2016 Election: Who will win the TV ad races?

Geetha Ranganathan, Paul Sweeney, Brad Barker & Joshua YatskowitzBloomberg Intelligence analysts

TV political ad projections for 2016 vary, yet windfall certain

While political TV ad forecasts vary, 2016 may set a record. Estimates range from CMAG’s $4.4 billion to a much larger $11.4 billion from Borrell, though that estimate includes other media as well. SNL Kagan projects $3.3 billion, with Magna at $3 billion. Regardless, experts agree that this will be the biggest year for political ads on TV, even with $1 billion in estimated digital spending. CMAG said that more money has been spent on TV at this stage than before due to fierce political competition.

TV ads may hit record $4.4 billion as presidential hopefuls spar

Political TV ads may rise 16% to a record $4.4 billion this year vs. $3.8 billion in the 2012 election, based on estimates by Kantar Media’s CMAG. Three-quarters of that amount may be spent on local broadcast TV ads, with about 18% projected to go to local cable TV and the remainder to national ads.

With the presidential nominations still up for grabs, political ad spending may rise even further. Poltical ads may generate 14% of 2016 station revenue, according to SNL Kagan.

Broadcast political ad spending to climb in 2H, mostly in 4Q

Political ad spending will likely ramp up during the year, with most of the spending coming in 2H. Nexstar, Sinclair and Tegna combined for $355.1 million in political ad spending in 2014 and $293 million in 2012. In both years, about 5% of spending came in 1Q, 10% in 2Q, 25% in 3Q and 59% in 4Q.

With a crowded Republican primary race, some extra spending could be pulled forward, especially in states with early primaries. Most expenditures, however, are likely to remain in 2H, leading up to the election.

Political spending to displace core ads for broadcasters in 2016

Higher political ad spending in 2016 will be partially offset by displacement of core advertising, especially in 2H. Tegna’s pro-forma total ad revenue grew 13% in 2H14, while core ads fell 5%. Over that period, Nexstar’s total ad revenue rose 25%, while core ads were flat.

Core ad spending has been flat-to-slightly up in recent years and isn’t likely to be a growth driver for broadcasters, especially if ratings continue to fall. Development of digital platforms may help offset the pressure on core broadcast ads.

Broadcaster margins may get boost from political ad spending

More buyers of ad time during political campaigns may help broadcasters expand their margins in 2H. The increased demand for the finite amount of air time may drive up ad prices. On a fixed-cost base, higher prices would boost margins. Sinclair’s adjusted Ebitda margin rose to 36.1% in 2014, up from 34.5% in 2013. During the 2012 presidential election year, the company’s margin was 38.8%. Tegna and Nexstar reported similar trends, with 2014 margins increasing from 2013, though lower than 2012.

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