US TV advertising spend has suffered another decline in what looks to be a permanent downward trajectory, with figures showing that it continues to lose ground to online advertising. This spring’s upfront looks like the worst result to date, and the trend shows no sign of slowing, as advertising dollars are thrown at platforms like YouTube and Facebook instead of Fox and NBC, through automated programmatic advertising.
According to figures from MoffettNathanson and Cowen and Co, slowing domestic growth was not a hiccup, but was a direct result of buyers turning to online platforms and distributions channels at the expense of traditional TV ad slots in the fall broadcasting window. Similar drops have been seen in the fall upfront for the spring’s timeslots.
The upfront sales differ from the scatter advertising slots that are sold. Upfront contracts are typically cheaper than the cost of purchasing the equivalent amount of slots on an ad-hoc basis much nearer the time of broadcast – known as scatter advertising.
As upfronts should guarantee more desirable rates for advertisers, it is worrying for the industry that the upfront spend has been falling across the board. Upfront contracts have to be negotiated well in advance and require a good deal of certainty that the slot you buy will perform well. If a show is a bust, or if viewers are simply watching it elsewhere (OTT), then the buyer ends up not getting its money’s worth out of the upfront deal.
Scatter pricing allows a buyer to hedge its bets, but at a premium and are strong in periods of uncertainty. They are also useful for hopping onboard unexpected successes, but MoffettNathanson’s figures show that even the scatter spend is down. This implies that this is not a case of buyers doubting the popularity of specific content – it shows a fundamental decline in the perceived value of the TV advertising medium.
Digital platforms are increasingly embracing programmatic advertising, which allows space to be bought and sold in an automated process that in theory is more efficient (and also quicker) than established methods. Programmatic spend is akin to scatter buying, but it comes with the benefits of instantly available statistics that allow the buyer to track how well their budget has served them.
Michael Nathanson, of MoffettNathanson, said “the question turns to how quickly digital will take share from TV and, more immediately, how will the weak second half of 2014 impact the development of the 2015 upfront, especially with scatter ad prices remaining weak.”
Doug Creutz, from Cowen and Co., said that between 2007-2014, “traditional media lost nearly $50 billion in advertising, while digital media grew by less than $30 billion, for a net decline in US advertising of $20 billion. As a result, we are concerned that even though Big Media may be able to slow or stem audience losses through new content distribution methods, there could still be a significant negative impact on price per viewer.”
We’ve seen a slow but constant trickle of survey results and reports that paint a clear picture that TV is increasingly losing out to online spend. Even Nielsen has finally admitted that linear viewing is declining, by some 12.7%, after years of tweaking the numbers to bolster TV’s ratings. And given that so many companies trust the Nielsen ratings as the basis of purchasing agreements, that admission will go a long way towards businesses pushing their budget towards online platforms and not TV.
Back in February, 21st Century Fox’s COO Chase Carey said the company was unhappy with the Nielsen figures, and said that it would try to find more accurate ways of gathering ratings – which might lower the value of Fox’s inventory if it turns out the Nielsen figures are inflated.
MoffettNathanson noted that the last upfront underperformed, and that the networks weren’t able to recoup the loss in the scatter sales, which were down some 15%. So while ABC and CBS are currently reporting “high-single-digit pricing increases,” bear in mind that those are increases on a record loss – and not a sign of a recovering industry.