Local Broadcast TV Finance for the Non-Financial Journalist

Question: What local news broadcast company would you invest in, with your career or with your wallet? Why?

Fact:

• For every dollar the TV station generates, 90 cents go toward paying your salary, operating expenses, rent, maintenance, equipment, and support staff like HR and Accounting.
• In 2024, political advertising will generate $200+ million in revenue. Much of this will disappear in 2025. How will it be replaced? What if it isn’t?
• There are telltale signs that the business is struggling, and future cost savings are ahead. What should you be looking for?

Why? Why do you need to understand the basics of financial statements and terms? When you see revenue, costs, and expenses changes, you’ll know what these terms mean and why they are important to you. Then you’ll understand management’s actions,?strategy, and how to anticipate the impact on?your financial well-being.

First, the primary reason the station exists is to make money. Making money is essential. Shareholders have expectations regarding financial returns. ?We need to be a better investment for our shareholders than they could find investing in other companies in the industry (or beyond).

Let’s break down how money (income) is generated. The terms may seem foreign but it’s critical to understand them because they are used in all financial reports and communications.

?Revenue (Advertising Sales and Service Fees):

Financial statements are built from the top down, starting with revenue. There are many sources of revenue depending on the focus of the business. In the TV station (and news) business, the most common sources of revenue are:

• Advertising
• Advertising (Political)
• Retransmission/Distribution Fees

Station’s Operating Expenses:

Local news content is created at a market level and national news, sports, and most programming come from Networks and the station pays for it.

• Station Operating Expenses (YOU, payroll, equipment, etc)
• Network/Cost of Content Affiliation fees

SG&A (Selling, General, and Admin Expenses):

These are where Sales, Marketing, Human Resources, Accounting, Legal, and Management expenses are recorded. These expenses are consolidated and serve multiple locations and business units.

• IMPORTANT CONCEPT: This is where we see the first cuts when the business is underperforming because they don’t directly impact customers and clients.
• It can be difficult to measure the financial benefits of SG&A expenses.
• You could measure the return on investment by using ratios like, what % is SG&A of Total Revenue and compare that to competitors and industry contemporaries.

Operating Income, aka Profit Margin:

After the station’s operating expenses and fees paid for content are subtracted from the Revenue, this is called ‘Margin’ or ‘Profit Margin’. This measures how the business is performing before other expenses not associated with creating content.

Net Income:

Net income is the money left after subtracting all operating expenses, including cost of goods/content sold, selling, general, admin and other fees, from its total revenue. It's the most important measure of a company's profitability. Revenue is at the top and Net Income is at the bottom.

• This metric is measured as a % of revenue generated. This number is critical for shareholders because it drives EPS (earnings per share).
• Investors look at Net Income and EPS before they commit to investing in the enterprise. It drives shares sold and the share price.
• Looking at different TV Station companies, Nexstar recently reported Net Income of 10.7%, Gray Media reported 6.6%, Sinclair 2%, Scripps reported < 1%

Important Takeaways for TV News Journalists:

1. Get to know what is happening in the Sales department. Revenue is critical to the health of the station, company, and industry. For every dollar of incoming revenue, 90 cents go toward paying salaries, operating expenses, rent, maintenance, equipment, and support staff.
2. In 2024, political advertising will generate $200 million in revenue. Much of this will disappear in 2025. Where will this revenue come from? This represents ~ $20 million in Net Income, $180 million in Operating and SG&A expenses.
3. In the of case layoffs and job eliminations, it’s not that these positions aren’t needed. It’s most likely a result of declining revenue and then expenses need to be cut to remain profitable.
4. IMPORTANT CONCEPT: There are telling signs that the station is struggling financially. These include

• Job freezes. When people leave, the positions are not filled. Postings may stay active but no one is conducting interviews. You’ll see openings that are 6 months old.
• Non-essential operating expenses are cut back. The grass gets long. Cleaning services show up less frequently. Perks like meals (or doughnuts, pizza, coffee, etc) are eliminated.
• Maintenance on vehicles and equipment is stopped or delayed.
• Marketing budget is cut.

Your Next Steps:

• IMPORTANT CONCEPT: Look for comparisons! Invest in better understanding your company’s financial statements. All publicly traded companies (like Gray , Nexstar , Scripps , and Sinclair ) release quarterly results to the investor community. Are you looking at these? Use the lens of this short article to?compare companies.
• Ask questions. It starts with the first job interview and continues throughout your employment. What are the current sales team challenges? Are we meeting our budget? What are the most important 2 or 3 initiatives of the General Manager, and how can we/I help?
• Become a critical thinker. Why are Fox and CBS raising their retransmission fees ? It telegraphs a potential revenue miss and they are trying to?cover lost revenue by increasing prices. Remember, we know for every dollar missed in revenue, 90 cents could eventually be cut in payroll, operating, and SG&A expenses.
• Network, network, network. Build your professional network to include News Directors, GMs, and Talent Acquisition professionals. Make sure you and your work are visible on LinkedIn, YouTube, and TalentBlvd.com
• Timing and execution are critical to your career. ALWAYS have an updated resume, reel, and elevator pitch. Start the search for your next role a minimum of 9 months out. Be ready to execute that search if you are laid off, your job is?eliminated, or your station is?closed.
• Finally, LIVE WITHIN YOUR MEANS! This will give you incredible flexibility when it comes time to pivot, you there will be a point that you need to pivot!

Summary:

All is not lost. Many organizations are successfully pivoting when it comes to new sources of revenue or shifting to higher-margin services. Streaming and digital content will be monetized. Although demographics are changing and fewer millennials and Zs are watching, older millennials and boomers are still tuning in. Those demographics have much more disposable and discretionary income and are highly profitable advertising targets.

Be adaptable. Be flexible. Be prepared!

Follow @talentblvd on LinkedIn, IG, Twitter, Facebook and TikTok. Be an early adopter by joining TalentBlvd.com .

Bonus Material for Extra Credit:

Most of the content in this article is applicable to both macro (company) and micro (individual station) levels. There are some metrics that will be found only at the company level and are critical to measuring the health of the entire organization. These metrics can also be found in financial statements. They include:

• Interest. Companies paying interest at higher rates or dollars than their competitors generally have higher debt. Just like your personal finances, high debt payments hamper the ability to make investments in the business or pay higher salaries.
• Depreciation. When equipment is purchased, it’s depreciated on a schedule. Depreciation represents capital being invested in the business. Equipment being replaced as technology changes results in depreciation. Organizations that aren’t recording depreciation likely have equipment that has been fully depreciated and could be obsolete and outdated. Not good.

Ok, now look at the attached financials. Which company and why?