Upfront Ad Outlook in Wall Street Focus

Illustration by: Paweł Jońca

A weak upfront last year and softer ratings this year have caused a weak scatter market, "which in turn likely leads to another weak upfront," says one analyst.

Wall Street analysts are expecting another weak upfront advertising market as cable networks groups have begun unveiling new programming slates and the broadcast networks are set to announce their fall season shows next month.

‎"Early upfront negotiations suggest [ad price] increases will be below last year, in the flat to up low single-digit [percentage] range across the market," said Jefferies & Co. analyst John Janedis in a report this week.

‎A few weeks ago, he had written: "We expect further moderation of [upfront ad prices], like flat to up 5 percent versus last year — depending on the network. However, volumes may be slightly less negative than last year as some advertisers look for protection against what could be a stronger than expected political cycle in 2016.‎"

Macquarie analyst Tim Nollen cited recent TV ratings and ad challenges amid rising digital viewership. "After a poor year for both broadcast and cable ratings overall, the networks appear to be in a relatively weak position coming in when looking at ratings from [a] traditional perspective."

He added: "A weak upfront last year followed by weak ratings this year has produced a weak scatter market (at least in terms of dollars considering the guarantees that some networks are making good on), which in turn likely leads to another weak upfront in store."

Nollen cited a projection from ad forecaster Magna Global for a 7 percent drop in this year's TV upfront market. This includes a 10 percent drop for broadcast and 5 percent decline for cable networks after last year's moderate drop.

Said Nollen: "We think this may be extreme, as 1) at least two broadcast networks — CBS (-3 percent in live-plus-same-day ratings) and ABC (+1 percent) — are doing no worse than historical average, so those two at least have some buffer; and 2) live-plus-7-day ratings average 30 percent higher for the big four broadcasters, so there may be some support for C7 deals, which will likely take greater prominence this year."

Nollen also highlighted that "‎many TV networks are approaching this year's upfront differently from previous ones."

For example, Turner and Fox networks will offer behavior-based ad sales across TV and digital platforms using broader viewership data and "will sell ads on a cross-platform basis to reach linear viewers as well as those on alternative devices," he said. "These use digital ratings data from Nielsen as well as other services like comScore and from their own data capture on streaming trends."

Added Nollen: "CBS has been outspoken again this year on doing C7 deals for its linear broadcasts, now aiming for a majority of its upfront negotiations to be completed on this basis. In addition, CBS has been working with Nielsen to assess a total C7 audience metric, including linear TV plus digital viewing, be it CBS.com, a CBS app or the CBS All Access platform that launched in October. And on this basis, its total year-over-year viewership looks to be up in the mid-single digits."

Meanwhile, Viacom is using its own data and working with ad agencies Rentrak, Rovi and Accenture to sell ads to its younger demo. And Discovery is "hosting smaller, more targeted upfront presentations to better engage with agencies," Nollen said.

The analyst concluded: "TV networks finally appear to be pushing the industry ahead. Doing so involves bringing down the barriers between linear and digital ad sales and could even force the hand of ad agencies whom many accuse of being too often siloed in their own TV versus digital media buys."

Twitter: @georgszalai

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