Traditional TV Ad Sales Aren't Bad Even Amid Cord-Cutting
Welcome news indeed, considering the number of traditional pay-TV households has dropped from 101 million in 2013 to 87 million today.
While direct-to-consumer strategies got much attention during entertainment giants’ quarterly earnings season, some management teams also surprised Wall Street with stronger-than-expected U.S. TV networks advertising results despite continued declines in pay-TV subscribers and ratings amid cord-cutting.
Discovery reported a 6 percent U.S. ad gain for the quarter, leading CEO David Zaslav to say on the earnings conference call, “I believe we are performing at the top end of the television advertising business domestically, and perhaps even globally.”
Welcome news indeed, considering the number of traditional pay-TV households has dropped from 101 million in 2013 to 87 million today as Americans ditch cable and satellite for streamers like Netflix and Amazon Prime Video, according to eMarketer.
Like Discovery, Viacom reported a 6 percent increase in ads, with CEO Bob Bakish saying, “The biggest headline of the quarter is that domestic ad sales returned to growth for the first time in 20 quarters.” The performance “ushers in a new era of advertising growth at Viacom,” he added.
And CBS Corp. reported a 7 percent ad increase and brought chief advertising revenue officer JoAnn Ross onto the earnings call to tout “the strongest and the best upfront I've seen in years.”
“The tone was extremely bullish coming off the strongest upfront market in a decade,” CFRA Research analyst Tuna Amobi tells The Hollywood Reporter.
What drove the ad strength in such a challenging environment for traditional TV? “There appears to be some pent-up demand in the TV advertising market partly due to an influx of new buyers, including digital and direct-to-consumer companies, as well as increased digital sales,” along with new data and analytics services, says Amobi. He also highlights “potential supply constraints” due to “recent initiatives by some networks to reduce [the number of] ads that are aired per hour.”
And Macquarie Capital analyst Tim Nollen highlighted in a report: "A solid economy helped, but the rise of addressable TV advertising is now making a measurable difference."
Zaslav suggested that digital platforms may have been hurt in their ad appeal due to cases where ads showed up next to content deemed offensive to children. “Advertisers are finding that television is still the most effective platform…and so I think there is a move back,” the Discovery boss said. “In addition to that, there is a feeling of safety.”
Ross said that CBS benefited from a multiplatform sales approach. “We have integrated digital and network into every negotiation, which was a big transformation, and now we're reaping the benefits,” she said.
And Viacom over the past couple of years built “a sophisticated set of advanced marketing solutions (AMS),” including targeting platform Vantage, Bakish said. The firm’s AMS revenue increased 84 percent in the second quarter and has become a business contributing hundreds of millions of dollars, he said.
Brian Wieser, global president, business intelligence at ad giant GroupM highlighted, though, that newly acquired digital businesses helped boost Discovery and Viacom’s figures.
“I would guess their underlying growth rate was more like a low single-digit level,” he says. “That’s consistent with where it looks like the U.S. national TV ad market was during the second quarter.”
The key question: Can the momentum continue? “It could be tough to sustain this strength over the next few years — especially if the U.S economy shows any signs of weakness,” says Amobi. Disney, meanwhile, crowed about higher advertising revenue for ESPN amid rising rates and units sold, even though viewership declined.
It’s not all rosy, of course, as Disney also said advertising revenue at ABC fell even though rates went higher. At Fox Corporation, the newly minted conglomerate controlled by Rupert Murdoch and his son, Lachlan, advertising slipped 6 percent, with executives citing less political ads and fewer FIFA World Cup matches.
But CEOs are bullish, for now. “The AMS business will nearly double in fiscal 2019 representing nearly 20 percent of domestic ad revenue as we continue to bring new and more advanced inventory online across our growing portfolio, especially from Pluto TV,” said Bakish.
Zaslav said, “We are getting real meaningful growth from the core TV business around the world, and it feels sustainable.” And CBS forecast “a record year in advertising” for the company.
Said acting CBS CEO Joe Ianniello, “We are as bullish as we can be on advertising.”