Stark political divisions in the U.S. have caused a surge in TV ad spending, with primary races in Ohio, Pennsylvania and other key states pointing to a massive haul in the upcoming fall midterms.
One key beneficiary of that influx of cash is Sinclair Broadcast Group, the No. 2 owner of local TV stations in the U.S. The company’s CEO, Chris Ripley offered his outlook on political ads and other topics in an appearance at the MoffettNathanson 9th Annual Media and Communications Summit.
“Some of these primary races are crazy,” Ripley said. He cited Ohio, where Donald Trump-backed U.S. Senate candidate J.D. Vance prevailed in a hard-fought contest. The $75 million spent on TV ads for the primary was 40 times more than what was spent on the primary in the last election, Ripley said, and four times more than the last general election.
“On the one hand, I lament that we’re in the political environment that we are,” Ripley said. “On the other hand, it’s very good for our business.”
The surge in primary spending points to a record midterm in the fall, with what Ripley called the “big money” kicking in during the third and fourth quarter.
Ripley took care not to make any endorsements, but his company’s local TV operation has been known for its highly partisan commentaries. It decided at the end of 2019 to end its controversial “must-run” opinion segments featuring personalities like former Trump Administration official Boris Epshteyn.
Among the states where important gubernatorial and Congressional races will unfold through November are Ohio, Pennsylvania, Wisconsin, Arizona. “There’s so much at stake here,” Ripley said, noting other states with significant Sinclair station presence like Georgia, Kansas, Michigan, Nevada, Maryland and Maine.
Spending on issue-related TV ads is another emerging growth area, Ripley noted. “More and more issues are going on direct ballots,” he said. “With what’s going on with abortion rights, that’s going to just even add to that category.” Legalizing sports betting or cannabis are other issues generating significant ad spending.
Ripley covered a number of other subjects besides politics during the 45-minute conversation. Sports streaming was a key theme, as the Sinclair-controlled Diamond Sports Group is poised to soft-launch a direct-to-consumer set of regional sports networks. (Diamond took over the 21 networks formerly run by Fox and shed in 2019 during the Disney deal, and then rebranded them as Bally Sports.)
Asked by moderator Michael Nathanson about the opportunity that sports represents, Ripley said, “We hit about 80 million homes in our footprint. We know that around half of them are not getting an RSN. That’s a huge [total available market] right there that we can address.”
The prospect of taking regional sports networks — hugely profitable enterprises born of the cable TV bundle era — into streaming is an untested one. While NBCUniversal has hinted it is exploring streaming versions of its RSNs, the economics are different both on an industry and consumer level.
Ripley said the overall climate for streaming is helpful to the prospects of Diamond, which is going to need to charge a fairly hefty monthly fee. Pricing hasn’t been finalized, but recent projections by Sinclair put the number at about $225 per year, or $20 a month. Given the rabid enthusiasm of fans for their local teams, Ripley during a recent earnings call described that as “an attractive price point.”
In the MoffettNathanson session, he expanded on that view. The overall streaming environment “is rationalizing, which was inevitable,” he said, alluding to recent stumbles by Netflix and signs of a throttling back by some other players. “That means they’re going to be more focused on profit, which means they’re going to be raising prices. Netflix has already been pretty aggressive about raising price. Well, that means the relative value equation is also going to get better” for regional sports outlets.
Even at high-end prices, the fact that no additional spending on content, plays to Diamond’s favor. That’s a stark contrast with many other subscription streaming outlets.
“I often get asked about CNN+,” Ripley said, alluding to the service launched by WarnerMedia and then shut down by new corporate bosses at Warner Bros Discovery after hundreds of millions of start-up costs. “They were going out and trying to create an entirely different service” from its linear network. “We’re taking the core of what our existing service is and making it available to another group of people. That’s a fundamentally different proposition.”
The Diamond entities have streaming rights to Major League Baseball, NBA and NHL games. When they go live in June, they will have only five markets for MLB, given the league’s strategic interest in streaming rights. Asked about the state of the rest of the rights in other MLB markets, Ripley said they are being actively negotiated.
Asked about how MVPDs, both traditional and virtual, will respond to Sinclair putting regional sports “over the top” and enabling consumers to avoid the pay-TV bundle, Ripley said sports and news are all that’s left holding the traditional bundle together. “I don’t believe MVPDs such as DirecTV are going to be willing to take the risk and go without some key product,” he said.
Major satellite provider Dish Network and internet-delivered bundle YouTube TV are among the distributors who have balked at Bally Sports’ terms, leading to blackouts in large swaths of the country. “The MVPDs very much want this content,” Ripley said. “To some degree, we’ve already crossed the Rubicon in terms of direct-to-consumer. We had to negotiate for the right to do it years in advance. So, they all want this content, they know their subscribers want it.”
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