Networks Tap Political Wellspring

As the chart above demonstrates, political ad spending is a growth industry. Absolute spending has risen sequentially every election year since 1994 with the exception of 2002, which followed a presidential election year. I find it pretty amazing that 2006 saw greater spending than the 2004 presidential year; that speaks directly to the theme of political spending as a growth industry.

Also worth noting is that political spending has reached 13% of revenues in election years. This is a meaningful amount and goes far in replacing advertising lost to secular challenges.

Looking ahead to 2010, a lot will depend on the outcome of tomorrow's election. A closer-than-expected race for president and fewer gains for Democrats than expected in the House and Senate will keep the pot boiling and fire up Republicans to make a comeback starting in 2010. It will also get the Republican presidential politics going even more quickly.

On the other hand, huge gains by Democrats will put the House and Senate so far out of reach in 2010 that it might depress spending in 2010. For what it's worth, browsing the Senate seats that are up in 2010, the map again looks favorable for Democrats. 2012 looks much better for Republicans, as Democrats will have to start defending the huge gains they made starting in 2006. With Republicans seeing an opening and a more favorable map, and Democrats defending their gains, 2012 should be a huge year for political spending.

Unfortunately, that is a long way off for suffering local TV stations. And 2009 is sure to be a big down year when $3 billion in political ad spending goes bye-bye. For Disney, News Corp., CBS, and GE/NBC, this is another headwind in what is shaping up to be a difficult year.

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Please note that due to factors including low market capitalization and/or insufficient public float, we consider Gray, Nexstar, Sinclair, Young and LIN TV Corp. to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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At time of publication, Birenberg was long GE in a few client accounts, although holdings can change at any time.

Steven Birenberg is president and chief investment officer of Northlake Capital Management, LLC. Northlake specializes in managing equity portfolios using a combination of exchange-traded funds and special situation stocks. Birenberg appreciates your feedback; click here to send him an email.