Local TV to Benefit from Off-Cycle Political Spending

This will be an odd-odd year as it will be a record “off-cycle” political spending year. With 23 Presidential candidates, 50% of delegates being selected by 2/5/08 and razor thin margins in Congress, we are likely to see record off-cycle political ad spending in 2007, which is currently estimated at $700 million.

This should help offset some of 2006’s $1.65 billion in political spending on local TV. On the web, experts believe that local TV’s business could grow 50%+ in 2007. The web could now account for 2.5% of industry revenues in 2007. These new revenue streams are ramping up at the same time the drag network compensation has had on local TV players is waning.

The question is will investors look through 2007? Typically this is not the case but a) solid private market valuations, b) the hidden value of companies’ NOL/D&A tax shields, c) decreasing leverage (especially by year-end 2008), d) attractive valuations on a 2008 FCF/EBITDA basis and e) the fact that 2008’s anticipated record revenue is just ahead of us may cause investors to stick with local TV stocks in 2007.