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The supply chain crisis is coming for the TV business.
Even as the TV industry makes a comeback from a pandemic-ravaged 2020, the limited supply of semiconductor chips and the backlog of cargo ships off the coast of Los Angeles are beginning to have a domino effect, with executives and analysts unsure of just what to expect as the holiday shopping season kicks into high gear.
“We think that ad weakness from supply chain issues will be more media sector-dependent due to pressure from auto and tech (due to chip shortages) as well as from CPG (from rising input costs),” wrote MoffettNathanson analysts Robert Fishman and Michael Nathanson in a Nov. 1 research note, predicting TV ads will be down 1 percent from a year ago and down 7 percent from fourth-quarter 2019. “Despite Black Friday less than a month out, we’ve also heard from our channel checks that national TV scatter inventory (which is the top of the food chain) has yet to sell out” in the fourth quarter.
The third quarter was mostly a good one for most TV companies, at least compared to 2020. But that comparison is tough, as Q3 of 2020 was when many networks had limited original programming due to COVID production shutdowns, and with many advertisers still sitting on the pandemic sidelines.
As the holiday season approaches, a few critical sectors are now feeling the supply chain crunch, throwing the ad business into limbo. “I think if you look across a couple of categories, it’s both the supply chain, and I think in some cases it’s a shortage of staffing and employment,” Fox Corp. CEO Lachlan Murdoch told analysts Nov. 3.
At issue are missing parts, like the chips leaving automotive factories idle; the shipping container backlog, leaving products offshore and unable to reach shelves; or lack of labor, which continues to impact the hospitality and retail sectors. And those issues hit big TV advertisers particularly hard. “The four main categories at risk for National TV advertising — auto, tech, retail and restaurants (due to labor shortages) — represent an aggregate 30 percent share of 2019 spending,” Fishman and Nathanson added.
As major TV companies began to report earnings, the supply chain problems were clearly top of mind. Discovery, Fox and ViacomCBS all called out the “soft” automotive sector, but businesses in other categories have expressed caution as well. Deb Thomas, CFO of toy giant Hasbro, told analysts Oct. 26 that while it still expects to spend on ads this holiday season, it will “closely match this expense with inventory availability.”
Meanwhile, the CMO of a top 10 national advertiser told The Hollywood Reporter in October that they have cut back their TV ad spending “significantly” for the remainder of 2021 (except in the sports category).
Speaking to reporters Nov. 3, Scott Rosenberg, head of Roku’s platform business, said the supply chain ad impact “might continue into 2022.”
“Whenever we’ve seen a slowdown, where marketers step back for one reason or another on their spending in advertising, when they come back, they tend to move more money proportionately in streaming,” Rosenberg added.
But the crisis isn’t impacting every TV company or platform equally. Even as they discussed advertising concerns, executives were quick to posit potential opportunities to either offset those advertiser losses, or even move past them.
“Looking at the fourth quarter, we see a combination of headwinds and tailwinds” in the ad market, ViacomCBS CEO Bob Bakish told analysts Nov. 4, noting the tough comparison to 2020’s strong political ad spending and the supply chain issues. Still, a strong upfront, which locked in ad commitments, was cited as a growth opportunity.
Then there’s live sports. Even as advertisers pull back in the scatter market, live sports continue to do well both in terms of ratings and advertiser demand.
So as marketers pull back on “call-to-action” campaigns — think Toyota’s “Summer of Savings” or Black Friday campaigns — they are still spending on brand campaigns, and on new product introductions, focusing investment on the programming with the biggest reach.
“We believe that demand for sports inventory has remained relatively stronger than other genres, benefiting networks with a greater mix of this content,” wrote Guggenheim analyst Michael Morris on Nov. 1.
And that has played out in action, with Fox Corp. reporting relatively stronger ad figures compared with some of its competitors (up 20 percent year-over-year), thanks in part to its heavy focus on live sports like the NFL and MLB playoffs.
Not only are fewer legacy advertisers canceling or delaying spend on sports, but new brands are fighting to get in. “The crypto category, which is a brand-new category, particularly in sports, is booming,” Murdoch said.
Still, even with an uncertain near term, few TV executives seem concerned about any longterm ad impacts. Even if the next quarter ends up as an ad disaster, 2022 will bring lucrative midterm elections, and if the supply chain problems ease, it could even bring about an ad boom, as automakers, retailers and others will be looking to sell their wares in a big way.
“We don’t really know at the end of the day how this supply chain issue — the timing of it — will be reverting,” Bakish said on the earnings call. “But when it does come back, we do see the potential for upside, as clients will now need to move product that’s been stuck.”
This story first appeared in the Nov. 10 issue of The Hollywood Reporter magazine. Click here to subscribe.
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