TV advertising bracing for tough quarter amid coronavirus pandemic

Bob Bakish, CEO, Viacom

Scott Mlyn | CNBC

As television networks begin to run out of content to broadcast and large runs of advertisers such as live sports are deposited, these companies are warning of serious advertising declines to come.

In recent days, companies such as Disney and ABC, Disney’s parent company, Fox Corp., AMC Networks, NBCUniversal, parent company Comcast, ViacomCBS and Discovery, have reported revenues that show how television has trended, with advertisers pulling their spending or postponing their campaigns later in the year.

With many consumers stranded at home, television viewing is on the rise – conventional television is expected to add 8.3 million American viewers this year, the first time that audience growth has been positive since 2011, a eMarketer said in a new forecast this week.

But, just like with online advertising, increased engagement is not equivalent to dollar signs.

“At a time when many companies are cutting or at least suspending their advertising budgets, viewing time or ad inventory is now outpacing advertisers’ demand to fill it,” Ross Benes, eMarketer analyst, told CNBC. . “It’s great to get people to watch your show, but each viewer is monetized much lower than it was months ago.”

Here are some of the big trends that networks have shared in their revenues:

Impact of missing live sports

As the sports were canceled or delayed, the associated advertising revenues evaporated in the short term.

Some networks are working with advertisers to delay rather than cancel these expenses, while networks like ESPN are trying to deliver content that is very interesting to fans in the meantime. ESPN said his documentary series “The Last Dance” about Michael Jordan and the Chicago Bulls, which will air until May 17, is his most watched documentary to date, and his NFL project has seen more than 55 million viewers.

But ESPN’s line ad sales are still growing “considerably” below the same time last year, Disney parent said when earnings were released earlier this week – due to lack of inventory. sports live and limited demand from advertisers. Total ESPN ad revenue fell 8% in the second quarter as “the higher rates were more than offset by the decline in the average number of viewers”.

NBCUniversal said its advertising results on cable and broadcast networks were impacted at the end of the first quarter due to the sport’s postponement. He said he expects advertising revenues to “weaken considerably” even more as sports continue to be postponed. The company will also see delayed advertising revenue due to the postponement of the Olympics.

Fox, which receives more than 40% of its annual advertising revenue from the sport, said that little of that revenue has so far been affected by the closings. The company said its revenues were concentrated in the fall for the baseball seasons and the college and NFL football seasons.

Content delays

As the cancellations of content production persist, this means that some networks are left with unfinished projects that are not ready for air.

For example, AMC Networks chief financial officer Sean Sullivan said second quarter results would be affected by delays in the “The Walking Dead” season finale and the debut of “The Walking Dead” series: World Beyond “. He said the company expects second-quarter advertising revenue to drop about 30% year over year.

Discovery, which owns networks like HGTV and the Food Network, said it was successful with creating home content, such as an episode of “The Kitchen: Quarantine Episode” on the Food Network, which the company says drew nearly 3 million viewers, the most highly rated episode in the series.

While this type of content at home is new at the moment, Benes said people may soon tire of it.

“I don’t know how long it can take before it seems fanciful,” he said.

Political spending may resume later this year

Some companies have called the expected bump in political advertising to help in an otherwise difficult time for demand from advertisers. CBS said it still expects a benefit from political advertising later in 2020.

Fox, in his previous call for results, said it looked like it would be a strong political advertising cycle for its local markets. But due to the shrinking field of presidential candidates and the postponement of the primaries, the company said it was witnessing a slowdown in active advertising spending it had experienced in the last quarter. However, he expects to see the category “intensify” again as November approaches.

Hard on the local

Fox said the most immediate impact was on advertising revenue from its local television stations, “where inventory is sold primarily for cash and many of our advertising partners operate in the sectors most displaced by Covid- 19 “. He expects a 50% year-over-year drop in local advertising.

CBS said that when companies took over, they were overwhelmingly serving national advertisers, who should bounce back first.

Senior Forrester analyst Jim Nail told CNBC that it makes sense for local advertisers, such as car dealers, to step down right now, as many of these businesses have been so disrupted. He said there is generally a marketing instinct to think national first rather than coordinating hundreds of purchases locally.

But the recovery appears to be “extremely localized,” said Nail. This is a strong argument for national advertisers to shift their spending to local advertising. “Locally usually has shorter delivery times and more generous cancellation policies, and things like that.”

Canceled advances, uncertain budgets

Advertisers typically spend a large portion of their annual television spending on deals during the Spring Upfronts season, when networks launch lavish presentations and parties to show media buyers their programming, their audience data and their advertising tools.

These in-person events were canceled this year, and agreements are expected to be reached more offbeat than usual.

A new survey on advertisers’ perceptions Released this week, polling agencies and brands have found that advertisers have dramatically reduced their planning horizons and are engaging in media on average in less than three months. While it is usually the season of initial engagements for television, it takes a very different form as television companies say they have much more flexible conversations with advertisers.

“When a brand doesn’t know what’s going on from quarter to quarter, from month to month, even from week to week, there is no way on earth that a network can expect it commits to taking the next year, “says Forrester’s Nail. “Media like digital is much more flexible. [Over-the-top streaming] is much more flexible than traditional linear television. I think linear is going to have to develop these more flexible approaches. They cannot expect to freeze budgets for next year, “when brands don’t know what this year will look like,” he said.

Fox said that even if it doesn’t hold its traditional Upfront, it is in “constant dialogue” with its advertisers to give them flexibility. This flexibility, the company said, “will certainly be reflected in the drop in advertising revenue in the current quarter”, but said it should help preserve long-term relationships and help these companies and brands last .

AMC Networks said it was in conversations with partners “week-by-week” and “day-to-day”, which helped ensure that money moving away from the second quarter was able to stay on the network in the second half of the year.

Discovery said it saw higher cancellations and postponements in the second quarter, and based on preliminary results, April was down 20% year-over-year, May and June looking slightly better. But the company recalled that it is a very “fluid” market with many cancellations that roll from month to month.

Go to streaming

As advertisers withdraw from traditional television, players like Roku and The Trade Desk say they see the benefits of some of this spending shifting to connected television.

Trade Desk CEO Jeff Green said in the first 20 days of April that he estimated spending on connected TV increased 20% year over year in the first 20 days of April, then accelerated “even more” in the past 10 days.

“CTV gets what the linear loses from expected weak advances,” he said during the company’s earnings call on Thursday. “This is one of the main reasons why CTV’s expenses have increased steadily. We are gaining additional expenses that historically would have been incurred from the start. ”

He said it doesn’t mean that traditional TV broadcasters don’t adapt quickly with AVOD platforms, but simply that they partner with many of these companies like Disney and Hulu or Comcast with Peacock.

Roku echoed those feelings when he announced his first quarter results on Thursday.

“Although our advertising activity has experienced higher than normal cancellations, while overall advertising budgets have decreased, this has been partially offset by the advertising spending that has gone to Roku from traditional television budgets,” the company said in a statement. “Despite the likelihood that total advertising spending in the United States will decrease in 2020, we believe that Roku is relatively well positioned based on the effectiveness of our advertising products and the trend of streaming.”

Pivotal Research analyst Michael Levine said in a note that he was more optimistic about the breakthrough of connected TV next year.

“To the extent that marketers retreat significantly from the initial participation of television in favor of greater activity in the scatter / spot market, we believe that programmatic television will be ready to respond to the value proposition”, a he declared. “We believe that the ability to provide higher CPMs to media companies through better targeting will make TTD an even more valued partner for those companies that are already under pressure.”

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