TV networks should be encouraged by the ad forecasts presented this morning at the UBS Global Media and Communications Conference. Global spending on the medium will grow 7.7% in 2014, up from +1.8% this year, Magna Global EVP Vincent Letang …
In a word, yes — which could make them much more formidable when they approach TV networks to negotiate ad rates. Up to now agencies have had mixed thoughts about mergers. The financial advantages, including the ability to cut costs, often are outweighed by the need after a deal to jettison big clients who compete with each other. In Omnicom Group’s new merger agreement with Pubicis Groupe — officially announced this morning following widespread reports about it this weekend — the combined entity might have to pick between Coke and Pepsi, AT&T and Verizon, Nissan and Toyota, and Google and Microsoft. But arguments in favor of mergers become much more compelling if antitrust officials in the U.S. and Europe approve the creation of Publicis Omnicom Group. (The companies call it a merger of equals that should close by the end of Q1 2014.) Last year the two companies together generated $11.4B in revenues from the U.S., more than twice as much as WPP which would become the No. 2 agency. The merger would make Publicis Omnicom a compelling choice for blue chip advertisers, in part because it likely would have the best technologies and resources to track how ads are performing over multiple media. Others will have to respond by making their own merger deals says Pivotal Research Group analyst Brian Wieser. Interpublic “will immediately be considered to be in play,” he says as he raised his stock price target for the ad company to $21 from $16. Currently the No. 4 agency worldwide behind WPP, Omnicom and Publicis, Interpublic offers “the best solution” for WPP, Havas and Dentsu as they look for options.
Hollywood will find little encouragement today in the data from the research firm’s latest annual “Global Entertainment and Media Outlook” report. PwC projects that U.S. consumers and advertisers will spend $31B on filmed entertainment in 2013, up just 1% from last year. That contrasts with 4.6% growth, to $376.4B, in the entire domestic media and entertainment economy. PwC’s soothsayers see the annual growth in filmed entertainment spending accelerating over the five-year period through 2017; it will average +3.4% a year to $36.4B. But with the broader business growing at an average of 4.8% a year, by 2017 filmed entertainment will account for just 5.8% of total U.S. media spending, down from 7.1% in 2009. PwC has even drearier news for pay TV, until recently one media’s hottest businesses: Outlays for “TV Subscriptions and License Fees” will average +2.2% a year to $83B in 2017. That’s a slower growth rate than for radio, expected to be +2.5% a year to $21.6B. TV ads will fare better, at +5.1% a year to $81.6B. But Internet ads are catching up fast, averaging +13.7% a year to $69.4B in 2017.
Credit Suisse’s Michael Senno adds fresh data today to support the increasingly popular view on Wall Street that the TV ad market is losing steam — and may endanger the boom in media company stock prices. His survey of ad buyers indicates that they “expect modest low to mid-single digit CPM inflation and flat to slightly higher total dollar volume growth” in the 2013/2014 upfront market which follows “last year’s trend of slowing growth.” Senno predicts unit prices to rise 4% with CBS +5%, Fox and cable +4%, NBC and ABC +3%, and syndication +2%. The problem goes beyond sluggish ratings. Overall ad spending was lower in relation to the GDP than it’s been at least since 1980. And national broadcast ad sales last year were still 7% below their pre-recession peak in 2006, despite a 12.6% growth in spending by auto makers. It seems that ad buyers who are cutting spending on print newspapers and magazines are shifting more dollars to online media than to TV. All told, Senno says that TV ad sales this year will fall 2.8% — which would represent 1.7% growth if you eliminate spending tied to the elections and the Olympics from the 2012 tally.
The analysis today from Nomura Equity Research’s Michael Nathanson could dampen the mood at TV networks as we head into the big upfront ad sales season. The most startling discovery: total ad revenues didn’t grow at all in 2012 at the Big Media companies he tracks. Declines at Viacom and News Corp outweighed gains at Discovery and Scripps Networks while sales were “essentially flat” at CBS, Disney, and Time Warner. “Given the surge in media stocks, the aggregate 0% growth was somewhat surprising,” Nathanson says. Factoring out political and Olympics-related ads in 2012, he sees ad sales at the companies growing 3.6% in 2013. But the analyst is “cautious” about his forecast. The pickup in the U.S. economy has been “weak” and the ongoing budget stalemates portend “an uncertain economic future.” Meanwhile Internet-based media are taking market share, and driving ad rates down. “In effect, online advertising — specifically online display advertising — is enabling advertisers to reach their ‘eye-ball targets’ with less (and sometimes even no) ad dollar budget growth.” For example, last year media and entertainment companies cut their ad spending 4.2% — even as box office sales hit a record high.
Here’s the dirty little secret behind broadcasters’ campaign to change the way ads are sold — to include people who watch them up to seven days after they air (called C7), up from three (C3): It wouldn’t increase …
You wouldn’t think so based on the lousy prime time ratings for everybody except NBC so far in the 2012-2013 season. But CBS’ dauntless Chief Research Officer David Poltrack vigorously argued today in his annual industry forecast at the UBS Global Media and Communications Conference that broadcasters are in great shape. Poltrack projects that advertiser spending for time on the major broadcast networks will fall 2% next year vs 2012. That’s good: It would represent 3% growth if you factor out this year’s boost from the Olympics and the elections. “The economy is finally gaining momentum in the right direction,” Poltrack says. (Zenith Optimedia also predicts a 2% drop for network TV to $16.9B in 2013.) As for the recent ratings, Poltrack says not to worry: The slide is due to what he calls “a chaotic start” with some shows premiering a week early, the presidential debates, and Hurricane Sandy. That’s “not indicative of how the season will progress,” says Poltrack.
Analysts are starting to wrap their minds around an idea raised by CBS’ Les Moonves (here) and Disney’s Bob Iger (here) in recent earnings calls in response to questions about broadcasters’ disturbingly soft ratings in the new primetime season: With DVRs and time-shifting becoming more popular, they said, it’s time to sell ads based on the number of people who watch them up to seven days after they first air (C7, in industry jargon), up from today’s Live+3 days (C3). But the early verdict seems to be that a change would only help broadcasters a little, if at all — and won’t happen quickly. With DVRs’ ability to speed through commercials, “The problem is not ‘when’ people choose to watch particular content, it is that they are not watching advertising at all when they watch that programming,” BTIG’s Rich Greenfield says this morning. “You can try boosting viewership via C7 or even C14, but the ads are simply not being watched.” His suggestion: Networks should offer more shows on VOD, and fill them with fewer ads that are targeted to viewers’ needs and interests. The shift to that kind of model, including through TV Everywhere initiatives, “has simply been far too slow and we are being kind,” he says.
The ranking comes from Advertiser Perceptions, a company that surveys thousands of advertisers each spring and fall to see what they think about media brands with whom they might do business. The polls measure diffferent qualities that contribute to overall brand strength. ABC took the top honor for a media company, as well as for broadcast TV brand strength and sales knowledge. Another Disney-owned property, ESPN, won the brand strength competition among cable networks. Here’s the list of Media Brand winners in categories that also include print, digital, mobile, and ad networks: