the wake of the U.S. Supreme Court overturning a ruling that had limited the action to Nevada. Gray's LaPlatney believes sports betting will have an impact on the business in 2020 and beyond but noted it has not materialized just yet for Gray.

Another possible growth area is cannabis, though it would need federal sign-off before the stations could accept such ads. Sook said Nexstar has been approached about such business opportunities.

The executives also remain bullish on retransmission-consent fees, even though some forecasts call for the revenue stream's growth to dry up moving into the middle part of the next decade. Pay TV operators pay retrans fees to broadcasters in exchange for permission to carry local stations' signals.

Their belief stems from the idea that while local TV broadcast accounts for a 35% share of viewing, the medium only garners 18% of distribution revenue. Nexstar is anticipating continued double-digit growth from retrans, Sook said.

"There is a big gap to close until we get to parity" in terms of viewership/fees ratios, he said.

Asked whether Meredith is concerned that higher video pricing from increased retrans fees could further accelerate cord cutting, McCreery said it was "a delicate balancing act."

He predicted that the legacy pay TV ecosystem, through which broadcast stations receive most of their carriage, will not erode as quickly as some have forecast. McCreery noted that stations have been able to avoid subscriber losses via carriage deals with virtual providers, and stations also will be part of other streams that "we don't have yet."