2004 Annual Report - Local TV Economics

Even with the economy in the doldrums, the local television business is remarkably and consistently profitable. On average, local television stations earn more than double the return of what newspapers earn, and the newspaper industry is among the most profitable in the country.

Just how profitable is local television? The evidence, much of it based on surveys, suggests that profit margins of around 40 percent is not a bad estimate. For four years, the Project surveyed news directors on newsroom profit targets. Responses to this question were low, but the range of profit targets that news directors reported varied between a little less than 30 percent and a little more than 40 percent.

Privately, however, news directors have told us, and other evidence supports the idea, that in larger cities the profit margins could well be much higher. According to TV Week, for instance, Hearst Argyle, a company with larger-market stations and a reputation for high quality, earned profit margins in 2002 of 51 percent at its NBC affiliates and 42 percent at its ABC affiliates, "even though the ABC Television Network ratings declined 20 percent."¹

The major issue facing local television news in the future is how to maintain these high profit margins when viewership is declining. Without increasing its audience, local television news has only limited ways to sustain profit margins, all of which hurt the franchise: raise advertising rates despite a smaller viewership, shrink the news content to increase the amount of advertisements that can be shown, sell off news content with sponsorship logos and segments, or cut costs.

Local stations, though, still have some things going for them. At most stations, much of the physical plant is already paid for. The licenses to run the stations are free. The only original programming most local stations do anymore is news - and their staffs are relatively small (an average of 31 people, according to surveys of the Radio-Television News Directors Association, or RTNDA). On top of that, most local stations still receive payments from the networks for airing their news and entertainment programs, although these payment structures are beginning to change. In addition, local stations get to use a portion of network programs to sell their own advertising.

Stations are being required to invest heavily in making their signals ready to be broadcast digitally while the compensation they get from their networks is likely to come down. Many local stations also increasingly feel they are at a financial disadvantage compared with cable, which is supported by both advertising and portions of the monthly fees paid by subscribers.

Over the last several years, local television revenue has bumped up and down but remained basically flat, according to BIAfn data.

Average Local TV Station Revenue

Nominal and inflation-adjusted, 1995-2002

Design Your Own Chart

Source: BIAfn MediaAccess Pro

* Only commercial English-language stations broadcasting news programs are included. Inflation adjustment is based on 2002 dollars.

Average Revenue and Revenue Growth for All Stations

Source: BIAfn MediaAccess Pro; Dollar figures are in millions of dollars