Kagan’s 2021 Outlook: Opportunities Abound for Local Radio And TV.


Kagan analysts say while there continue to be challenges facing broadcasters it also sees opportunities for radio and television in months to come. Without political revenue levels anywhere near the record-breaking numbers seen last year, Kagan says 2021 will be a “transitional year” for local stations. “While core ad revenues are improving in the first quarter of 2021, it is not the snapback many had hoped for,” it tells clients. But analysts also see reasons to be hopeful about the direction radio is heading.


“There are signs of radio revenues stabilizing, with digital initiatives benefiting the bottom line,” says Kagan. “Radio station podcasting initiatives could spark new revenue streams,” it adds.


But the appeal of digital is two-way street for broadcasters. “National and local spot advertising budgets may move further away from legacy media to digital alternatives,” notes Kagan. Television stations are more at risk than radio, as they could see slowing retransmission consent fee growth as more customers unplug from cable and satellite TV and shift to video-on-demand and over-the-top options.


In terms of local advertising, Kagan says broadcasters have benefited from a focus on local news during the past year as people look for information about the pandemic. “We expect local advertising to deliver mid- to high single-digit growth in 2021, with small and midsized markets likely outperforming large markets and urban centers with high COVID-19 infection rates, as it will take longer to vaccinate their populations,” it says.


In many ways 2021 looks a lot different than last year. Kagan notes broadcasters' national spot advertising, excluding political, was down 40% or more during the first wave of COVID-19-related shutdowns in the second quarter of 2020. It then started to improve in late-year as live sports returned and local businesses reopened. By year-end national spot was doing even better according to Kagan, which credits strengthening automotive and retail advertising.


“National core ad revenues in 2021 should be up by low to mid-single digits,” predicts Kagan. How big those numbers grow will depend on whether the Summer Olympics are held in July and August.


Both radio and television managers will miss the record-breaking political advertising of last year. Kagan estimates about $4 billion was spent, or about $1 billion more than the $3.05 billion it had projected in early 2020.


But analysts say it may not be long before the spigot is turned back on. “There is already talk that the 2022 midterms could also break political ad spending records, given the slim margin for Democrats in the House of Representatives and a 50-50 tie in the Senate,” says Kagan.


Watching The Deal Market


One of the wildcards in the coming months is what the new Democrat-controlled Federal Communications Commission will do when it comes to radio and local TV. Kagan notes that a proposal floated by the National Association of Broadcasters to relax some ownership rules – including allowing up to eight FMs in the top 75 markets, with no AM cap and no cap at all outside of the top 75 markets – did not get far when broadcaster ally Ajit Pai led the FCC. With the new administration in charge, Kagan believes the rules are “less likely to change under a new Democratic-led FCC.”


That could have an impact on the deal market. The COVID-19 pandemic caused the broadcast deal market to plummet in 2020 to just $1.02 billion worth of transactions, an 87% drop from 2019. It was the lowest deal volume since 2010's $810 million as all the major deals were in TV, not radio, last year.


This year, Kagan analysts think major operators such as iHeartMedia and Cumulus Media might look to trim their portfolios or swap out of underperforming markets. “There could be additional debt-for-equity swaps and distressed sales among overleveraged station owners if radio revenues continue to decline sharply in 2021,” it says.


Even so, even without significant deregulation, Kagan expects more action in television M&A this year as the consolidation drive continues. Gray Television’s $925 million deal to buy Quincy Media in February only gave its outlook more credence. Kagan says there is also continued questions about whether Tegna could be a takeover target once again after attempts last year were sidelined by the pandemic.

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