Stations’ Fiscal Impact Uncertain

Sep 12, 2005  •  Post A Comment

Television stations in the region hit by Hurricane Katrina are likely to feel pain well after they rebuild their transmitters and begin broadcasting again, Wall Street analysts are predicting.

However, due to the unprecedented nature of the post-storm situation, with so many homes in Mississippi and New Orleans destroyed or empty following the mass evacuation, analysts are finding it nearly impossible to sort out just yet how severe and far-reaching that pain will be.

The aftermath of Katrina is proving to be like nothing ever experienced in this country. That means nearly everyone, from federal, state and local officials to station executives, is flying blind.

“From the investment community perspective, one-time events like a hurricane are discounted pretty simply,” said Sean Butson, a broadcast analyst at Legg Mason in Baltimore. Had Katrina been simply a hurricane, it would have been “a one-time hit to third-quarter earnings. Investors don’t like to see it, but it would only be one time.”

However, with New Orleans underwater and the increasing chances that it could take years before the city is fully reinhabited, measuring the impact is proving more difficult.

As Mr. Butson noted, “There’s not an economy going on there, and there has been more than a temporary dislocation [of residents] in that market. What are the long-term prospects? We just don’t know how to handicap it.”

Station groups to be most immediately affected by the storm are Belo, Tribune, Emmis Communications, Liberty Corp. and Hearst-Argyle Television, all of which own stations in ravaged Gulf Coast communities.

The storm came at a particularly delicate time for Emmis, given it was in the process of selling its station in New Orleans as part of a larger effort of getting out of the television station business. Jeffrey Smulyan, chairman and CEO of Emmis, told TelevisionWeek the company is holding talks with potential buyers of that station, and he said, “We’ll have to work through” the challenges confronting the station.

Analysts for the most part have not trimmed their third-quarter estimates, mainly because the extent of the damage remains unknown. However, they have noted that because the New Orleans market ranks 43rd in TV households and 48th in estimated advertising revenue, the problems there aren’t likely to trigger huge swings in the broadcasting industry.

That might apply to the companies with stations there as well. Banc of America Securities analyst Jonathan Jacoby estimated that Belo’s station in New Orleans contributes 2 percent to its total revenue pie, while Tribune’s two stations account for less than 1 percent. Hearst-Argyle’s station contributes 2 percent, while the Emmis station accounts for 3 percent. In Biloxi, Miss., another affected market, Liberty’s station contributes 8 percent of the company’s overall revenue.

While it’s clear New Orleans has been severely impacted, experts are hopeful the national impact will be minimal.

“The U.S. economy is resilient to big dramatic changes,” said Mark Fratrik, VP of BIA Financial Network, a consulting firm to the television industry. He thinks that given the strength of the economy, the Katrina event might cause little more than a hiccup.

Merrill Lynch broadcast analyst Laraine Mancini predicted that “advertisers are likely to sit on the sidelines until the situation is under control, but the rebuilding could bring new business in the form of home building/services and insurance businesses-similar to what happened in Florida after last year’s hurricane season,” she said in a research note. Further, she noted that around 50 percent of the population of the New Orleans designated market lives outside New Orleans.