Despite Noise, Political TV Ad Outlook Remains Strong -- RBC Capital Markets

1H political spending up 20amp821125 vs 1H12 despite softer 2Q It seems that political spending remained softish through early June but is now accelerating However we think it39s important to note that despite the softer 2Q results political spending increased 20amp821125 vs 1H12 on the strong 1Q16 results The increased spending is coming from the Clinton and Congressional campaigns Democrats are making a push for the House although Mr Lanzano doesn39t expect them to make much of a dentFullyear political outlook remains on track The fullyear 2016 political outlook hasn39t changed since we met with Mr Lanzano in midApril and he still expects political spending on TV stations ads to come in at around 33bn This would represent 14 growth over the 29bn in 2012 There is uncertainty around how Trump will spend in the election given recent questions about fundraising and turmoil in campaign leadership However this should be offset by spending by outside groups which have raised significant funds to date We highlight an OpenSecrets analysis of FEC data that shows that outside spending groups had raised 702mm through April 28 2016 almost 35x the 202mm raised through April 28 2012 To the extent that the Republican establishment doesn39t support Trump it is expected that funds will be deployed to support Republican candidates in tight Congressional races as it becomes more imperative for them to maintain control of Congress As far as swing states are concerned Mr Lanzano doesn39t see any major changes but he does think that Illinois and Indiana could be somewhat more competitive given Trump39s appeal to those electorates However he doesn39t see New York or New Jersey as emerging battle ground states2Q core more of the same It seems that core is expected to be flattish in 2Q so in line with pacings from the 1Q earnings calls After a tough April May and June were better Auto benefited from increased dealer inventories that resulted from an increase in the number of cars coming off lease With regard to other key categories Healthcare is still doing well Retail is down a little bit but okay Telecom continues to struggle and QSRs are flat to slightly down which is an improvement2016 core likely flattish Looking out it seems that core is expected to be flattish to slightly up for the year despite political crowdout A key driver is the Olympics where NBC is seeing strong demand due in large part to Brazil39s being in a primetimefriendly time zone The Rio Olympics are expected to generate 600amp8211650mm in spending vs 500mm for the previous Olympics Mr Lanzano also expects that 3Q core will be bolstered by advertising on the conventions Bloomberg recently reported that CNN and Fox News are seeing an 8amp821120x increase vs normal ad rates for spots during the conventionsGTN most leveraged to strong political outlook Since 1Q earnings the stock is down 20 a large part of which is due to softer 2Q political guidance A strong political result would allow the company to delever which should drive accretion to the equity and more importantly allow the company to participate in accretive MampampA as we head into 2017 Recent industry discussions are supportive of the view that consolidation should accelerate following the completion of the incentive auctionAll values in USD unless otherwise notedLink to Full Research Report including Required Disclosures and Disclaimeramp174 Registered trademark of Royal Bank of Canada RBC Capital Markets is a trademark of Royal Bank of Canada Used under licenseThe opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaVillagecom MyersBizNet Inc management or associated bloggers

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Despite Noise, Political TV Ad Outlook Remains Strong -- RBC Capital Markets

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